By Jon Scharingson, Renewable Energy Group Inc.
Why is interest in biodiesel growing among convenience store operators? In past blog posts for CSD, I’ve touched on some of the reasons, including its performance benefits, its lower emissions and the increasing number of diesel-powered vehicles.
But let’s be honest. If biodiesel didn’t make economic sense, c-store operators would not sell it. The good news is that biodiesel can help the bottom lines of retailers. Let’s examine how.
Federal Support For Biodiesel
First, there are times when market forces simply make biodiesel a better deal than petroleum diesel. For example, it’s not uncommon for favorable blending economics to lead to a blended product containing 10 percent biodiesel, known as B10, to have a price advantage over traditional diesel. When retailers move up to a B20 blend, it’s often because they can achieve even higher margins.
The U.S. Department of Energy lists 34 federal incentives and laws related to biodiesel. These include the $1-per-gallon biodiesel tax credit. It expired at the end of 2016, but historically it has been reinstated retroactively.
Probably the best-known federal program is the Renewable Fuel Standard (RFS), which requires certain amounts of renewable fuels to be blended into transportation fuels. The RFS includes Renewable Identification Numbers (RINs), which are used to track compliance with the RFS. But they are also a commodity that can be traded and that many in the fuel industry view as a value-added benefit.
State Incentives
Many states also encourage the use of biodiesel. Here are examples:
Iowa — Retailers that that sell blends of B5 and higher are eligible for a 4.5-cents-per-gallon tax credit, plus an additional three-cents-per-gallon tax rollback on B11 and higher blends.
Texas — The biodiesel portion of blended fuel containing taxable diesel is exempt from the diesel fuel tax.
Minnesota — All diesel fuel sold in Minnesota from April through September must contain at least 10% biodiesel. In the other months, a minimum of B5 is required. In May 2018 the warm-weather requirement will increase to B20.
California — The state’s Low Carbon Fuel Standard (LCFS), which is a model for similar programs in Oregon and Canada, is fuel-neutral, but biodiesel volumes increased nearly 1,200% in the past six years under the carbon-cutting program. Why? There are the significant emissions benefits of using biodiesel. But it’s also about economics. Here’s a calculation that is an estimate because markets change daily, but it’s representative of what happens in California:
- Take an LCFS credit valued at 85 cents per gallon.
- Add $1 per gallon for the RIN value.
- Add another 15 cents per gallon that doesn’t need to be paid under California’s cap-and-trade program for using biodiesel.
- That equals $2 per gallon in credits for using biodiesel.
There are also harder-to-define financial benefits to biodiesel. For instance, if a diverse fuel lineup helps a c-store attract more types of drivers to its pumps, that could lead to more people heading inside the store to make purchases.
With c-stores earning pennies on the dollar for each gallon of fuel sold, any advantage starts to add up fast. I’d love to talk with you about the possibilities at your stores. Contact me at [email protected] or (515) 239-8042. For more information about REG, visit regi.com.
Jon Scharingson oversees the sales and marketing efforts for Renewable Energy Group Inc., a biodiesel producer.