New & Improved Financial Incentives for Blending Partners

by Steve Klein, Chevron Renewable Energy Group

What’s in the Inflation Reduction Act for biodiesel suppliers?

In August, President Biden signed into law the Inflation Reduction Act of 2022 (IRA). This legislation includes a number of policy incentives for biodiesel blenders, such as an extension of the biodiesel tax credit through 2024 and a $500 million expansion of the U.S. Department of Agriculture’s Higher Blends Infrastructure Incentive Program.

We know that policymaking can seem to take place worlds away from the realities of the liquid fuels industry, but this is an example of federal legislation that could directly impact biofuel blenders’ daily operations. As your business gears up for the coming heating season, here are some potential highlights of the IRA along with possible implications for renewable liquid heating fuels.

Tax Credits for Blenders, Sustainable Growth for Industry

The IRA includes a multi-year extension of the biodiesel tax credit. This offers $1 for every gallon of B100 biodiesel that gets combined with petroleum-based diesel fuel or heating oil to produce a blended product like Bioheat® fuel.

Beyond providing a direct financial incentive for the production of blended products like Bioheat fuel, this tax credit helps ensure the industry’s continued, sustainable growth by making these products cost-competitive with their unblended counterparts.

The biodiesel tax credit was created in 2004 and has been extended or retroactively applied six times since 2011. According to the U.S. Energy Information Administration (EIA), the U.S. biodiesel supply has been significantly higher in years during which the credit was in effect.

To adopt B20 industry-wide, the liquid heating fuels industry requires a continuous supply of approximately 800 million gallons of biodiesel per year. The continuing availability of tax credits can help provide the industry the stability needed to ensure lasting growth.

Furthermore, under the IRA, after 2024 the tax credit formula transitions to one based on the fuels’ carbon intensity. Biofuels with lower carbon intensity will receive a higher tax credit. This may help make environmentally friendly products like Chevron Renewable Energy Group’s InfiniD™ biodiesel and blended Bioheat fuel even more accessible – another positive outcome for heating fuel distributors and their customers.

Cost-Sharing Grants for Heating Fuel Bulk Plants

In addition to the tax credit extension, the IRA includes a $500 million expansion of the Higher Blends Infrastructure Incentive Program (HBIIP). This program, launched by the United States Department of Agriculture (USDA) in 2020, provides cost-sharing grants for infrastructure upgrades that can help fuel distributors begin selling higher blends of biodiesel.

Heating oil distribution centers are specifically listed as an example of eligible applicants. Bulk plant upgrades, such as new storage tanks, fuel lines and dispensers may all be eligible for funding. According to one estimate, the program has already provided Northeast heating fuel distributors over $11 million. As reported in a previous issue of Oil & Energy, one grant recipient is none other than REG’s blending partner Broco Energy of Haverhill, Massachusetts (see “REG Blending Partner Upgrades Bulk Plant,” March 2022, page 23).

The IRA not only extends the HBIIP for another five years, but also increases the grant amount from 50% up to 75% of project costs. In other words, where the HBIIP would’ve provided $1 million for a planned bulk plant upgrade that cost $2 million, in the years ahead the program will provide $1.5 million for such projects.

This represents a major opportunity for REG’s current and future blending partners. The writing is on the wall: the liquid fuels industry is transitioning to advanced biofuels, and Bioheat fuel is driving that transition in the home heating space. As one of North America’s leading biodiesel producers, REG has the expertise and the products needed to help your company thrive in this new environment.

Steve Klein is Senior Manager, Marketing at Chevron Renewable Energy Group. He can be reached at steve.klein@regi.com or 515-269-8364.

Bioheat® fuel is a registered trademark of Clean Fuels Alliance America, used with permission.

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