Biodiesel 

Time to Change the Oil: Biodiesel Gains Record Momentum

By Jenna Higgins

September 20, 2006

Charles “Shorty” Whittington has worn a lot of hats in his day. Farmer. Trucker. Swimming pool water-hauler. These days, the hat he wears as he’s walking around his new manufacturing plant in Morristown, Indiana says “biodiesel.” And he’s working night and day to hold onto it.

“Opening this biodiesel plant has been the most extreme roller coaster ride of my business life,” Whittington says. “There have been a lot of highs and a lot of lows. High from the standpoint that we’re doing the right thing for America, but this has been more challenging than I ever imagined.”

Biodiesel, a fuel made from renewable resources like soybean oil and other fats and vegetable oils, has become the fastest growing alternative fuel in the country. It works in any diesel engine and is usually blended with petroleum diesel.

President of Integrity Biofuels, Whittington says after years of hearing about biodiesel and using it in his trucking company’s semis, he decided the time was right to jump in. He chose Morristown because it is home to a soybean crushing facility. His plant is right across the street from it.

“As the market becomes more mature, it will be the people who have positioned themselves in a way that allows them to control input and operational costs who succeed,” he said. Being near a processing plant lowers the transportation costs of his inputs.

When traveling the country to spread the word about biodiesel, Whittington often talks about energy security. “In the time I’ve stood here before you,” he said at a recent event, one minute into his presentation, “we’ve spent 475 thousand dollars on foreign oil.”

He’s optimistic that the country is ready for a sustained biodiesel market.

“The American people are going to change,” he said.

The Perfect Storm

Whittington is part of a trend that some have likened to a gold rush. There are currently 86 plants churning out biodiesel throughout the nation. That’s up from 65 plants in April. The National Biodiesel Board (NBB) estimates there are another 65 plants under construction.

Based on the number of plants cropping up, it’s easy to see that the industry is growing as fast as soybeans themselves. Sales are growing too. In 2004, the industry sold 25 million gallons of pure biodiesel. By 2005, that number had tripled to 75 million gallons. NBB estimates at least 150 million gallons this year – but it could go as high as 250 million gallons.

“I take about 25 calls a day from people interested in starting biodiesel plants,” said Donnell Rehagen, NBB’s chief operating officer. “Frankly, the pace of the growth is sometimes alarming. Market forces will determine who succeeds.”

A number of factors have converged to create “the perfect storm” for biodiesel. One of the biggest drivers is a federal incentive. Concerns over reliance on foreign oil and increasing crude oil prices led Congress to pass a federal excise tax credit for biodiesel. It took effect in 2005. Soon after, it helped drive up demand by making biodiesel more cost competitive.

The incentive is structured as a blender’s credit. Blenders get one dollar per gallon of agri-biodiesel blended with petroleum diesel, and 50 cents a gallon for other types of biodiesel. The incentive helps lower the cost of biodiesel blends for all consumers. The Energy Bill, which passed in 2005, extended the incentive through 2008.

“In the biodiesel business climate, the extension signaled to investors that the government is behind biodiesel and will make it a part of our nation’s energy strategy,” said Scott Hughes, Director of Governmental Affairs for NBB’s newly created Washington D.C. office. Hughes noted that keeping that incentive will be the industry’s number one priority in the coming years.

Biodiesel has also received a boost from the Commander in Chief. President Bush, on several occasions, has called for greater biodiesel use. Last year, he became the first American president to visit a biodiesel plant. He frequently mentions biodiesel during public addresses. During his State of the Union Address, he called for greater use of renewable fuels. “America is addicted to oil, which is often imported from unstable parts of the world,” he said.

Many view the biodiesel tax incentive as an investment in our nation’s energy future – and it also helps level the playing field. A 2000 General Accounting Office study done for Congress showed that in the previous 32 years just the three largest special tax breaks for the petroleum industry cost $132 billion, more than 10 times the tax incentives for biofuels.

A recent economic study found that the additional tax revenues generated by a profitable U.S. biodiesel industry will be significantly larger than the value of the federal tax incentives provided to the industry. Assuming that the biodiesel tax credit is extended past 2008, this program would cost $3.5 billion cumulatively by 2015. However, the industry will generate $8.3 billion of new revenue for the Federal Treasury for a positive net balance of $4.8 billion.

Going Public

Demand is coming from all directions. Hundreds of fleets use biodiesel – including all four branches of the military. Businesses from construction companies to breweries to ice delivery trucks also use the fuel. School buses, ships and boilers are powered by biodiesel nationwide.

Biodiesel is also becoming more available to ordinary consumers. A South Carolina petroleum retailer recently announced it is making a 20 percent biodiesel blend (B20) available at 35 public pumps statewide, signifying a trend of increasing availability to consumers nationally.

The Spinx Company has opened the locations throughout upper South Carolina. Thirteen of the B20 pumps are in Greenville, SC, giving the city’s consumers a new level of convenience for choosing B20.

Of The Spinx Company’s 35 locations, 11 are truck accessible. That’s significant because the nation’s truckers have shown substantial interest in biodiesel. As a result, NBB has established “Biotrucker.com” as a Web resource for truckers to find biodiesel, and a hotline, 866-BIODIESEL, for those on the road.

The Spinx Company is a pioneer. It opened one the nation’s first truck-accessible retail B20 pumps last year in Greer, S.C.

“We are very proud to be able to work with our state and local governments to bring environmentally friendly fuels such as biodiesel to the Upstate,” said Stewart Spinks, Founder and CEO of the Spinx Company. “We are fortunate to have the immediate support of our customers to make the introduction of biodiesel such a success.”

A similar move is happening in other cities as well – Austin, Texas is now home to 33 B20 pumps, while Las Vegas recently opened 16 pumps carrying B5 (five percent biodiesel). A petroleum distributor in the Boise, Idaho area opened B10 pumps at 11 of its Treasure Valley area convenience stores in September.

“I see the beginnings of a real transformation in the B20 retail market,” said Joe Jobe, NBB’s CEO. “We’re starting to see a higher concentration of public pumps carrying biodiesel, which means more availability to truckers and all consumers. Cities like Greenville and Austin are leading a fuel revolution with B20.”

In all, there are roughly 850 – 1000 public pumps nationwide. A big driving factor in the opening of the retail pumps is the federal tax incentive’s effectiveness in lowering the price of biodiesel blends for consumers.

As new fuel efficient diesel passenger vehicles begin entering the scene, such as DaimlerChrysler’s new diesel Jeep Grand Cherokee, more consumers will seek out biodiesel at the pump. J.D. Power says the diesel share of U.S. light-vehicle sales is expected to increase from 3.2 percent in 2005 to more than 10 percent by the middle of the next decade.

Support from All Corners

After the many years of outreach and sharing of technical data, Original Equipment Manufacturers (OEMs), who make diesel engines, are also starting to embrace biodiesel. At the National Biodiesel Conference & Expo in February of 2006, OEMs led a Ride-and-Drive, which showcased biodiesel-fueled vehicles by Volkswagen, DaimlerChrysler and General Motors. The diesel vehicles available for attendees to take for a spin were a Volkswagen Jetta, Jeep Liberty, Chevrolet Savannah and Dodge Ram pickup truck.

Having the Ram on site had special significance. DaimlerChrysler recently approved the use of B20, a blend of 20 percent biodiesel and 80 percent diesel fuel, in its Dodge Ram pickup trucks for government, military and commercial fleet customers. Use of B20 in fleets is approved effective with the 2007 Model Year for Dodge Ram pickups equipped with Cummins diesel engines. DaimlerChrysler was the first U.S. automaker to specifically approve of B20 in a warranty position statement.

Chrysler Group President and CEO Tom LaSorda touted the benefits of biodiesel during his remarks at a meeting at the Economic Club of Detroit. “Biofuels represent a huge opportunity to reduce fuel consumption and our dependence on foreign oil, while also offering a significant environmental benefit,” he said. “Biodiesel is proof that at least part of the solution to these national challenges can be homegrown.”

Chrysler Group initiated a factory fill of B5 (5 percent biodiesel) in the Jeep Liberty CRD diesel SUV in 2005, and will do the same with its new diesel Grand Cherokee. Similarly, John Deere fills tractors produced in North America with B2 (2 percent biodiesel) at the factory. But New Holland is the first company to fully approve of B20 in all of the diesel engines it currently produces. This is a popular move with our nation’s farmers. Soybean growers founded the biodiesel industry by investing millions of soybean checkoff dollars in research and development, as a means of finding new demand for soybean oil. The oil is a surplus product from the crush. Their grassroots support continues to make up the backbone of the industry.

As truckers have also begun to embrace biodiesel, the American Trucking Association (ATA) has weighed in. ATA unanimously endorsed an energy resolution that included the decision to “promote biodiesel use” of up to 5 percent (B5). The resolution says “biodiesel may be an effective means to extend the supply of diesel fuel.” Additionally, public opinion research shows that 53 percent of trucking executives are familiar with biodiesel. That’s up from 27 percent in 2004. Among those familiar with the fuel, the majority have a positive impression of it.

Food vs. Fuel and Other Non-Issues

As biofuels gain momentum, some critics are trotting out the question of if we should be using “food for fuel.” Many experts agree that this is not a concern.

In the 2005 publication, Agriculture as a Producer and Consumer of Energy, the U.S. Department of Agriculture (USDA) Chief Economist Keith Collins indicates that biodiesel and other biomass energy production do not divert agricultural production away from food crops.

“Today, the strong growth trend in agricultural productivity, chronic periods of excess production and low prices, and the continuing consolidation in US agricultural production all suggest the US farm production sector is not stressing its capability to produce a sufficient and affordable supply of food and serve foreign customers,” he said.

In fact, most studies show that a sustained biodiesel market actually benefits our food supply.

Biodiesel utilizes surplus ag commodities, such as soybean oil. Several comprehensive economic studies evaluating biodiesel, using different economic models, had similar conclusions: that greater use of fats and oils for biodiesel production increases the value that farmers receive for their crops, while making protein meal less expensive. That means domestic livestock feed becomes cheaper and more competitive in international meal markets for food and feed.

In other words, a sustained biodiesel market may slightly raise the cost of soybean oil, small amounts of which are used in salad dressings and margarine. But it will lower the cost of animal feed, meaning meat and dairy products would be cheaper.

Not only does this allow farmers to more profitably supply global food markets, it may have the effect of increasing ag processing in the United States. More soybeans will be crushed here rather than overseas. Biodiesel production actually helps farmers feed the world in a more cost effective manner.

Those same critics who bring up food vs. fuel are also quick to claim that it takes more energy to produce biofuels than what you get out of them. In actuality, biodiesel has the highest energy balance of any fuel. The U.S. Department of Energy (DOE) and USDA in 1998 performed the prevailing life cycle study of the energy balance of biodiesel. It found that for every one unit of fossil energy used in biodiesel production, 3.2 unit of energy are gained.

Dr. Robert McCormick of DOE's National Renewable Energy Laboratory said “At least eight peer-reviewed studies that have been conducted over the past 12 years find that biodiesel has a highly positive energy balance.” McCormick noted that petroleum, on the other hand, has a negative energy balance – because you consume a significant fraction of the energy in petroleum to produce the final fuel. “Few people mention that while criticizing biofuels, inaccurately, for the same thing.”

Challenges Ahead

Even as the biodiesel industry enjoys some hard-earned success, there are challenges on the horizon. As newcomers scramble to begin production, fuel quality takes on elevated importance. That’s why several years ago NBB established a voluntary quality program called BQ-9000.

BQ-9000 is a quality assurance certification program that includes procedures for fuel production, storage, handling and management aimed at ensuring fuel quality throughout production and distribution. There are two categories: Certified Marketer and Accredited Producer. Both NBB and the Canadian Renewable Fuels Association have adopted the program.

The BQ-9000 program requires companies to implement a quality assurance system, similar to ISO 9000 protocols, to help ensure biodiesel meets its ASTM standard (D 6751). While no system is 100 percent foolproof, buying biodiesel from BQ-9000 approved companies provides customers an added feeling of confidence that their fuel meets the ASTM specifications.

The most recent addition to the growing list of BQ-9000 companies is Cargill, an international provider of food, agricultural and risk management products and services.

“Cargill’s commitment to quality production is the same for fuel manufacturing as it is for our many food and industrial businesses,” said Dan Schoenfelder, superintendent of Cargill’s Iowa Falls biodiesel facility. “We have been able to leverage our global processing and systems knowledge in our Iowa Falls biodiesel facility, ensuring that Cargill customers consistently receive biodiesel that meet ASTM D 6751 specifications.”

To date, 13 biodiesel companies have shown their commitment to quality by becoming accredited producers or certified marketers under the program. For a complete listing, visit BQ-9000.org.

A Bright Future

During the 2006 National Biodiesel Conference & Expo, Stephen L. Johnson, head of EPA, addressed attendees. It was the highest government official ever to speak at a biodiesel conference. Johnson recognized the important role biodiesel can play in the future, helping to clean up the nation’s air and weaning the U.S. from oil imports.

“The President knows we are too reliant on foreign oil,” Johnson said. “Our country is on the verge of a dramatic change for how we power our cars, our homes and our businesses. And innovation – including innovations in biodiesel – is the catalyst of this change.”

Johnson added that he believes, “Twenty-five years from now, we can make foreign sources of oil go the way of the typewriter and the Walkman.”

The biodiesel industry has overcome barriers of the heavily regulated fuels market in the past, and will meet the challenges ahead. It has already become the fastest growing alternative fuel on the market. America is on the brink of an energy transformation, and the country is ready for biodiesel. Thanks to years of hard work overcoming technical, regulatory and marketing challenges, the industry will rise to the occasion.

As biodiesel entrepreneur Peter LaVaute puts it, “A sustained biodiesel industry will mean true homeland security.”

Jenna Higgins is Director of Communications for the National Biodiesel Board. More information on biodiesel can be found at www.biodiesel.org.

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