This is a great discussion. I wanted to weigh in a bit on the subject of incentives, and specifically, your assertion that incentives haven't helped the solar industry, and your questioning of the efficacy of incentives in the US based on the experiences of "other countries".

From my perspective in the solar world, incentives have been key to supporting long-term growth. The major markets for solar energy in the world are Japan, Germany, and California. All have implemented significant solar incentives. These incentives have been vital. Looking around the country and around the world, no incentives = no solar power. Florida, Arizona, and New Mexico have virtually no solar, while New Jersey is second only to California in the amount of solar installed. Germany and Japan, at high latitudes and low capacity factors, lead the world. There is no correlation to geography, only to the regulatory climate.

The issue of the relatively small amount of solar installed in the US has to do with incentive structure. The vast majority of solar installed in the US has been in California. In California over the last 5 or so years - a critical time - the incentive level and funding allocation have been generous, but subject to annual legislative review and regular funding gaps. This has led to significant uncertainty about the viability of the market year to year; inevitably this leads to short-term decision making and a lack of capital investment, leading in turn to higher prices. It is also true that for a time the relatively low market price of PV, combined with the incentive structure, led to profit-taking and continued high prices to the buyer - but that isn't the case now due to supply constraints.

Contrast this with Japan, which set in place a guaranteed, decade scale incentive structure for solar that included steadily declining rebates on a pre-determined schedule. This allowed for rational long-term investment. The result is that PV is now economically competitive without incentives in Japan (keep in mind that electricity rates are much higher there to begin with).

The German model is different - simply a high "feed-in tariff" where renewable kWh fed onto the grid are bought by the utility at a significantly elevated, guaranteed rate. This makes installing solar capacity an attractive portfolio item to traditional, institutional investors. Spain and Portugal have recently adopted this model and huge arrays are currently being installed there.

Currently, efforts are underway to revamp the incentive structure in California based on the Japanese and German models. Nevada is also opening up as a major market because of it's adoption of smarter incentive structures. If there were a coherent, intelligent policy at the Federal level with regards to renewable energy I think the US is poised to very quickly lead the world in installed renewable capacity.

How this applies to biodiesel is simply that incentives may be helpful, and in fact vital, in making a desired technology competitive. However, you and Dave are both very correct in pointing out the distorting effects of incentives when they are applied in a patchwork and politically expedient way.

Of course petroleum and traditional electrical generation get massive incentives compared to renewables on an absolute scale. It would be interesting to see how the numbers come out if you take the incentives away from everyone. I hate to say it, but suspect that you would find that in a $/Btu contest, renewables do get a lot more money.

However, part of government's role is to support innovation for reasons of global competitiveness, protection of the commons, and national security (broadly defined). One way of looking at this is that incentive programs are merely a sort of investment; in a democracy (theoretically) these are investments "by and for the people". Put another way, part of governments role is to help create new markets, and that is accomplished by transferring money from one sector of the economy to another. The "free market" as such just doesn't work very well to nurture anything that takes a long time to mature, even those it is precisely these efforts that often bear the most valuable fruit.