Can New Fuels Flourish?

The new president-elect has indicated he plans to create an economic agenda steeped in more oil drilling and fewer regulations. However, will this stunt the steady growth biodiesel and alternative fuels have enjoyed the last few years?

By CSD Staff.

President-elect Donald Trump wants to free the energy industry of restrictive environmental regulations. He’ll have a kindred spirit in Oklahoma Attorney General Scott Pruitt, who he picked to head the U.S. Environmental Protection Agency (EPA).

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Trump has put together a group of A-listers—from Exxon Mobil CEO Rex Tillerson, Trump’s pick for secretary of state, to Rick Perry, who is expected to move to lift restrictions on drilling, green-light pipelines and diminish emissions controls as head of the U.S. Department of Energy.

However, alternative fuel proponents and retailers such as Douglass Distributing Co.—owner and operator of 22 Lone Star Food Stores hope to maintain today’s momentum of homegrown renewable biofuels like ethanol.

Current fuel policy, based on the Renewable Fuel Standard, creates a strong incentive for fuel marketers to blend renewable fuels into the fuel supply while lowering the price at the pump for consumers. Credits called Renewable Identification Numbers (RINs) are the mechanism for insuring that the prescribed levels of blending are reached.

If gasoline blenders fail to comply with the mandated volumes (based on the volume of gasoline they sell in the U.S.) they are required to buy RINs to make up the shortfall. Each qualifying volume of biofuel (one gallon of corn ethanol, or its energy equivalent) is tracked by a unique 38-digit serial number—the RIN—as it passes through the supply chain.

Because these refining and importing companies aren’t often blenders, they need to buy RINs to comply with industry regulations. The blending is often conducted by bigger oil companies, explained Bill Douglass, chairman and founder of Douglass Distributing.

This doesn’t foster an equal playing field for retailers, something Trump officials should review, said Douglass.

“The new administration needs to change the point of obligation for the transfer of Renewable Identification Numbers from the refiners and importers to the rack,” Douglass said. “This would rebalance the fuel price inequity currently favoring the large refiners and large marketers over the small, independent retailers. Currently this buying disparity is 10-cents-per-gallon on unleaded and 17-cents-per-gallon on diesel. Biofuels could be good if the small retailers were not at such a huge RIN buying disparity.”

While corn is the primary ingredient in ethanol, soybeans have become a leading renewable source of biodiesel. Today, about 50% of all biodiesel in the U.S. is made from soybean oil, according to the American Soybean Association.

Teutopolis, Ill.-based Meyer Oil Co., which operates 17 Mach 1 Stores in central and southern Illinois, has incrementally built its volume of bean oil-blended fuel offerings over the last few years. Currently, Mach 1 sells 11% bean oil at all 17 locations.

“Whatever the administration decides, they need to look at it as a long-term vision and remove the annual instability such as removing and reinstalling the $1-per-gallon bean oil credit,” said Alan Meyer, chief operations officer of Meyer Oil.

“Producers and retailers have to have an idea where the government incentives will be so infrastructure can be built.”

An incentive to boost U.S. biodiesel production, the bean tax credit has had several near death experiences; it was allowed to lapse at the end of 2009, 2011, 2013 and 2014.

Of course, there’s more to the alternative fuel picture than just beans. Douglass encourages the new president-elect to look at developing natural gas as a fuel option. There are others.

“I would focus on more self-sustaining energy sources such as hydrogen as this won’t cause a shortage anywhere else,” Meyer said.

Trump seemingly is already developing an energy plan for the nation that Meyer can get behind.

“I hope he continues to focus on domestic production to keep prices low and removes some of the instability caused by foreign dependence,” Meyer said. “This is currently not an issue, but future concerns can be alleviated by lowering domestic production costs.”