Biodiesel has become so inexpensive in the U.S. that it’s free

February 9, 2016 0 By Tami Hood

Some refiners are being paid to use biofuel.

Tax credits in the U.S. have made biodiesel so cheap in some parts of the country that some refiners are being paid to use this clean substitute to diesel. More specifically, one-dollar-a-gallon tax subsidy and other credits, has resulted in Midwest refiners paying as little as 64.5 cents a gallon for the alternative fuel. This, plus additional clean energy incentives offered by California, has lead to some customers in the Golden State obtaining the fuel for free, reported Bloomberg.

The commitment to renewable fuel has benefited some refiners.

Biodiesel’s dramatic reduction in cost appears to be the result of two factors. The first is that crude oil’s 71% drop since 2014 has decreased the price of all fuel from gasoline to diesel. The second is that due to the Obama administration mandating the use of renewable fuels, to help combat climate change, America has shown an improved commitment to clean fuel.

Back in November, the American government increased the amount of biodiesel refiners were required to use and congress reinstated a one-dollar-a-gallon tax credit for the use of this fuel in December.Green Fuel - Biodiesel

The EPA (Environmental Protection Agency) tracks compliance in relation to the consumption mandate by way of certificates, which are attached to every gallon of biofuel. The value of the certificates and the tax credit reduces the final costs of the alternative fuel similar to a rebate.

Refiners may actually be getting money back on every gallon of biodiesel they buy.

According to the CEO of San Diego-based New Leaf Biofuel, Jennifer Case, when refiners purchase a gallon of biodiesel, in essence, what they receive is the fuel along with all the credits and subsidies. In certain situations, biodiesel producers and blenders will share the value of tax credits.

This could mean that some contracts are negotiated by taking the incentives into account, while other contracts won’t factor them in at all. Case said those contracts are exceptionally odd because “Those are the ones that actually could result in reversing the invoice. The customer has to charge me to take the fuel.”

This year, oil companies in America are required to use 1.9 billion gallons of biodiesel.