Think crude’s cheap? biodiesel’s going for free in some places1 min read . Updated: 02 Feb 2016, 09:29 AM IST
Crude oil's 71% slump since 2014 has dragged down the price of everything from diesel to gasoline
Houston: Biodiesel’s become so cheap in the US that some refiners are being paid to use it.
Midwest refiners are paying as little as 64.5 cents a gallon for the fuel after factoring in a $1-a-gallon tax subsidy and other credits. Add further incentives offered by California into the mix and some customers are effectively getting biodiesel for free in the Golden State.
The cause is twofold. Crude oil’s 71% slump since 2014 has dragged down the price of everything from diesel to gasoline. At the same time, the US has shown a renewed commitment to renewable fuels in the battle against climate change, with the Obama administration mandating their increased use.
“They got the tax credit and the higher mandate," Wallace Tyner, an agricultural economist at Purdue University in West Lafayette, Indiana, said. “They’re coming out looking like roses."
In November, the government raised the amount of biodiesel refiners must use to a record. Congress reinstated a $1-a gallon tax credit for using the fuel a month later.
The Environmental Protection Agency tracks compliance with the consumption mandate using certificates that are attached to each gallon of biofuel. The tax credit and the value of those certificates lowers the final costs of the fuel, akin to a rebate.
California renewable fuel programs such as the Low Carbon Fuel Standard combine with federal subsidies to bring costs down even more. Theoretically, refiners may be getting money back on every gallon, according to Eric De Bruin, a broker at StarFuels Inc. in Milwaukee.
When refiners buy a gallon of biodiesel, they’re essentially getting the fuel as well as the credits and subsidies, said Jennifer Case, chief executive officer of New Leaf Biofuel, a San Diego-based company.
In some instances, biodiesel producers and blenders share the value of the tax credit. Some contracts are negotiated taking into account the incentives, while others may be agreed upon without factoring them in.
“Those are really strange," Case said. “Those are the ones that actually could result in reversing the invoice. The customer has to charge me to take the fuel." Bloomberg