Have you ever wondered how the c-store down the street can sell its diesel fuel for five cents less per gallon than you?
C-stores that blend biodiesel into their petroleum diesel sell their fuel for less—while still earning a higher margin than those without biodiesel blends. This can be accomplished through state tax incentives, Renewable Identification Numbers (RINs) and positive blending economics.
What is blending economics?
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.
Watch this video to learn how biodiesel is working for Kum & Go.
What incentives exist?
The U.S. Department of Energy lists 34 federal incentives and laws related to biodiesel. 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 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.
Many states also encourage the use of biodiesel. Here are examples:
California — The state’s Low Carbon Fuel Standard (LCFS) 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.
To learn more about the LCFS and biodiesel, check out this white paper.
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 percent biodiesel. In the other months, a minimum of B5 is required. In May 2018 the warm-weather requirement will increase to B20.
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. With c-stores earning pennies on the dollar for each gallon of fuel sold, any advantage starts to add up fast.
For more information about biodiesel or REG, visit regi.com.