Renewable diesel on the move

By | May 25, 2007
Last year, the National Biodiesel Board (NBB) voiced concern over the eligibility of imported palm oil for the dollar-per-gallon blender's tax credit. This year, the association is focused on renewable diesel. The Internal Revenue Service (IRS) recently issued Notice 2007-37, an interpretation of the term "renewable diesel" used in the Energy Policy Act of 2005, which broadly defines it to include the processing of animal fats or vegetable oils using traditional petroleum-refining equipment.

"As a result of the IRS Notice, oil refiners could collect the dollar-per-gallon tax credit for renewable diesel fuel produced at refineries," said David S. Lowman Jr., a tax partner at Richmond, Va.-based Hunton & Williams LLP. Lowman wrote a series of letters to the IRS supporting the decision.

NBB CEO Joe Jobe testified before the U.S. House of Representatives Small Business Committee on May 3, saying, "The recent IRS ruling with regard to renewable diesel will allow a large subsidy of conventional petroleum refinery capacity that will not represent second-generation biofuel. That policy was achieved by exploiting an ambiguity in the tax code rather than going through the appropriate legislative process. Moreover, we are not opposed to the petroleum industry replacing some of its capacity with renewable components. However, we do not believe that they should receive $1 per gallon to do so. There exists a [50-cent]-per-gallon alternative fuel tax credit from the 2005 Transportation Bill, which would be available to them."

Rep. Lloyd Doggett, D-Texas, announced his intention to submit a bill reversing the sweeping definition recently given by the IRS. Meanwhile, large oil companies are moving forward with plans to commercialize renewable diesel in the United States-while claiming the dollar-per-gallon blender's tax credit that the NBB believes was intended for methyl ester production.

In mid-April, ConocoPhillips and Tyson Foods announced a strategic alliance to bring renewable diesel into commercialization starting as soon as this year. Beef, pork and poultry fats from Tyson would be used as a feedstock. Jeff Webster, general manager of the Tyson Renewable Energy division, recently spoke with Biodiesel Magazine about Tyson's partnership with ConocoPhillips and renewable diesel's eligibility for the dollar-per-gallon blender's tax credit. "We at Tyson started looking at biofuels 18 months ago," Webster said. "We looked at different technologies when making biodiesel from animal fats. It is a bit problematic due to cold flow performance."

Tyson approached ConocoPhillips to see if the oil company would be interested in pairing up for more traditional biodiesel refining. "ConocoPhillips had been looking at renewable diesel production technology three years prior, a technology for which animal fats is one of the preferred feedstocks," Webster said.

Animal fats are a preferred feedstock for the refining process of hydro-heating and thermo-depolymerization-breaking down the triglycerides, removing the oxygen and saturating the double bonds with hydrogen-because they have fewer double bonds than soy oil, requiring less hydrogen.

In order for ConocoPhillips to incorporate necessary production and handling capacity, the refiner is spending $100 million in capital expenses at several refineries. Anticipated production by the spring of 2009 is 175 MMgy. Tyson didn't reveal how much it is spending to prepare these feedstocks for the removal of metals, which would otherwise interact with the catalyst during refining.

Other big oil companies are interested in renewable diesel, too. Jay D. Debertin, an executive from CHS Inc., testified before the U.S. Senate Committee on Finance on April 19 that CHS was "exploring renewable diesel."

Webster said those opposed to renewable diesel getting the credit should also be opposed to the ethanol tax credit. He said oil companies claim the majority of the latter. "It works the same way," Webster said. "It's a big cost." He said without the credit, the feedstock is $2 per gallon-or $84 per barrel-versus $65 crude oil.

Renewable diesel advocates also highlight the fungibility of the product compared with biodiesel, as well as its carbon-dioxide-neutral status and hydroscopic nature, meaning it won't attract water.
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