I had hoped that my essay on the subject would spark a debate, because aside from a few people around me, I had encountered very few (practically no one in the industry) that agreed with my assertions. Thankfully, the debate did occur (see the links on the left side of this blog), and I became hopeful, after reading others' comments, both here and elsewhere, that my doom-and-gloom predictions might be wrong.
It was never my intention to essentially close debate on the issue- certainly not after such a short time as one-and-a-half years. However, recent news from the National Biodiesel Board has changed things, making the effects of the tax incentives, which are slated to be in effect thru at least 2010, clearer than ever before.
Following are my original assertions/questions, with commentary regarding where things stand now on each issue:
1) When it comes to B100 (100% biodiesel), it is pro-large corporation, anti-everything else.
As it turns out, large corporations weren't all that interested in B100, even if they were the only ones who could really make money on it as a result of the incentives. While the industry brags about its ever-growing production numbers, nearly all of that fuel is going into low blends.
Personally, if my goal was making money, and I owned a C corporation with a large tax burden, I would see the B100 income tax credit portion of the incentive as a way to scam money off Uncle Sam. The fact that companies aren't doing this is probably less a testament to their integrity, and more a testament to their fear of really engaging the B100 market.
2) What about the mixture credit?
The biodiesel mixture credit, even with its high ceiling of 99.9% biodiesel, has effectively wiped out the concept of commercial B100. While .1% is essentially nothing but a bureaucratic statistic (I am aware of renegades who are not necessarily actually putting this in their fuel, and I applaud them), this is a significant blow to homebrewers, and their involvement in the more commercial side of this industry. Their catch-phrase, their radical heroic idea, has been stripped from them, and what was the point of the law, if not to do just that? It's sad. Personally, I will always be a fan of B100, and may be known to join the "renegades" in promoting it, from time to time, even if the new, non-level playing field nominally bars me from selling it.
In addition, a number of petroleum companies with no experience in high blends now see high blends as the biggest way to make money, and are selling B99 as well. Some of these new entries into the high-blend market are selling the fuel illegally, as is the case here in California, where they often don't have the required variance to sell blends over B20 (20% biodiesel).
These statements are still true, without much, if any movement, to change things.
3) Why the heck are both credits (income and mixture) $1.00 for "agri-biodiesel" and only .50 for biodiesel from other feedstocks?
Agri-biodiesel has been artificially cheaper than recycled, making recycled product very hard to find. For instance, Orange Diesel, in the SF Bay Area, used to supply us and other companies with recycled biodiesel from several sources. Over the last year and-a-half, every single one dried up, and now the best Orange Diesel can do for Biofuel Oasis, whose customers demand the most sustainable product possible, is a strange-sounding semi-recycled soy biodiesel product, which gets the full agri-biodiesel subsidy, but is slightly "greener" than normal soy. Man, that's depressing, compared to our fully local, fully recycled fuel, but of course, our fuel is too expensive for Biofuel Oasis to be able to afford, thanks to the tax credit.
I haven't seen statistics on it yet, but based on the half a dozen or so new NBB members I find out about every week (the NBB sends its members e-mail updates whenever a new application comes in), almost all of them are soy or other virgin oils-oriented. The soy lobby is large, and gave birth to the NBB, and the legislation they lobbied for is having the desired effect: it is making their product more valuable. That's not how they marketed the legislation- they said it would bring down prices dramatically...
4) "But I can now get B99 at the pump for a price that's close to diesel prices- that rocks!"
In my original post, I predicted:
I can assure you, it will not rock for long. While petroleum companies, including the one in my town, are selling high biodiesel blends at prices lower than what they pay for the wholesale fuel (thanks to the incentive), this won't last. Wholesale prices have already gone up .30 in Northern California since the tax incentive went into effect. People in other parts of the country are seeing even bigger jumps. Why is this happening? Several reasons: 1) The market is still so much bigger than the supply, especially with all the new marketing that has come out of this incentive hoopla. The expectations game has been played in a manner than cannot do anything but drive prices back up. 2) The perfect feedstock for decentralization, which would bring down prices, is restaurant fryer oil, the one that was already not emphasized in the industry, and was blatantly discriminated against by the incentive. 3) It's a self-fulling prophecy. As certain retailers set prices very low, demand and expectations rise, and the prices will go back up. Soon, people will be paying the same high prices they did before, and a big fish up the chain will be making more money than they used to. Thus, the incentive is exposed as a simple windfall for the parties that I've mentioned. Remember: the real solution to high pricing is decentralized, regional production and distribution.
All of this has turned out to be true, although us "decentralized, regional" producer/distributors (the few of us there are) have not yet reached economies of scale to really be able to offer a price advantage- my thinking on this has changed a little, as I've seen rising methanol and catalyst prices make it difficult for my company to have stable pricing as well. In the end, we need to have local, renewable sources for each of our ingredients, not just oil, in order to have stable and affordable pricing. Just another way of saying non-sustainability is non-affordable in the long run.
In his rebuttal to my original post, David (AKA Greenstork at biodieselnow.com) wrote:
My prices in Seattle dropped about $0.60 and more in other areas nearby. As far as I have read on the BiodieselNow and other forums, prices dropped around the country. What happened in California seems to be an aberration. If prices continue to rise because of demand pressure, then the industry will be profiting. Already we can assume that producers were able to take the full $1.00 credit so most are earning about $0.40 more per gallon than they were. Is this a bad thing, more profit for the biodiesel industry?
On the face of it, David makes a very good point. However, the profits are not evenly spread across the board, and a lot of distributors and producers are still having a hard time making money. Also, the ones that stand to make the most money are generally the big soy marketers, furthering their ability to milk subsidies. I have nothing against small farmers, but when Archer Daniels Midland is the big beneficiary of legislation that was marketed to help consumers, well...
Anyway, getting to David's other point, California was certainly not an aberration. Here's the latest Alternative Fuels Index chart for wholesale, pre-tax biodiesel prices across the country, which have continued to steadily rise:
And, getting to one of the reasons why a simple biodiesel tax incentive really doesn't solve anything on price, here's a
.pdf file of wholesale, boatload (FOB Houston) methanol prices since 2001 (in general, add about $1-1.50 to each price to determine retail prices).
These fuel incentives could have never eased prices the way that was claimed. Rather, they were designed to line the pockets of the soy industry, pure and simple, and at that, they are succeeding.
5) "So what- at least it helps get biodiesel out there, right?"
I sure hear that "get it out there" phrase a lot. It's on the lips of so many enthusiastic activists and entrepreneurs, and it tells me right away when someone doesn't understand the nuances of the industry, which, unfortunately, are very important.
In my original post, I wrote of a fear about timing- that because this incentive was passed before actual quality control regulation (which has still not been enacted), we were heading for dark times:
There is no government oversight of biodiesel quality at this moment. There is no industry third-party quality control program either. Everything is voluntary, even though we have a great quality standard (ASTM D 6751). Because of this simple fact, the industry has just shot itself in the foot. Here's what happened in a similar situation with the solar hot water industry in the 80s:
The solar hot water industry was essentially destroyed in early 1986 by two major events and one ongoing professional problem. The Reagan administration refused all industry appeals to taper the tax rebate from 40% to 10% over a five to ten year period. It ended January 1, 1986. In February 1986, oil prices plunged from $35 a barrel to $9 to $12 a barrel as OPEC collapsed. Gas prices dropped at the pump to less than $1.00 a gallon - the public's perception was that the energy crisis was over. A nagging professional problem was constant with stories of "suede-shoes barracudas" or "tin men" taking advantage of the tax credit and selling ridiculously bad designs at exorbitant prices to take advantage of tax credit schemes. A lot of the early systems suffered freeze damage, had components failures, or were poorly designed and installed - this was giving the whole industry a bad name. Active solar air collector space heating systems were sold during this time whose parasitic power for blowers, etc. used more energy than they saved. The air systems cost more to operate than they saved. Many solar contractors were poorly trained in roofing. Homes often had roof leaks because the installers had no concept of how to properly install a system on a roof. Good solar contractors, trying to build an industry and pioneering homeowners were guinea pigs during this time for a menagerie of "good, bad, and ugly" systems.
The similarities are incredible, although perhaps its a good thing that this time, petroleum prices probably won't go down- at least not much, and not for long. "Essentially destroyed." There you have it folks. To be sure, there are still some great companies selling solar hot water panels- locally, we sell biodiesel to some of them. But solar hot water panels are a no-brainer. They should be on every house right now. Except some short-sighted idiots didn't agree. They took the panels off the White House and left everyone out in the cold. Let's not let something similar happen again. End of sermon.
Well, allow me to, while still depressed about all this, gloat a little, because on this point, I was dead-on. What prompted me to write this final installment in the "Great Debate" is a news item that came from the National Biodiesel Board today, under the guise of a "winter advisory". They don't do a really good job saying it in the press release, but here's the kicker- in a study of 32 random samples of commercial biodiesel collected between 2005-2006, HALF OF THE SAMPLES WERE OFF-SPEC. A full third were off on total glycerin, generally regarded as the far-and-away most important test of fuel quality! The majority of these samples were soy biodiesel, which is about a hundred times easier to manufacturer than the recycled stuff my company is churning out.
15% off-spec would have been "unacceptable". In fact, it was considered such when it was the result of the previous fuel quality survey, conducted in 2004. In two years, the industry has grown from 25 million gallons per year to 250 million gallons per year, according to the NBB, a ten-fold increase in size, and has seen its product quality dip monumentally.
This is EXACTLY what I feared, and as the news of this study percolates through the automotive and trucking industries, which is happening right now (as an NBB member, I've been issued "talking points" to address this), it will no doubt set this industry back. Manufacturer support of B20, let alone B100? Not likely. We have just taken a very big turn away from the model set in Europe. America is in the dark ages of biodiesel.
This is bad, folks. The solutions, though, are easy to see.
1) Change to a different subsidy model as soon as possible. Carl talks about various other ways of doing it here, and Michael Briggs has his say here.
2) Get government-enforced fuel quality regulation in place- WITH TEETH! The National Biodiesel Board is always talking up its BQ-9000 accreditation program, but it is completely voluntary and does not rely on mandatory, random testing by a third party. In fact, the National Biodiesel Board continues to vote down quality control progress at its meetings. Hopefully, the results of this study will change that.
Well, I gotta go. Thanks for reading this final installment of what I have perhaps overzealously entitled "the Great Debate".
