Oil Prices, Incentives Making Biodiesel Free

John Davis

biodiesel pumpA combination of low oil prices and incentives are making biodiesel sell for free… and in some cases even less! This article from Bloomberg.com says in some places are being paid to use the green fuel.

Midwest refiners are paying as little as 64.5 cents a gallon for the fuel after factoring in a $1-a-gallon tax subsidy and other credits. Add further incentives offered by California into the mix and some customers are effectively getting biodiesel for free in the Golden State.

The cause is twofold. Crude oil’s 71 percent slump since 2014 has dragged down the price of everything from diesel to gasoline. At the same time, the U.S. has shown a renewed commitment to renewable fuels in the battle against climate change, with the Obama administration mandating their increased use.

“They got the tax credit and the higher mandate,” Wallace Tyner, an agricultural economist at Purdue University in West Lafayette, Indiana, said. “They’re coming out looking like roses.”

The article goes on to point to how the raise in the Renewable Fuel Standard (RFS) for biodiesel, along with the renewal of the federal $1-per-gallon tax credit in recent months have contributed to the boon for blenders and consumers. Add in state incentives, such as California’s, and suddenly the price can drop to below free.

When refiners buy a gallon of biodiesel, they’re essentially getting the fuel as well as the credits and subsidies, said Jennifer Case, chief executive officer of New Leaf Biofuel, a San Diego-based company.

In some instances, biodiesel producers and blenders share the value of the tax credit. Some contracts are negotiated taking into account the incentives, while others may be agreed upon without factoring them in.

“Those are really strange,” Case said. “Those are the ones that actually could result in reversing the invoice. The customer has to charge me to take the fuel.”