Earth Energy Alliance CEO

Inside Baseball 2010

Published in Oil & Energy Magazine, November 2010

Baseball stadium with cheering fansMy son, Cole, and I we re watching the first round of the Major League playoff divisional series this weekend. Cole is 11 years old and is an avid baseball fan that receives a subscription to Sports Illustrated for Kids.

Cole was referring to his early season inside baseball edition, evaluating all of the playoff teams and the teams’ predictions prior to the season in relation to where they actually finished the season and why. As I listened to him, I began to all consider all of the variables, uncertainties and ebbs and flows of a long 162 game baseball regular season.

It started me thinking about the biodiesel industry in 2010—it too has had to encounter many variables, uncertainties and ebbs and flows. While there have been some real challenges with regard to the United States Congress passing an extension of the biodiesel tax credit, more recently there are increasing market pricing opportunities emerging upstream to the biodiesel producers and diesel fuel and heating oil terminal operators through this year’s release and final ruling of the RFS II.

On Feb. 3, 2010, the Environmental Protection Agency (EPA) issued the final Renewable Fuels Standard (RFS), provided in the Energy Independence and Security Act of 2007, the relevancy of which provides for a increasing number of mandated gallons of renewable fuel from now until 2022. More than 1 billion gallons of biodiesel is mandated for 2011 through the RFS II rulemaking process.

Heating oil integration is allowable under RFS II and provides an opportunity and a likely source for many of these biodiesel gallons. These EPA mandates provide greater certainty for the commercial distribution of biodiesel blended with diesel fuel and heating oil.

Although the reinstatement of the biodiesel tax credit is still the significant priority for establishing new infrastructure and distribution investments today, the biodiesel markets are finding new legs through RFS II and the subsequent RINs trading market, which has been established.

A RIN, or Renewable Identification Number, is the basis of compliance for the RFS. A RIN, simplistically, represents a barcode for a gallon of renewable fuel. Each type of renewable fuel under the RFS has its own specific barcode or RIN. The purpose of these barcodes is to track the mandates set forth in the RFS.

These RINs let the federal government know that the renewable fuel mandates are being met. Without the development of the RIN, the federal government would have a much more difficult task of keeping track of the RFS mandates.

RINs are generated by renewable fuel producers (e.g., biodiesel producers) and importers of renewable fuel. For every gallon of renewable fuel a RIN or RINs must be generated. The number of RINs generated depends on the type of renewable fuel produced or imported.

For example, every gallon of biodiesel will require a producer or importer to generate 1.5 RINs per gallon. On the other hand, a producer or importer of corn-based ethanol will only be allowed to generate 1 RIN per gallon.

So, the important question is, how does this affect me as a Bioheat® dealer?

Fortunately for Oilheat dealers and Bioheat dealers, the RFS II and RINs markets provide market certainty for the long-term usage of renewable fuels like biodiesel. Simply stated, a Bioheat marketer can feel secure about marketing this renewable energy source for the foreseeable future.

Other significant benefits of the RFS II rulemaking process to the Bioheat dealer include that all of the regulatory reporting, RINs tracking, calculations and other compliance regulations are all being handled upstream between the biodiesel producer or importer (obligated parties) and the Oilheat and diesel fuel terminal suppliers.

The Bioheat and heating oil marketer will continue to purchase Bioheat, as usual, through their current petroleum suppliers, with all of the regulatory reporting and RINs calculations in almost all cases already figured into the wholesale pricing so as to eliminate any pricing confusion.

This summer, I spoke with numerous heating oil dealers at petroleum industry
summits and conferences. I clearly sensed some concern about the future of biodiesel,
because of the absence of the $1-per-gallon tax credit. The truth is, with RFS II, biodiesel is now recognized as an “Advanced Biofuel” by the EPA, which insures its rightful place as a fuel of the highest quality, which possesses a minimum 50 percent reduction in carbon emission as to that of distillate fuel.

This 50 percent reduction calculation takes into account indirect land use and life-cycle analysis of biodiesel as well. Biodiesel is emerging as one of the few renewable technologies that has made its way out of the lab as a theoretical application to a viable renewable energy that is ready for primetime distribution and use today.

There is no updated news as I write this article regarding when the biodiesel tax credit will be extended. The National Biodiesel Board (NBB) is working very diligently with members of the United States Congress on the re-instatement of the biodiesel tax credit in Washington, D.C. State petroleum associations, the New England Fuel Institute (NEFI) and the National oilheat Research Alliance (NORA) have also been very supportive allies providing assistance in this effort.

The Oilheat marketplace provides today’s consumer with an opportunity to enjoy using a renewable energy to heat their homes without having to make any equipment modifications. We have the right story to tell and the Bioheat marketer is positioned perfectly to deliver the message and the fuel.

Bioheat Inside Baseball Prediction

It has been a very long season with many market variables in play for biodiesel in 2010.

The Oilheat marketer in 2010 and beyond has the opportunity to integrate an Advanced Biofuel, as stated by the Environmental Protection Agency. The continued collaborative efforts between the biodiesel industry and heating oil industry provides the ability to re-create the image of heating oil from a refinery by-product to the new space heating and hot water liquid fuel for the future, marketed directly to the consumer through the current independent oil dealer network. Looks like a winner!

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