NBB responds to ConocoPhillips and Tyson announcement

April 6, 2007

BY Dave Nilles

While thermal depolymerization may not be in the biodiesel industry's common vernacular, a series of announcements Monday did their part in pushing it there.

On Monday, ConocoPhillips and Tyson Foods jointly announced a strategic alliance that will use Tyson beef, pork and poultry by-product fats to create a diesel-like fuel through thermal depolymerization production technology in ConocoPhillips' crude oil refineries. ConocoPhillips has already developed the proprietary technology at its Whitegate Refinery in Cork, Ireland, where the company has commercially produced the fuel using soy oil since late 2006.

On the same day as the announcement, the National Biodiesel Board (NBB) issued a statement regarding a recent Internal Revenue Service ruling that allows fuel produced through thermal depolymerization at conventional petroleum refineries to be eligible for the $1 per gallon renewable diesel fuel tax credit. The biodiesel tax credit was signed into law as part of the Energy Policy Act of 2005. "Certain powerful oil companies have managed to get the government to expand the definition of a separate provision that was added into the biodiesel tax credit law late in the legislative process," Jobe said in a release. "It's our belief that this credit was developed to help a specific emerging technology, and not to further subsidize existing petroleum refineries."

Jobe said the IRS interpretation will allow existing refinery capacity to be used to create "renewable diesel" that will obtain the $1 credit. "It's been our information that this can be done with existing refinery capacity and most likely will be done with existing refinery capacity," Jobe said at a Monday afternoon press conference. "In that case, it is literally not adding a single gallon of diesel fuel to the fuel supply."

ConocoPhillips said it will begin necessary capital expenditures to enable it to produce the fuel at several of its refineries. Production is expected to eventually ramp up to as much as 175 MMgy per year. "Production is expected to begin in late calendar year 2007, ramping up through spring 2009," said Tyson President and CEO Richard Bond.

Tyson said it will make capital improvements in the summer of 2007 to begin pre-processing animal fat from some of its North American rendering facilities.

NBB Regulatory Director Scott Hughes said that under the eligibility requirements for the renewable diesel tax credit, the producer must demonstrate that the fuel meets the registration requirements of the U.S. EPA's Clean Air Act and the ASTM standard for diesel fuel and/or heating oil.

ConocoPhillips said the finished product will meet all federal standards for ultra low sulfur diesel. The animal fats will be processed with hydrocarbon feedstocks to produce the fuel. Thermal depolymerization uses pressure and heat to reduce organic materials into crude oil.

Jobe said the NBB supports the development of second- or next-generation renewable fuels. However, he said he opposes the benefit of a tax credit if it doesn't result in additional fuel capacity. "There is nothing next-generation about subsidizing 30-year-old refinery equipment," Jobe said.

Jobe also fielded a question about whether legislative action could be taken to eliminate the IRS ruling. "We have gotten some indication that there is a feeling that perhaps this provision has gone to a point that it was never intended," Jobe said.

"The renewable diesel guidance issued by the (U.S. Department of) Treasury will allow integrated oil companies to subsidize their oil refining operations with a tax incentive that was enacted to encourage the growth of a domestic renewable fuels industry," Jobe said. "Treasury's decision to expand the definition of renewable diesel will have a negative impact on the biodiesel industry's ongoing efforts to reduce our dependence on foreign oil."

Dave Nilles is Online Editor for Biodiesel Magazine. Reach him at dnilles@bbibiofuels.com or (701) 373-0636.

Posted: 9:28 a.m. CDT Tuesday, April 17, 2007

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