US BIODIESEL producers have been challenged to add enough new capacity between now and 2015 to meet at least five percent of the US diesel demand. The challenge came from several sources, including the National Biodiesel Board, American Trucking Associations, and automotive manufacturers.
It's a tall order for an industry that is still evolving into a big business. Total annual distillate consumption in the United States is in the 60 billion gallon range. Five percent of that would be three billion gallons. However, US biodiesel production capacity currently falls somewhere between 200 million and 250 million gallons.
Put simply, the biodiesel industry would have to manage a tremendous amount of growth in a relatively short amount of time, but the goal is achievable, according to Joe Jobe, chief executive officer of the National Biodiesel Board (NBB). He issued the challenge during the opening session of the 2007 National Biodiesel Conference February 4-7 in San Antonio, Texas.
Jobe pointed out that the industry already has shown an ability to grow rapidly. US biodiesel volumes rose from just 25 million gallons in 2004 to approximately 200 million gallons in 2006. By late 2006, 86 biodiesel plants were operational across the country, and another 65 were under construction.
“We can meet the five-percent target, and we have to for the sake of this country's national energy security,” Jobe said. “Biodiesel offers a realistic way to decrease this country's dependence on foreign oil, and also boost the US economy and protect the environment.
“The United States uses approximately 20 million barrels of oil a day, more than half of it imported. Hitting our five-percent target would make it possible for US-produced biodiesel to replace all of the petroleum-based diesel that currently comes from Iraqi crude. It would displace a quarter of the diesel made from crude oil from the Persian Gulf region.”
Reaching that goal will take a national effort and a commitment from both industry and government. “On the industry side, we need to increase and expand the supply of feedstocks,” Jobe said. “We may need to curtail soybean exports. We need to build bigger biodiesel production plants. New facilities need to be in the 100-million-gallon range. We need to improve the quality by ensuring that all of the biodiesel produced in the United States meets ASTM D-6751, and we need to increase participation in the NBB's BQ-9000 quality assurance program.”
Government support (both state and federal) remains crucial for the US biodiesel industry. “The government tax credits have been very important in stimulating domestic production,” he said. “Congress needs to make permanent the biodiesel tax credit that is set to expire in 2008.”
NBB played a key role in gaining passage of the federal excise tax credit for biofuels in 2005, and association members have worked hard to make it permanent. The Renewable Fuels and Energy Independence Promotion Act, introduced by Representatives Earl Pomeroy (D-ND) and Kenny Hulshof (R-MO), would do just that. The bill would remove the sunset provisions for ethanol and biodiesel incentives that accompanied the Volumetric Ethanol Tax Credit. It also would make permanent a small agri-biodiesel producer credit.
The outlook is relatively good for passage of the permanent tax credit, according to Rep Hulshof, who spoke at this year's National Biodiesel Conference. Also participating at the conference were Representatives Collin Peterson (D-MN), Thaddeus McCotter (R-MI), and Dave Weldon (R-FL).
“US-produced ag fuels are crucial to national security,” Rep Hulshof said. “We have to reduce our dependence on foreign oil. Domestically produced renewable fuels play an integral role in promoting energy independence. Congress understands that, and polls show that 80% of the American public want more reliance on US-produced ag fuels, such as biodiesel.”
Rep Hulshof added that the federal government's biggest supporter of biofuels is President George W Bush, and that is a big plus. There is little doubt that Bush will approve a permanent extension of the federal excise tax credit for biofuels if it reaches his desk. Hulshof reminded the audience that President Bush used the State of the Union address in January to call for a dramatic effort to reduce America's dependence on foreign oil. He requested a federal mandate for 35 billion gallons of renewable and alternative fuels by 2017.
Agreement on the need for federal incentives to boost biofuels production came from Rep Peterson, who became Chairman of the House Agriculture Committee after Democrats took control of the House of Representatives in the 2006 election. “I think the chances are good for inclusion of a permanent extension of the federal excise tax credit for biofuels in the agriculture bill that is now being written,” he said. “It's going to take some hard work, and we need support from the agriculture community. Congress is adopting a pay-as-you-go policy, and every committee in Congress wants a piece of the funding pie. We have to be creative in finding the financial resources that will cover the cost of the tax incentive. For instance, I would consider an oil import fee.”
Rep Peterson made it clear that the biofuels tax incentive will continue to go to those who produce those products. “Congress doesn't intend these tax credits to go to big oil,” he said. “We have to make sure that doesn't happen.”
He went on to say that the Congressional leadership (both Democrat and Republican) fully supports biofuels and is committed to supporting growth of that sector. In addition, every member of Congress now realizes the importance of biofuels and other alternative energy sources.
“We all realize that we need to source as much of our fuel supply as possible within the United States,” Rep Peterson said. “It's time we get our fuel from the Midwest, rather than from the Mideast. We need to stop funding oil-producing regimes that aren't friendly to the United States. We must achieve energy independence.
“As we take steps to promote growth of the US biodiesel sector, we must make sure that we keep the focus on US sources of vegetable oil. I'm concerned about imports of cheap feedstocks, such as palm oil. We must protect our domestic industry.”
Rep Weldon said support for biofuels went well beyond Congress and the areas in the Midwest where most of the soybeans are grown in the United States. “My constituents in Florida know the importance of energy independence,” he said. “They don't approve of what dictators like Venezuela's President Hugo Chavez are doing. They want us to reduce the amount of Venezuelan crude oil that we import.”
Automakers in Detroit also understand the importance of biofuels, Rep McCotter said. He added that a national standard for products, such as biodiesel blends, would be beneficial. It's something Congress should consider.
“A national standard would be preferable to a mandate, and it works under the Commerce Clause of the US Constitution,” he said. “A national standard for biofuels would help consumers, because it would eliminate the patchwork of boutique biofuels that is emerging at the state level.
“Automobile manufacturers can design vehicles to the standard. It would make it easier for truck fleets to know that they are getting consistent fuel quality when they purchase biodiesel in various parts of the country. Having a national standard would help in the creation of distribution infrastructure.”
Rep Peterson said that if he had his way Congress would mandate biodiesel and ethanol at all service stations, convenience stores, and truck stops. “It worked in Brazil, and it could work here,” he said.
Biodiesel standards on a national level certainly would be welcome to the trucking industry, according to Bill Graves, president of the American Trucking Associations (ATA). In a pre-recorded statement, Graves said ATA is joining with NBB to lobby for legislative action on a national diesel fuel standard.
Several factors prompted the trucking association to join with NBB to promote adoption of a national standard for biodiesel. Fleets continue to report truck breakdowns due to poor fuel quality. A high percentage of biodiesel reportedly fails to meet ASTM specifications. Finally, a growing number of state biodiesel mandates have created confusion and artificially high diesel prices that are hurting the trucking industry.
Trucking companies use approximately 36 billion gallons of diesel a year to serve customers across the United States, and fuel price is a big concern. Biodiesel has begun to account for part of that fuel, and ATA previously announced support for biodiesel blends up to five percent (B5).
ATA went with the B5 blend due to unwillingness by engine manufacturers to sign off on higher-percentage blends. Besides, biodiesel production would have to reach at least two billion gallons a year just to meet the B5 needs of the trucking industry.
Truck drivers and fleet maintenance managers report that truck engines run well on the B5 blend. Biodiesel blended as low as two percent (B2) has been credited with restoring lubricity in ultra low sulfur diesel, reducing engine wear and tear.
Automakers attending the National Biodiesel Conference seemed to be looking beyond B5, though. DaimlerChrysler provided a Jeep Grand Cherokee and Dodge Ram fueled with B20 for a ride-and-drive event at the conference.
In a conference presentation, Deb Morrissett, vice president of regulatory affairs for the Chrysler Group, encouraged the biodiesel industry to develop a national standard for B20. “To speed the adoption of biodiesel, and to help harness and direct the diverse research and investment efforts going into its development, we need to expedite setting a national fuel specification for B20, just as we have for other fuels,” she said. “I'm looking forward to a time when anyone can fuel up with B20.”
General Motors Alternative Fuels Marketing Manager Mike McGarry announced that GM is offering a special equipment option on the 6.6-liter Duramax engine for B20 capability. The option is available to fleets buying the following vehicles: GMC Savanna, Chevy Express Commercial Cutaway Van, Chevy Silverado Heavy Duty, and GM Sierra Heavy Duty One Ton. Production with the option is limited to 200 vehicles per model line in 2007. McGarry said GM hopes to expand B20 availability in 2008.
It won't matter greatly which blend (B5 or B20) wins out until the biodiesel industry can meet market demand with enough product at a consistently high quality and at a reasonable price. As Jobe said in his opening remarks at the conference: The goals are achievable, but there is much work ahead.