Before the State and Local Government Committee
by Sue Jones, NRCM energy project director
Thank you for the opportunity to submit additional comments in regard to LD 197. After reviewing the fiscal note, it appeared that the staff may have overlooked two things: first, that the State and campuses may now benefit from retailers’ use of the new federal biodiesel mixture tax credit, and second, that use of biodiesel does not require any modifications to engines, boilers, and other equipment, or fuel storage or infrastructure.
Attached is a Memo prepared for you by Scott Hughes, a State Regulatory Affairs Analyst at the National Biodiesel Board, a trade group that advocates for advancing the use of biodiesel in the U.S. His Memo addresses the two issues identified above, which can be summarized as follows:
Regarding the first issue, State and campuses now contracting with retailers who are utilizing this new tax credit will likely experience significantly reduced incremental costs for using biodiesel, and in some case, their costs could be zero.
Regarding the second issue, there should be no additional equipment costs to the State or campuses because no modifications are needed to any equipment, storage tanks, or infrastructure. It should be noted that biodiesel has a detergent characteristic such that at the onset of its use after conventional diesel use, it may remove deposits in fuel systems and storage tanks which could clog equipment. During this initial phase, users may need to do more frequent fuel filter changes to prevent this. Using cleaner fuel, such as biodiesel, will also reduce maintenance costs over time.
To support Mr. Hughes’s conclusions, I confirmed biodiesel and conventional diesel prices with Frontier Oil located in China, Maine and learned that the projected costs of using biodiesel are even lower than his projections. Frontier imports most of the biodiesel used in Maine via railcar from the mid-west. It sells to C.N. Brown Oil, a local biodiesel co-op in Ellsworth, a distributor in Saco, and other local distributors in Maine.
Below are Frontier Oil’s current prices for B20 (as of 3-25-05):
Biodiesel heating oil: $2.19/gallon
Heating oil – #2: $2.14/gallon
Incremental price of biodiesel for heating: $.05/gallon
Biodiesel at the pump: $2.47
Conventional diesel at pump: $2.39
Incremental price of biodiesel for cars: $.08/gallon
Thus, the incremental price between biodiesel and conventional diesel for heating fuel is $.05 per gallon, and at the pump for vehicles is $.08 per gallon. Using this information, and assuming that the State availed itself of the federal tax credit, I calculated the approximate incremental costs for both uses of biodiesel, as follows. These numbers would indicate that the fiscal impacts are substantially less than stated in the original fiscal note.
Using the Current Incremental Cost Difference at Frontier Oil for B20 of $.05/gallon
2,419,876 gallons heating oil @ $.05/gal. incremental cost = $120,994.
Using the Current Incremental Cost Difference at Frontier Oil for B20 of $.08/gallon
2,000,000 gallons diesel @ $.08/gal. incremental cost = $160,000.
Thus, according to current prices and availability of biodiesel in Maine, the projected costs of this bill are significantly less than stated in the original fiscal note. The projected costs are $280,994 per year ($120,994 per year in heating costs and $160,000 in fleet fuel costs).
More so, if the State and colleges were to blend their own biodiesel and therefore be eligible for the federal biodiesel tax credit, there is the strong potential that these costs could be further reduced and potentially come down to zero costs, or even a net savings. See also, page 5 of these comments, for references by Joel Glatz, Owner of Frontier Oil in China, Maine, who confirms that periodically he can offer biodiesel at a lower cost than conventional diesel.