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US refiners to receive biofuel credits for refinery-made biodiesel

14 April 2007

Refinery-made “second generation” biodiesel will receive similar incentives as the conventional ester-based biodiesel, thanks to two recent decisions—one by the US Internal Revenue Service (IRS) and one by the US Environmental Protection Agency (EPA)—according to a report by Hart’s Diesel Fuel News.

The IRS ruled that biodiesel made from vegetable oils or animal fats through refinery processes such as hydrotreating is eligible for a $1/gallon tax credit under the US Energy Policy Act (EPAct). The EPAct grants the tax credit for fuels produced through “thermal depolymerization” of biofeedstocks, but it was not clear if the definition should also apply to refinery precesses. The IRA acted based on an opinion by the Department of Energy, which advised a broad interpretation of the EPAct language.

Under a separate ruling by the US EPA, refinery-made biodiesel will be eligible for credits under the Renewable Fuel Standard (RFS) obligations. Renewable diesel produced by refinery hydrotreating will receive 1.7 times the credit of ethanol, based on the energy content of renewable diesel vs. ethanol. This is more than ester-based biodiesel, which receives only a 1.5 times the ethanol credit because it has less energy content than hydrotreated biodiesel. The RFS rule requires refiners and distributors to blend 7.5 billion gallons of renewable fuels—expected to be mostly ethanol—into gasoline or diesel by 2012 (which is a part of the strategy announced by president Bush to replace 20% of oil-based fuels with renewables by 2017).

The National Biodiesel Board (NBB), dominated by the conventional biodiesel industry stakeholders led by soybean growers, has been lobbying against these decisions. Once refiners receive credits for refinery-made biofuels, they may use less expensive feedstocks, such as imported palm oil, rather than US-grown soybeans.

So called “second generation” biodiesel is produced through refinery hydrotreating of renewable feedstocks such as vegetable oils or animal fats. This can be done in dedicated biofuel hydrotreating units, or by co-processing of renewable and crude based feedstocks. The resulting biodiesel is composed of hydrocarbons, and has properties similar to those of premium diesel (e.g., synthetic GTL diesel). While the refinery processing is believed to be more expensive than the production of ester-based biodiesel, the refinery-made renewable diesel is not troubled by stability problems or poor cold flow properties.

An example refinery-made biodiesel is the NexBTL fuel, being commercialized by Neste in Finland. At this time, there are no commercial renewable diesel hydrotreating plants in North America.

Source: Diesel Fuel News