HD78 - Study of the Use and Production of Biodiesel Fuel in the Commonwealth (Reprint)

Executive Summary:
[The whole report and the executive summary were replaced on 11/28/05.]

House Joint Resolution 598 requested that the Secretary of Agriculture and Forestry study the use and production of biodiesel fuel in Virginia paying particular attention to the capability and desirability of generating a minimum demand of 20 million gallons annually in the Commonwealth. The study resolution also requested that the Secretary consider several other issues that have been studied extensively by academia, several states, and local governments.

The Secretary and Deputy Secretary of Agriculture and Forestry formed a Biodiesel Workgroup consisting of staff from the Virginia Department of Agriculture and Consumer Services and a Governor's Fellow assigned to the Secretariat of Agriculture and Forestry. The Workgroup's study methodology included a listening session and a review of biodiesel studies conducted by academia, local government, and other states. Persons with expertise in specific topics outlined in the study resolution were invited to present information on the use and production of blodiesel in the Commonwealth. A public comment period followed the listening session to provide industry groups, advocacy groups and other interested parties an opportunity to share their thoughts concerning biodiesel use and production.

Key Findings

After reviewing the listening session presentations and the studies conducted by academia, other states, and local government, the Biodiesel Workgroup found that:

1. The economic analyses conducted in other states to determine the impact of biodiesel production were conducted by consulting firms with expertise in the biodiesel industry and economics. These consulting firms generally charged $100,000.

2. The Biodiesel Workgroup lacked the financial resources and expertise to conduct an analysis of the economic impact of the use of biodiesel on the state, the agricultural community, petroleum marketing and distribution, and biodiesel consumers, as well as the supply of biodiesel fuel and demand for biodiesel fuel in the Commonwealth. No funding was appropriated to the Secretariat that would have allowed the Workgroup to hire a qualified consultant to assist in the completion of this analysis.

3. Biodiesel studies that have been conducted in the Commonwealth and in other states focused on the feasibility of locating a biodiesel production plant in a specific location within the state. It would be virtually impossible to conduct a feasibility study for the development of a biodiesel production plant that would apply throughout the Commonwealth.

4. Industry sources maintain that the current level of degummed soybean oil production within the Commonwealth combined with import sources are adequate to produce 20million gallons of biodiesel stock annually, The current production capacity for refined soybean oil is approximately five million gallons annually. The majority of the product is sold outside the Commonwealth.

5. There is a need for increased education and awareness of biodiesel. Large scale educational, marketing and promotional activities are needed to educate the citizens, petroleum marketers and distributors, engine manufacturers, and the agricultural community about biodiesel.

6. Industries that either distribute or consume large quantities of diesel fuel are opposed to a mandate requiring the use of biodiesel.

7. There are several Federal tax incentives available to biodiesel producers and users. These incentives are contained in the American Jobs Creation Act of 2004, Clean Air Act Amendments of 1990, Energy Policy Act of 2005, International Fuels Tax Agreement, and Farm Security and Rural Investment Act of 2002.

8. The American Jobs Creation Act provides for a federal excise tax credit, and amounts to one penny per percentage point of biodiesel in a fuel blend made from agricultural products such as soybean oil, and one-half penny per percentage for biodiesel made from recycled oils. This tax credit has resulted in a tremendous increase in the production of biodiesel in the U.S.

9. Only a small number of states have created state level incentives for biodiesel and other renewable fuel sources. At the current time, Maryland is the only state contiguous to Virginia offering a state level tax incentive. In 2005 the Maryland legislature adopted a Renewable Fuels Promotion Act Tax Incentive. As the number of states offering incentives increases, the possibility of Virginia losing fuel sales due to lower prices in neighboring states will also increase.

10. Several local governments, universities and the Department of Transportation in Virginia are currently using biodiesel. The Clean Cities Program works with these groups to advance the nation's economic, environmental, and energy security by supporting local decisions to adopt practices that contribute to the reduction of petroleum consumption.

11. The Virginia Soybean Association, through funding from the Virginia Soybean Board, has sponsored a Biodiesel rebate program for four years. The program was designed to encourage the use of biodiesel by farmers, commercial and construction fleets, municipal transit and school systems, and general consumers of diesel. Grants ranging from $100 -$10,000 have been offered to first time users of biodiesel. In addition, this year grants will be awarded to users of biofuel in the home heating market. This program has led to an increase in the number of fuel distributors in Virginia handling biodiesel. The Virginia Soybean Association's position is that biodiesel is good for our country as a renewable American made fuel, good for the environment, and the future sustainability of Virginia's farms.

12. Additional research is needed to find potential uses for glycerin, which is a refined soybean oil byproduct. Currently, there is a limited market for the product.


The Biodiesel Workgroup recommends that:

1. The Governor and the General Assembly do not mandate the use of biodiesel fuel in Virginia at this time but allow the market to drive the production and use of biodiesel.

2. The Governor and the General Assembly encourage and finance the Virginia Department of Agriculture and Consumer Services to promote and market biodiesel.

3. The Governor and the General Assembly request that state agencies having expertise in tax issues evaluate Virginia's current tax structure to determine if changes are needed to make biodiesel a competitive fuel source.

4. The Commonwealth of Virginia support the use of biodiesel and, where feasible, implement the use of biodiesel in its fleet of vehicles and equipment.