| Biodiesel in Oregon |
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| Introduction |
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Biodiesel is a renewable fuel produced from plant oils and animal fats. It can be blended with conventional diesel and used in diesel engines. Biodiesel offers several benefits over conventional diesel, including rural economic development, greater energy security, improved air quality, and lower greenhouse gas emissions.
There is excellent potential for the biodiesel industry in Oregon for several reasons. A variety of oilseed crops can be grown in Oregon to provide feedstock for biodiesel production. Renewable fuel standards created in the 2007 Oregon legislative session mandated biodiesel blending requirements once in-state production reaches certain thresholds, enhancing demand for locally produced biodiesel. Also, Oregon is in a prime location to produce biodiesel for the California market, which consumes about 25% of the biodiesel produced in the United States.
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| Oregon biodiesel feedstocks |
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Any type of animal fat or plant oil can be processed into biodiesel. Oregon feedstocks for biodiesel include
- Food grade cooking oils, such as soy, canola, palm, peanut, sunflower, and other oilseeds such as mustard.
- Off-quality and rancid vegetable oils.
- Animal fats, including lard, tallow, chicken fat, and fish oils.
- Used cooking oils from restaurants (yellow grease).
In Oregon, several oilseeds are appropriate for production and conversion, along with waste grease from the food service and processing industries.
- Canola. Canola and rapeseed are both members of the same botanical family, but the name canola is specific to rapeseed varieties with low erucic acid and glucosinolate levels. Canola seed is mostly used to produce food grade oil and cosmetics. Present restrictions on canola and rapeseed in certain regions of Oregon limit production at the present.
- Rapeseed. Rapeseed grades have high erucic acid and apply to varieties designed for industrial use. One processing plant in Idaho is presently writing grower contracts for rapeseed. Canola is shipped to processing plants ranging from Canada to the Midwest. Depending on prices, acreage in Oregon can presently range from a few hundred to a few thousand acres in the Columbia basin, grown in rotation with dryland wheat.
- Mustard. Mustard seed is an annual, cool-season crop that can be grown in a short growing season. A relative of canola, mustard seed (Brassica spp.) has the advantage of being more tolerant to drought, heat and frost. Mustard seed acreage has been upwards of 2,000 acres when prices were favorable. Yields range from 1,000 to 1,200 lbs./acre. Mustard seed is presently shipped to a mill in Montana for processing. Canada is the principal producer of mustard for international markets and exports much of it to the U.S.
- Camelina. Camelina is also a member of the mustard family, but does not have the same cross-pollination concerns as canola or rapeseed. It requires relatively low inputs and can be grown on marginal agricultural lands. Yields from trials in Pendleton and Moro have ranged from about 1,000 to 2,200 pounds per acre. Camelina oil is high in omega-3 fatty acids, making it attractive as a potential food oil as well as a biodiesel feedstock. Camelina meal has not yet been approved as a livestock feed ingredient in the United States, but trials are ongoing to support the approval process. No herbicides are approved at this time for use on camelina, but herbicides may be registered as early as fall of 2008.
- Flax. Flax is grown for fiber and seed as well as oil. Specific varieties of flax have been bred for oilseed. Flax oil is a high-value food oil that also has potential to be used for biodiesel production. Dryland spring oilseed flax can yield 2,000 to 3,000 pounds per acre with adequate moisture, and dryland fall oilseed flax can yield 1,800 to 2,400 pounds per acre.
- Safflower. Safflower is a member of the sunflower family that is grown mainly for oil. Test plots and grower trials in dryland regions of the Pacific Northwest have yielded 500 to 2,000 pounds per acre or more.
More information on several oilseed crops is available at the ODA-OSU Oilseed Project Web site.
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| Oregon's renewable fuel standards for biodiesel |
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Renewable fuels legislation passed during the 2007 legislative session mandates that when biodiesel production in Oregon from northwest feedstocks (Oregon, Washington, Idaho, and Montana) reaches 5 million gallons, a 2% blending standard will take effect. In other words, all diesel fuel sold in Oregon will be 2% biodiesel. When biodiesel in Oregon from northwest feedstocks reaches 15 million gallons, a 5% blending standard will take effect. The Oregon Department of Agriculture Measurement Standards Division is responsible to monitor biodiesel production and determine when it has reached the 5 million and 15 million gallon production thresholds. The Measurement Standards Division will also ensure that fuel dealers comply with the 2 and 5% blending requirements.
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| Oregon oilseed crop production capacity |
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15 million gallons of biodiesel production would require between 100,000 and 300,000 acres of oilseed crops, depending on the type of crop, yields, and the oil content.
Restrictions on canola in the Willamette Valley prevent wide scale production at the present. If appropriate protocol for negating potential impacts on other seed crops can be addressed, and if a crushing facility were located in the Willamette Valley, estimated acreage devoted to canola or rape seed could be as much as 50,000 acres. Prices of other crops would compete for growers' commitments to this crop. If profitable prices can be achieved (13-14 cents per pound) to the grower, 50,000 acres at yields of 3,500 pounds per acre could furnish an 8-10 million gallon plant.
Facilities in The Dalles or Eastern Oregon would be somewhat larger, probably 20-40 million gallons or larger to support regional feedstock production. Crop yields would be lower (~1,500 - 2,000 lbs./acre) and require between 200,000 - 450,000 acres for this size facility. In order to minimize transportation costs and address regional markets, a series of smaller facilities could be located in Eastern Oregon and Washington.
Canola can be grown on the same ground only twice in a five-year rotation in Eastern Oregon, and once in a four-year rotation in Western Oregon to prevent disease buildup in the soil. As a rotation crop with wheat, these oilseed crops can assist with addressing pest issues, enhancing soil tilth and water retention, and increasing grain crop yields in susbsequent years.
Growers' planting decisions will be based on
- Alternative crop price comparisons.
- Input costs, including whether they can use the same equipment.
- Incentives to the grower.
- Additional benefits of crop rotational value, soil/fertility value, etc.
- Whether there is a nearby market for the crop (growers usually pay transportation costs) or delivery system for energy (intertie ability).
- Potential opportunity for upstream returns (cooperative or LLC involvement).
- Technology developments that enable new ways of using resources, crops, and waste streams.
- Risk management tools available (i.e., crop insurance, etc.).
- Chemical use history on the farm site (may impact choice of following crops).
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| Biodiesel processing in Oregon |
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Two commercial biodiesel production facilities are currently operating in Oregon.
- SeQuential Biofuels, which has a production facility in Salem, is using yellow grease, soy, and canola oils as feedstock. SeQuential is currently expanding its production capacity and expects to reach a 5-million gallon production level sometime in 2008. SeQuential is partnering with Willamette Biomass Processors (WBP) to use locally crushed oil to supply part of its production. WBP is building a crushing facility in Rickreall, and has contracted several thousand acres of camelina for the 2008 growing season to process at the facility.
- Green Fuels of Oregon, located outside of Klamath Falls, is processing canola oil into biodiesel. Green Fuels’ production capacity is approximately 1 million gallons.
There are also several projects underway in Oregon to construct biodiesel processing facilities. Some are still in the planning stage, others have selected a site and are working through the permitting process, and a few, such as the Willamette Biomass Processors facility, have reached the construction stage.
The Oregon Department of Energy and the Oregon Department of Agriculture attempt to keep a running list of projects, but some prefer to keep their project confidential until they are sure of moving forward.
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| Biodiesel processing steps and byproducts |
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Biodiesel production from oilseed consists of four major steps.
- Plant, grow, harvest, and transport the crop to the processing facility.
- Store oilseed at processing facility, crush the oilseed and collect the oil. Oilseed extraction in Oregon uses cold-press technology, rather than hexane extraction. The latter process produces more oil from the crop, but creates environmental issues and limits some markets and uses of both the products and the seed millings.
- Process virgin oil into specific consumer or wholesale products, such as biodiesel, biolubricants, and animal feed.
- Transport the products to market distribution points and consumer retail sales.
There are three major steps involved in processing oil or waste grease into biodiesel.
- Collect the waste grease from restaurants, processing plants, rendering facilities and other sources of vegetable oils or animal fats.
- Process the oils into biodiesel or other byproducts. Since there is no meal associated with this feedstock, there are no additional handling requirements for that commodity.
- Transport the products to market distribution points and consumer retail sales.
The biodiesel production process creates two main byproducts.
- Glycerol is a byproduct produced in the transesterification process. Glycerol is used in pharmaceuticals, cosmetics, toothpaste, paints and other commercial products. The market for glycerol has been volatile in the past. It has been said that glycerol is good for everything except making money. Extensive biodiesel production could flood the glycerol market and lower the glycerol price.
- Seed meal left after the oilseed crushing process can be valuable livestock feed, depending on the seed type. In fact, the meal product portion of the operation can be more profitable than the biodiesel production, since the fuel is a commodity feeding into a very competitive market.
Lubricants and other specialty oils can also be produced from the processed oil. The amount of refining and marketing of additional products can add complexity and cost, but also can increase potential revenue streams to the operation.
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| Biodiesel cost structure |
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Feedstock is about 80% of biodiesel production costs. It takes around 7.5 pounds of fat or oil to produce a gallon of biodiesel. If a feedstock (canola or mustard) is 13 cents per pound, and the amount of oil in the seed is 40% by weight, the feedstock cost could be nearly $2.44 per gallon. At 2008 canola prices of 27 cents per pound, the feedstock cost is $5.06 per gallon.
Other important costs including plant overhead, labor, and methanol, which must be added to the feedstock to transform it into biodiesel. Waste grease is the most economical for initiating a biodiesel industry, but supplies are limited and could not sustain a larger plant. Waste grease costs have also been increasing significantly during the last few months.
Federal tax incentives are helping to keep biodiesel in a cost-competitive range with pure petroleum diesel. A federal excise tax credit for biodiesel production and distribution is available for $1 dollar per gallon for agriculturally-derived biodiesel, or 1 cent per 1 percent blend. For example, a 20% biodiesel or B20 blend would qualify for a 20 cent per gallon federal excise tax incentive. The tax credit is generally taken by the blender, but is passed along to the consumer in the form of lower prices.
More information about the biodiesel production process and cost structure is available by downloading Business Management for Biodiesel Producers (2.1 MB pdf) published by the National Renewable Energy Laboratory.
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| Factors inhibiting Oregon's biodiesel industry |
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- Feedstock and other input costs. Over the past year, feedstock prices have skyrocketed. Canola prices have doubled since 2006, and soybean prices have nearly doubled. Methanol has also tripled in price since last fall.
- Lack of infrastructure. There is now minor crushing capacity in Oregon, along with the single processing facility. However, it will require larger processing plants to ensure growers of a market to grow feedstock crops.
- Low demand due to lack of consumer awareness of the benefits of biodiesel.
- Processing and manufacturing that relies on incentives that create market pull and provide price justification to cover costs of production
- Challenges in siting and permitting
- No standard legal framework or templates for growers to use in structuring ownership and financing.
Putting biodiesel production projects together takes significant management and coordination, along with technical expertise; diligent research into technologies and equipment applicable to specific projects; significant up-front commitment to see the project through the permitting, siting and financing - which can be streamlined on industrial zone land, or may involve years of hearings and petitions if trying to rezone land; and different forms of grower organizations - such as LLCs or other creative ways of raising capital, including new-age cooperatives - requiring adept legal guidance.
Several efforts are underway to address these barriers. Research and industry efforts in the Pacific Northwest, supported by state and federal policies and programs, are developing new strategies and technologies to overcome barriers to production. One focus is aimed at producing higher value co-products and establishing optimized business models. Attention will be also focused on more efficient uses of the seed meal, the crop fiber, and, glycerin -- a lower value by-product of biodiesel production. Biolubricants and other biobased products are also the focus of development and market efforts.
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| Incentives for biodiesel production |
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Oregon business energy tax credit
The Oregon business energy tax credit (BETC) provides a 50% credit for the eligible costs of renewable energy projects. The credit is a dollar-for-dollar credit against State of Oregon business taxes owed. The credit can be taken over 5 years against Oregon business excise (income) tax. Projects that cost less than $20,000 can take credit in one year. The credit can also be sold or "passed through" to other entities for the net present value of 33.5% of the eligible costs.
Renewable resource projects must replace at least 10 percent of the electricity, gas, or oil used. Eligible projects include energy efficiency, recycling, transportation, and renewable resources such as biomass production, wind, solar, geothermal, waste heat, fuel cells, water, microturbines, and Sterling engines.
Be sure to contact the Oregon Department of Energy before submitting your application to understand all details.
Energy loan program
The Oregon Department of Energy administers an energy loan program for a variety of energy projects, including projects that
- Save energy
- Produce energy from renewable resources such as water, wind, geothermal, solar, biomass, waste materials or waste heat
- Use recycled materials to create products
- Use alternative fuels
U.S. Department of Agriculture programs
The Renewable Energy and Energy Efficiency Grant Program (Section 9006) is a competitive program that provides grants and loans for renewable energy development and efficiency enhancement for activities related to farms, ranches, and rural businesses. More information is on the Rural Energy Portal hosted by USDA Rural Development’s Oregon office.
The Bioenergy Program (Section 9010) pays processors of qualifying feedstock to increase the output of biodiesel or ethanol facilities. The subsidy is available after initial construction and first phase of production.
Conservation Security Program Renewable Energy Credits are available only in certain, eligible watersheds. Credits are available for practices including the following.
- Reduce energy consumption and earn $150 for a 5% reduction; $250 for a 10% reduction and $500 for a 20% reduction of total BTUs for the agricultural operation.
- Conduct an energy audit of agricultural operations and earn $500.
- Recycle 100% of the on-farm lubricants and earn $200 per year.
- Use fuels blended with renewable agricultural products such as bio-diesel and fuel grade ethanol and earn $125.00 per 500 gallons of the renewable fuel component (ex: 2500 gallons of 20% bio-diesel = 500 gallons of renewable fuel for a payment of $125.00).
- Generate renewable on-farm energy such as solar, wind, geothermal or methane and earn $2.50 per 100 kWh.
- Reduce machinery field operations and earn up to $0.90 per acre.
- Use of manure to supply at least 90% of nutrient needs of plants.
Value-added Producer Grant (VAPG)
The Value Added Producer Grant Program helps independent agricultural producers add value to their products.
- Planning grants can help conduct a feasibility study, develop a business plan, or develop a marketing plan.
- Working capital grants can help operate a value-added business venture.
Renewable energy projects are eligible for this funding. Grants provide up to 50% cost-share and are awarded after a competitive application process.
West Coast Collaborative Ag Diesel Project
The Agriculture Workgroup is exploring opportunities to share information and seek funding for a variety of projects including retrofits or efficiency improvements for diesel agriculture pumps; biodiesel production; and use of emulsified fuel in heavy equipment.
Enterprise Zone Exemption (Oregon Revised Statute 285C.055)
Through a short-term tax exemption, an Oregon enterprise zone induces eligible businesses of all sizes to make additional investments that will improve employment opportunities, spur economic growth and diversify business activity. Qualifying new plants and equipment in a zone receive a total exemption for at least three and in some cases up to five consecutive years from the local assessment of ad valorem property taxes, which can otherwise have a deterring effect on private investors seeking to start or enlarge operations with a substantial capital outlay. Enterprise zone property (except hotel/resorts and utilities) also is exempt for up to two years while it is being constructed or installed.
Ethanol production facilities (Oregon Revised Statute 307.701)
Upon compliance, the real and personal property of an ethanol production facility that meets the requirements of subsection (3) (see below) is exempt from taxation. The exemption shall be 50 percent of the assessed value of the property determined under ORS 308.146. The exemption under this section may be claimed for five assessment years. There is a sunset provision of 7/1/08.
Subsection (3) An ethanol production facility may qualify for exemption from taxation under this section if the facility: (a) Is first in the process of construction, erection or installation as a new facility after July 1, 1993; (b) Is or will be placed in service to produce ethanol within four years after January 1 of the first assessment year for which the exemption under this section is claimed; and (c) Within four years after January 1 of the first assessment year for which the exemption under this section is claimed, is or will be certified by the State Department of Agriculture as a facility that produces ethanol capable of blending or mixing with gasoline. The blend or mixture shall meet the specifications or registration requirements established by the United States Environmental Protection Agency.
A local business has explored the comparative options of the ‘Enterprise Zone" and ‘Ethanol' tax exemption - taking the enterprise credit in the first five years and the ethanol credit in subsequent years. This may be an issue in need of further exploration.
Federal biofuel excise tax exemption or income tax credit
The American jobs creation act of 2004 (House Resolution 4520) created a Volumetric Ethanol Excise Tax Credit, which included credits for biodiesel.
- The volumetric excise tax credit for Agri-Biodiesel is $1.00 per gallon. Agri-Biodiesel is defined as diesel fuel made from virgin oils derived from agricultural commodities and animal fats.
- The volumetric excise tax credit for Biodiesel remains at 50¢ per gallon. Biodiesel is defined as diesel fuel made from agricultural products and animal fats.
- The volumetric excise tax credit for Renewable Diesel is $1.00 per gallon. Renewable diesel refers to diesel fuel derived from biomass using a thermal depolymerization process.
Alternative fuel vehicle credit
Qualifying alternative fuel vehicles (AFVs) purchased or placed into service between January 1, 2005 and December 31, 2010 may be eligible for a federal income tax credit of up to $4,000.
Vehicles placed into service before January 1, 2005 may be eligible for a $2,000 clean-fuel vehicle tax deduction. More information on credits for AFVs, as well as electric vehicles and hybrid vehicles, is available at the federal Fuel Economy Web site.
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