Last October, President George W. Bush signed the American Jobs Creation Act of 2004, which included the first biodiesel tax incentive. The new law, effective Jan. 1, 2005, is applauded by most Americans.

Eighty-nine percent of those polled in a recent national public opinion survey thought it was important that Congress pass a biodiesel tax incentive to make American-made biodiesel more cost competitive with regular diesel, reduce United States dependency on foreign oil and provide potential health benefits to consumers.

Biodiesel is a renewable fuel

A clean-burning alternative to petroleum-based diesel, biodiesel is made from renewable resources like soybeans and other natural fats and oils grown in the United States. It is nontoxic, biodegradable, essentially free of sulfur and aromatics and significantly reduces emissions of carbon monoxide, particulate matter, unburned hydrocarbons and sulfates.

Although there is some concern about the flowability of 100 percent biodiesel (B100) in cold weather, many fuel suppliers are addressing the issue by installing heated tanks or by placing tanks in heated buildings.

Once B100 is mixed with petroleum diesel fuel in the popular lower concentration blends such as B2 and B5, it can be treated exactly the same in cold weather as petroleum diesel.

New law could mean lower cost for consumers

The goal of the new law, which is structured as a federal excise tax credit, is for biodiesel blends to retail at or near the same price per gallon as #2 diesel fuel. The incentive amounts to one penny per percentage point of biodiesel ($1 per gallon for B100) blended with petroleum diesel for first-use oils like soybean oil.

For biodiesel made from other sources, such as recycled cooking oil, the incentive is equal to a half penny per percentage ($0.50 per gallon for B100). The tax credit will be issued to blenders of fuel. They will then pass the savings on to consumers, who had been paying a penny more per gallon for every percentage point of biodiesel blend.

Based on a study by the USDA, the incentive is expected to increase biodiesel demand from an estimated 30 million gallons in fiscal year 2004 to at least 124 million gallons per year. However, depending on a number of other factors including crude oil prices, the fuel industry projects that demand could grow much higher in the next decade.

“With a biodiesel tax incentive on the books, demand for biodiesel will increase dramatically,” said American Soybean Association President Neal Bredehoeft, a soybean farmer from Alma, Mo. “For every 100 million gallons of soy-based biodiesel demand, the price of a bushel of soybeans is expected to increase by 10 cents. That could add an average of another $2,000 to the bottom line of farmers growing 500 acres of soybeans.”

Support is growing

Automobile manufacturers approve properly blended biodiesel fuels. In September 2004, DaimlerChrysler announced it would use B5, a 5 percent blend of biodiesel, as the factory fill for each new Jeep Liberty Common Rail Diesel (CRD) sport-utility vehicle coming off the assembly line.

As of Nov. 17, 2004, more than 40,000 consumers expressed interest in the Jeep Liberty’s “clean running diesel.” While the Jeep Liberty CRD is the first mid-size SUV available with diesel in the United States, Volkswagen is also promoting biodiesel due to historical success in Europe.

Ethanol giant Archer Daniels Midland is looking to propel itself into the nation’s biodiesel industry.

“High energy prices present opportunity across the board for ADM growth,” CEO G. Allen Andreas told industry analysts.

Now that the federal government has passed biodiesel tax breaks, ADM will transfer to the United States the experience and technology that helped make it the largest biodiesel producer in Europe.

The future is bright

Use of biodiesel is increasingly on the minds of those wanting the United States to break free of its growing dependence on foreign oil. Escalation of petroleum prices, coupled with the new biodiesel tax credit, is expected to narrow the cost gap between petroleum diesel and biodiesel and deliver the most favorable marketing moment for biodiesel and other alternative energy sources in a quarter century.

Demand for biodiesel could be boosted by as much as 400 percent over the next few years and allow the United States to look to its own farmers, rather than the Middle East, to fuel its future.

David Perkins is the special projects manager for MFA Oil.