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 January/February 2007

Feel the Heat: Biofuels are a Hot Investment, But Don’t Get Burned...

By Don Looper and Aaron Ball

Introduction

There are tremendous growth opportunities for investors and operators in the alternative fuels industry. Chances are, your clients already are invested in one of the numerous operations springing up in Texas and elsewhere across the country. Natural disasters such as hurricanes in the Gulf and conflicts such as the war in Iraq serve as reminders of the United States’ dependency on oil and the volatility of its supply.1 These recent events have also sparked renewed interest in alternative fuels. Bi-partisan support from a Democrat-controlled Congress and President Bush could mean huge growth in alternative fuels. However, with all its promise, this industry is born of a strange marriage of agriculture, manufacturing, and energy; driven almost entirely by government incentives and subsidies, and where the cost of production inputs does not correlate to the market price of finished products. To advise clients investing in the industry or considering building their own operating company, attorneys need to understand the market, its risks, and the potential opportunities.
This article focuses on the two primary alternative fuels in use today: ethanol and biodiesel, commonly called “bio” fuels because they are made from biological materials. This article first explains the source of these fuels and how they are made. Next, it describes how government incentives and subsidies helped create, and continue to maintain, a biofuels market. Finally, this article describes the current ethanol and biodiesel markets, their prospects for growth, and potential risks to investors and participants.

What are Biofuels?
Ethanol: Ethanol is ethyl alcohol.2 The ethanol production process is hundreds of years old3 and is similar to producing alcohol for consumption. In fact, the alcohol in fuel ethanol is chemically identical to ethanol in distilled spirit beverages.4 Liquefied grain is fermented and distilled, creating ethanol to be mixed with gasoline. In the United States, ethanol is produced mainly from corn and most frequently is used as a 10 percent blend with gasoline, commonly referred to as “E-10.” Almost all ethanol consumed in the United States is E-10.5 Ethanol produced in Brazil, something of a pioneer in biofuels, primarily comes from sugarcane, which is cheaper to produce than corn-based ethanol, even when factoring out the lower cost of Brazilian labor.6 American tariffs largely keep Brazilian ethanol out of the United States market.

Biodiesel: Biodiesel is a diesel replacement fuel made from natural sources such as animal fats and seed oil. In the United States, soybean oil is the most common biodiesel source or “feedstock.” Biodiesel is made by combining vegetable oil with alcohol in a process called “transestrification.” Any alcohol (such as ethanol) would work, but petroleum-based methanol is the lowest cost source. This combination causes a chemical reaction producing chemical compounds called “esters” that serve as the basis of biodiesel as a fuel.7
Biodiesel can fuel diesel engines either as a direct fuel or blended with petroleum diesel. Biodiesel is most commonly blended with standard diesel in two to 20 percentages, referred to by acronyms based on the biodiesel percentage (e.g., “B2” to “B20”).8

Biofuels versus Gasoline and Diesel: Ethanol and biodiesel have a lower energy content than gasoline and diesel, which means that more gallons of each are required to produce the same energy. These biofuels outperform fossil fuels, however, on octane (whether an engine will “knock”) and cetane (the ease with which fuel ignites spontaneously in an engine) numbers. Ethanol gets lower mileage in auto engines and requires significant engine modification for use in other than small quantities. Biodiesel is superior to ethanol in all the octane and cetane categories. Further, while ethanol yields 25 percent more energy than the energy used in its production, biodiesel yields 93 percent more.9 Biodiesel also has a net energy higher than corn ethanol and slightly higher than that for petroleum diesel. Biodiesel has greater lubricity than petroleum diesel, contributing to higher mileage, reduced engine wear and maintenance costs.10 Despite these benefits, producers first launched into ethanol because it may take less acreage to produce a gallon of ethanol than biodiesel.
Depending on the feed stock used, the production process for ethanol and biodiesel also may produce byproducts. Byproducts such as “bagasse” from sugar cane for ethanol production may produce additional energy in the form of electricity, which Brazilian producers have done successfully.11 Glycerol, a biodiesel byproduct, is an ingredient in aircraft de-icing fluid, animal insect repellent, soap, and glycerin for cosmetics. Energy policy commentators often cite these byproducts as part of the net energy benefit of biofuels over petroleum-based fuels.12

Government Subsidies Create The Market
Rudolf Diesel designed his first diesel engine, introduced in 1900, to run on peanut oil. Henry Ford’s Model T ran on ethanol and gasoline. Eventually, gasoline became the primary fuel for passenger motor vehicles. The oil embargo of 1973 refocused attention to energy alternatives. Energy prices quadrupled, resulting in major economic shocks. Since then, federal and state policymakers have enacted a variety of incentives, regulations, and programs to encourage the production and use of agriculture-based renewable energy. Cited motivations for these programs include energy security concerns, reduction in greenhouse gas emissions, and support of American farmers.13

In 1978, Congress gave ethanol an excise tax exemption.14 Two years later, Congress enacted an income tax credit for blenders and small ethanol producers.15 Lower oil and gas prices in the early 1980s, however, slowed federal renewable energy programs. In the 1990s, changes to federal clean air regulations forced refiners to use ethanol as an alternative petroleum additive.16 Recent environmental regulations requiring the use of ultra-low sulfur diesel fuel (which reduces lubricity and may harm engines) also have stimulated biodiesel production.17
The Energy Policy Act of 2005 (“EPACT”) established minimum requirements for ethanol and biodiesel usage in automotive fuels through 2012.18 For 2006, EPACT requires the use of at least four billion gallons of renewable fuels. In September of 2005, the Environmental Protection Agency proposed a renewable fuels standard (“RFS”) requiring the use of at least 7.5 billion gallons of renewable fuel by 2012.19 Thus, the production of renewable fuels likely will double over the next five years. Ethanol producers are expanding rapidly to meet the anticipated increase in demand.20
The 110th Congress is expected to reauthorize existing renewable fuel programs and establish new ones. The most recent Farm Bill expires in 2007, and, as part of the Farm Bill debate, Congress likely will increase the renewable fuels mandate further.21
The Bush administration 2007 budget request for the Department of Energy’s Renewable Energy Program seeks $359.2 million – 30.5 percent more than 2006. The request includes major funding increases to support a bio-refinery initiative.22
Annual ethanol production between 1980 and 2005 rose from about 175 million to 3.9 billion gallons. The growth in biodiesel production, while at a much smaller pace, rose between 1999 and 2005 from 0.5 million to 75 million gallons, with estimated 2006 production at 150 million gallons.23 Federal and state incentive programs are directly related to the increase in production for each fuel. Based on changes in the law and the influence of a Democrat-controlled Congress, the industry likely will experience similar growth through the next presidential election in 2008.

Ethanol Incentives:Ethanol producers have two primary incentives. First, under the Agriculture Department’s bioenergy program, which is designed to encourage the use of “farm products,” the government subsidizes producers of up to $7.5 million per project, based on how much their use of feedstocks for ethanol production increase from year to year.24
The second incentive is a federal excise tax credit,25 which gives “blenders” (those who blend ethanol with standard petroleum-based fuels) a partial exemption from the gasoline excise tax or an income tax credit. The excise tax exemption is currently 51¢ per gallon of ethanol produced for blended fuel. The income tax credit is usually equal to the exemption. Since the credit is considered income to the producer (reducing a portion of the gain), producers usually choose the exemption instead of the tax credit. Both expire in 2010.26
The excise tax exemptions and blenders credits have fostered ethanol development.27 The 1990 Clean Air Act Amendments, which required the use of oxygenated or reformulated gasoline, also stimulated ethanol production.28 As discussed above, EPACT established a renewable fuels standard (RFS) mandating the use of renewable fuels in gasoline.
State bans on MTBE, a widely-used fuel additive, including bans in California and New York, also have increased demand for ethanol as a substitute.29 Between 1999 and 2005, domestic ethanol production capacity increased from approximately 14 million gallons to 3.4 billion gallons.30

Biodiesel Incentives: The American Jobs Creation Act of 200431 created an excise tax credit for biodiesel fuel blending. The credit is set at $1.00 per gallon of biodiesel used. Because the credit is fixed on a volume (per gallon) basis, a 20 percent biodiesel blend (B20) would be eligible for a 20-cent-per-gallon credit, and a 100 percent biodiesel fuel (B100) would be eligible for a $1.00 per gallon credit. In 2005, the EPACT extended this credit through 2008. Further, as mentioned above in connection with ethanol, EPACT created the renewable fuel standard or RFS, and biodiesel production counts toward achieving the standard.
Biodiesel use has grown dramatically since Congress first provided an incentive in the 1998 Energy Conservation and Recovery Act, which allows federal and state fleet managers to meet the federal alternative fuel vehicle acquisition requirements by using biodiesel added to petroleum diesel at blend concentrations of 20 percent (B20) by volume or higher. According to the National Biodiesel Board, United States production of biodiesel between 1998 and 2005 increased from 500,000 to 75 million gallons (largely as a result of federal excise tax incentives), with 150 million gallons estimated for 2006.32

Texas Incentives: Biodiesel or ethanol blended with taxable diesel, which is identified when sold or used as a biodiesel or ethanol fuel blend, is exempt from the state diesel fuel tax.33

How They Stack Up
Neither biofuel was cost competitive in 2005 without subsidies. Producing biodiesel costs 55 cents a liter (20 percent more than ethanol). Wholesale gasoline prices in 2005 averaged 44 cents a liter (4 percent less than ethanol).34 Biodiesel, however, receives a subsidy that is 45 percent more than ethanol.35 Ethanol production is more efficient than biodiesel – seven times more ethanol can be produced per acre of corn than biodiesel production per acre of soybeans.36 However, biodiesel produced from soybeans produces more usable energy and reduces greenhouse gases more than corn-based ethanol, making it more “deserving” of subsidies, according to a study published in The Proceedings of the National Academy of Sciences.37 Production and consumption of ethanol reduces greenhouse gas emission by 12 percent, compared with fossil fuels. Biodiesel reduces such emissions 41 percent, compared with fossil fuels.38

The Biofuels Market
The Ethanol Market
Originally, farmers hedged the price of corn by producing small quantities of ethanol for use and sale. Today, farming co-ops own most ethanol facilities, although investors recently have entered the market. Ethanol’s growth has been fantastic.39 Between 2000 and 2005, domestic ethanol consumption has more than doubled, and production has grown from 1.63 to over 4 billion gallons, expected to exceed over 5 billion gallons by the end of 2006.40 The country’s 97 ethanol plants are operating at capacity, and an additional 33 plants are under construction.41
Despite this growth, ethanol remains only a small part of the United States fuel market. By comparison, oil use for transportation in 2005 averaged 13.82 million barrels per day (“mb/d”) and total oil use averaged 20.7 mb/d. For 2005, ethanol accounted for a mere 1.2 percent of transportation fuel and 0.89 percent of total oil use. Most of the RFS is expected to be met with ethanol, which is equal to roughly 330,000 barrels of oil per day (b/d). By 2030, some estimates of ethanol production are as high as 700,000 b/d, or 1.99 percent of total oil use (expected to be 25 mb/d) by 2030. 42
Prior to 2004, the ethanol industry grew quietly, generally avoiding the attention of large institutional investors and banks. Record-high ethanol prices and low corn prices in 2005, however, attracted institutional investors and banks. As a result, the amount of ethanol production capacity dramatically increased, along with new plant construction. However, the continued growth and profitability of the industry have been questioned recently by industry experts – some of whom forecast an ethanol glut. Critics warn that production is rapidly outstripping demand.43
A major limit on ethanol’s growth is producers’ inability to enter into long-term fixed-price contracts for feedstock such as corn. Ethanol producers typically cannot purchase “forward” contracts for corn, for example, for more than six to 12 months in advance.44 
Imports also threaten United States ethanol production. Lower production costs and government subsidies make foreign ethanol prices significantly lower. Most imported ethanol is subject to a 54-cent-per-gallon tariff designed to offset United States ethanol tax incentives. Some importers can avoid the tariff, however, by importing through free trade zones such as the Caribbean Basin Initiative or “CBI” countries.45 If tariffs were eliminated or reduced, as President Bush has proposed, foreign-produced sugarcane-based ethanol could be sold for less than domestic corn-based ethanol.

The Biodiesel Market
Ethanol production dwarfs biodiesel production, but investors find biodiesel exciting due to its potential for growth46 and its capacity for decentralized production with smaller capital investment. The United States biodiesel market grew from under a million gallons in 1999, to 19 million in 2004, to 75 million gallons in 2005 (compared to 3.9 billion ethanol gallons in 2005). This is equivalent to approximately 5,000 b/d of oil and less than one percent of the 36 billion gallons of diesel fuel used for transportation.47 To date, most biodiesel consumption in the United States has been in federally regulated government fleets, which is a small, relatively finite market.48 Farm vehicle use makes up the largest private market for biodiesel today, with 30 percent of farmers using at least some biodiesel for their farm vehicle fuel requirements.49 When farmers can purchase lower cost, modular biodiesel production units that can be operated onsite at the farm or farm coop, farm use would quickly increase since farmers would provide their own feedstock. Biodiesel production is projected to reach the equivalent of 20,000 b/d of oil by 2030.50
Despite the excitement over biodiesel’s future growth, investors must tread carefully and avoid the dot-com-like frenzy attached to some start-up projects. Since the volume of the current biodiesel market is relatively low, investors carefully must consider whether output from a new biodiesel plant can be sold in a market that is not as pervasive or mature as ethanol. What is the plant’s proximity to major feedstock supplies? Does it have ready access to transportation and distribution? Further, investors must consider whether their venture can obtain sufficient subsidies and incentives to make their investment profitable.
Carefully analyze the economics. Many investments, as presented, assume an income stream but may understate operating costs due to inefficiencies in production. Inefficiently produced fuel, for example, for which the chemical process (e.g. transestrification) did not work, may have to be “re-run,” resulting in higher costs.
According to the National Biodiesel Board, as of late 2006, there were 66 biodiesel plants in operation, with a maximum annual biodiesel production capacity of over 550 million gallons. Forty-four biodiesel plants are currently under construction or expansion, with a reported total annual production capacity of 992.8 million gallons (as expanded and constructed) coming on line. About two-thirds of the existing and planned biodiesel production capacity is based on the dedicated use of soybean oil as the principal feedstock. This is consistent with the fact that much of the existing biodiesel production capacity is located in Midwestern states such as Iowa, Illinois, Minnesota and Ohio, which also are large agricultural producers of soybean. Not surprisingly, the majority of biodiesel distribution and retail outlets are concentrated in Midwestern states. Despite the Midwest’s dominance as a region, Texas has nearly as many operational plants as the leading state of Iowa, and about as many as Illinois and Minnesota combined.51 Texas is clearly poised to play an important role in the American biodiesel market.
Unlike the general correlation between crude prices and the price of gasoline (the so-called “gas crack”), the price of feedstock does not necessarily correlate to biodiesel prices. This is because producers are taking an agricultural commodity and selling it into the energy market. As a result, producers are highly susceptible to fluctuations in each market that may be wholly unrelated.52
In contrast to the ethanol market, which has actually developed some chain of production efficiencies, the less-developed biodiesel market still has a number of increased costs. The biofuels market in general is decentralized, with sources of feedstock spread all over the country. As a result, transportation is a substantial cost of producing biodiesel. Further, limited harvesting periods create the need for storage, yet another cost.53
Capital costs to operate a biodiesel plant can be high and cash flow restrictions inherent in this subsidy-driven business severe. Biodiesel hits the marketplace with the blender’s credit already embedded in the price. Downstream sellers, however, must wait 100 days for that credit to return in the form of real cash flow.54
Biodiesel generally costs more to manufacture than conventional petroleum diesel.55 The feedstock cost of the seed oil or grease used to make biodiesel is the largest component of production cost. It takes about 7.3 pounds of soybean oil, which costs about 21-24 cents per pound, to produce a gallon of biodiesel.56 Feedstock costs are at least $1.50 per gallon of soy biodiesel.57 Fats and greases cost less and produce less expensive biodiesel, but their supply is more limited and localized. The difference between the cost of biodiesel and the cost of petroleum diesel has narrowed due to increased crude oil prices in recent months, which have outpaced those of the feedstocks used to make biodiesel. Before tax, the national average price of biodiesel in March 2006 was $3.05/gallon for B100, $2.14/gallon for B20, and $1.93/gallon for B2. By comparison, #2 diesel fuel ran $1.91/gallon.58
Biodiesel is less susceptible than ethanol to market fluctuations since it can be manufactured from a wide variety of feedstocks. However, there are associated costs such as labor and lost time in converting from one feedstock to another.59 Catalysts and mixtures vary by feedstock oil, affecting production efficiencies and costs.
One of the ways biodiesel producers hedge against these fluctuations is through the sale of glycerol or glycerin, the principle byproduct of biodiesel production. The sale of glycerin may fail to provide such an effective hedge, however, since, as biodiesel production increases, glycerin prices will likely decrease due to increased glycerin production.

Conclusions
 Biofuel production has experienced rapid growth; however, this growth has depended heavily on federal and state programs and incentives. Rising fossil fuel prices improve bio fuels’ market competitiveness. However, significant improvement of existing technology or the development of new technology is needed for current biofuel production strategies to be economically competitive with existing fossil fuels in the absence of government support.
Attorneys should advise clients of the risks in the biofuels market. In particular, the economics of a prospective investment project should not rely on an assumed “general” market. The details of each project must be carefully analyzed. Finally, investors and operators must be cognizant of the “disconnect” between agricultural inputs and energy market pricing in a subsidy-driven market. Until state and local governments mandate biofuel blending, product pricing will track petroleum prices without a pure, independent market value because there is no fixed demand.

Don Looper and Aaron Ball are members of Looper Reed & McGraw, P.C. www.lrmlaw.com

Endnotes

1. Larry Chorn, A Price Volatility Episode with Implications for Forecasting, Platt’s Insight, Nov. 2006, at 36-40.   2. A Bushel of Corn, E85.whipnet.com, availableat, http://e85.whipnet.net/yellow/octane.html.   3. Scudder Publishing Group, Ethanol Goes Prime Time, The Desk, The Industry J. of Energy Trading, Asset Optimization and Market Intelligence (2005), availableat, http://www.scudderpublishing.com.    4. Brent D. Yacobucci, Fuel Ethanol: Background and Public Policy Issues,CRS Report for Cong. (2006).   5.California Energy Commission, Pub. 600-04-001, Ethanol Fuel Incentives Applied in the U.S. (2004).   6. Milton Maciel, Ethanol from Brazil and the USA, ASPO-USA / Energy Bulletin (Oct. 2, 2006), availableat, http://www.energybulletin.net/21064.html.   7. J. Van Gerpen et al., Biodiesel Production Technology (July 2004) (subcontractor report for the U.S. Dept. of Energy).   8. United Soybean Board, Style and Usage Guide (undated).   9. Scudder Publishing Group, Environmental, Economic, and Energetic Costs and Benefits of Biodiesel and Ethanol Biofuels, The Desk, The Industry J. of Energy Trading, Asset Optimization and Market Intelligence (2005), availableat, http://www.scudderpublishing.com.    10. Andrew Azman, First Commercial Biodiesel Pump In Colorado To Bring Cleaner Air, More Energy Independence, availableat, http://www.colorado.edu/news/releases/2003/344.html; see also, Holly Jessen, Fitting in with ULSD, Biodiesel Mag., Oct. 2006, at 62 (describing the “lubricity question”).   11. Luiz Fernando Leite, et al., Biorefineries and Biofuels: Activites and Future Vision of Petrobras (2005) (unpublished presentation materials on file with the authors).   12. David Morris, The Carbohydrate Economy, Biofuels and Net Energy Debate (2006).   13. Randy Schnepf, Agriculture-Based Renewable Energy Production,CRS Report for Cong. (2006).   14.Ethanol, CleanFuels.com, available at, http://www.ethanol-gec.org/clean/cf03.htm.   15.Id.   16.Id.   17. Holly Jessen, Fitting in with ULSD, Biodiesel Mag., Oct. 2006, at 58-62.   18. Brent D. Yacobucci, Biofuels Incentives: A Summary of Federal Programs,CRS Report for Cong. (2006).   19. EPA proposes RFS implementation plan, Biodiesel Mag., Oct. 2006, at 16.   20. Brent D. Yacobucci, Fuel Ethanol: Background and Public Policy Issues, CRS Report for Cong. (2006).   21.Id. at 16.   22. Fred Sissine, Renewable Energy: Tax Credit, Budget and Electricity Production Issues, CRS Report for Cong. (2006).   23. U.S. & Canada Biodiesel Plant Map, Biodiesel Mag. (Fall 2006).   24. Todd E. Alexander and Jonathan Phillips, Ethanol is taking the spotlight with both producers and investors, 35 Houston Bus. J., Oct. 8-14, 2004, at 7B.   25. Renewable Fuels Association, Federal Regulations: Biodiesel Tax Credit, available at, http://www.ethanolrfa.org/policy/regulations/federal/biodiesel/.   26.Id.  EPACT extends the tax credit for biodiesel producers established in the American Jobs Creation Act of 2004 (Pub. L. 108-357) through 2008. The tax credit is $.50 per gallon of waste-grease biodiesel and $1.00 for agribiodiesel. If the fuel is used in a mixture, the credit is 1 cent per percentage point of agribiodiesel used or 1/2 cent per percentage point of waste-grease biodiesel.  Section 1364 of EPACT amends the biodiesel tax credits to include renewable diesel fuel, which is derived from biomass by a thermal depolymerization process. The credit is $1 per gallon of renewable diesel. To qualify, the fuel must meet ASTM D975 or D396.   27. Scudder Publishing Group, Ethanol Goes Prime Time, The Desk, The Industry J. of Energy Trading, Asset Optimization and Market Intelligence (2005), available at, http://www.scudderpublishing.com.   28. Environmental Protection Agency, Overview: The Clean Air Act Amendments of 1990 (undated), available at, http://www.epa.gov/oar/caa/overview.txt.    29. U.S. Dept. of Energy, Assessment of the Need to Waive In Whole or in Part the Renewable Fuel Program in 2006 (Jan. 2006).   30. John Kingston, No Catastrophe … And That’s the News, Platt’s Insight, Nov. 2006, at 4-7.   31. Pub. L. 108-357, § 301   32. The U.S. still lags behind Europe where the E.U. has adopted its “indication” to increase from B2 to B5 by 2008 and to B5.75 by 2010.   33. Tex. Tax Code Ann. §§ 162.001 and 162.204.   34. Alexel Barrioneuvo, It’s Corn vs. Soybeans in a Biofuels Debate, N.Y. Times, Jul. 2006 at C4; see also, David Tilman, Environmental, Economic, And Energetic Costs and Benefits Of Biodiesel And Ethanol Biofuels, (2006), available at, http://www.pnas.org/cgi/doi/10.1073/pnas/0604600103 (discussing relative energy yield of ethanol versus biodiesel).   35.Id.   36. Id.; Maywa Montenegro, The Big Three: The Numbers Behind Ethanol, Cellulosic Ethanol, And Biodiesel in the U.S., Grist.com, (2006), available at, http://grist.org/news/maindish/2006/12/04/montenegro/.   37. Id.   38. Id.   39. Todd E. Alexander and Jonathan Phillips, Ethanol is taking the spotlight with both producers and investors, 35 Houston Bus. J., Oct. 8-14, 2004, at 7B.   40. Todd E. Alexander and Marissa Leigh Alcala, New Issues Arise as the Size of Ethanol Plants Increase, Ethanol Producer Mag. (April, 2006).   41. David Sundalow, Ethanol:  Lessons from Brazil, (2005)   42. Brent D. Yacobucci, Biofuels Incentives: A Summary of Federal Programs,CRS Report Cong. (2006).   43. E. Alexander and Marissa Leigh Alcala, New Issues Arise as the Size of Ethanol Plants Increase, Ethanol Producer Mag. (April, 2006).   44. Todd E. Alexander and Jonathan Phillips, Ethanol is taking the spotlight with both producers and investors, 35 Houston Bus. J., Oct. 8-14, 2004, at 7B.   45. Brent D. Yacobucci, Fuel Ethanol: Background and Public Policy Issues,CRS Report for Cong. (2006).   46.Financial conference attendance indicates growing interest, Biodiesel Mag., Oct. 2006., p.20; Todd E. Alexander and Jonathan Phillips, Biodisel: The Next Growth Opportunity, Project Finance Newswire (Oct. 2005).   47. Brent D. Yacobucci, Biofuels Incentives: A Summary of Federal ProgramsCRS, Report Cong (2006).   48.Id.   49. Alexel Barrioneuvo, It’s Corn vs. Soybeans in a Biofuels Debate, N.Y. Times, July 12, 2006, at C4.   50. Brent D. Yacobucci, Biofuels Incentives: A Summary of Federal Programs, CRS Report for Cong. (2006).   51. U.S. & Canada Biodiesel Plant Map, Biodiesel Magazine (Fall 2006)   52. Todd E. Alexander and Jonathan Phillips, Biodiesel: The Next Growth Opportunity, Project Finance Newswire (Oct. 2005).    53. “Risks in Security of Oil Supply” The Desk, The Industry J. of Energy Trading, Asset Optimization and Market Intelligence (2005)   54. Todd E. Alexander and Jonathan Phillips, Biodiesel: The Next Growth Opportunity, Project Finance Newswire (Oct. 2005).   55.Backgrounder on Renewable Fuels for Diesel Engines, 2006Fuels.org, 9 (June 2006), available at http://www.2006fuels.org/ethanol_files/renewablefuels-diesel-backgrounder.pdf.  (Stating that “[t]he feedstock cost of the oil or grease used to make biodiesel is the largest component of its production cost.  It takes about 7.3 pounds of soybean oil, which costs about 21-24 cents per pound to produce a gallon of biodiesel.  Feedstock costs alone, therefore, are at least $1.50 per gallon of soy biodiesel.  Fats and greases cost less and produce less expensive biodiesel, but their supply is more limited and localized.  The difference between the cost of biodiesel and the cost of petroleum diesel has likely been narrowing due to gains in the price of crude oil in recent months which have outpaced those of the feedstocks used to make biodiesel.  One available survey indicates that the before tax national average price of biodiesel in March 2006 was $3.05/gallon for B100, $2.14/gallon for B20 and $1.93/gallon for B2, in comparison to $1.91/gallon for #2 diesel fuel.”)   56.Id.   57.Id.   58.Id. at 9-10 (stating: “Unfortunately, this survey does not collect information on the energy contents of the fuels that correspond with the price data gathered.  If one had such data to express these values on a per BTU basis, then the difference in costs would be even greater given the lower energy content of neat biodiesel and of biodiesel blends relative to #2 diesel fuel.  In addition, since January 1, 2005 the availability of federal excise tax credits for the sale of biodiesel blends has altered the comparative economics of biodiesel versus petroleum-based diesel.”)   59. Todd E. Alexander and Jonathan Phillips, Biodiesel: The Next Growth Opportunity, Project Finance Newswire (Oct. 2005).


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