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Biodiesel Integration Part 1: The Paperwork Process

Posted in: Fuel and Trucking, Biodiesel

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/// Guest post by contributor Jon ScharingsonRenewable Energy Group

Congratulations! Your travel center or truck stop has decided to offer biodiesel blends. You are excited about biodiesel’s role in enhancing your profits, reducing harmful emissions, offering engine performance and making our country more energy diverse.

Before your first load of biodiesel can be ordered and delivered, paperwork and tank prep must be in place. As most travel centers go through ample volumes of diesel fuel, it often makes sense for an operator to buy B100 (pure biodiesel) in bulk and blend it on-site. This article is tailored for those operators. In this, first of a two-part series, we will focus on Part 1: Paperwork.

As with most business endeavors, operators should consider both state and federal level requirements and incentives. (This post is meant at as a guide. Operators should consult their accounting and tax professionals.)

Taxes
1. Apply for IRS registration on Form 637: If your locations are blending ethanol, you likely already have experience with this federal registration. This form will ask for a list of potential biodiesel suppliers, how you are going to blend the biodiesel with diesel fuel (injection, splash, etc) and your total estimated diesel volume sales.

2. Determine State Fuel Tax Conditions: Every state has different rules about taxation on biodiesel. Iowa, Illinois and Texas have tax incentives or credits in effect to encourage blending. These incentives, while profit-creating, can also make compliance and reporting more onerous. Learn more about your state’s blending tax paperwork online. 

Federal Blenders Tax Credit ($1/Gallon)
The Biodiesel Mixture Excise Tax Credit, commonly referred to as the blenders tax credit, incents the first entity that blends biodiesel with petroleum with one-dollar per gallon credit. This annual program lapsed for 2010 and 2012 but was reinstated and made retroactive each time. The credit is in place for 2013, but is set to expire on December 31, 2013.

With your Form 637 on file with an “AB” designation, you are eligible for the blenders tax credit. Every lot of biodiesel (B100) you purchase should come with a biodiesel certificate, a template for which can be found in IRS Publication 510. You will need these certificates to claim your credits each quarter using Form 720, Schedule C, (Line 13).  (Note: these certificates could include “re-seller” certificates, in addition to the producer’s original certificate, if the B100 was bought/sold/traded before you blended it.) 

RINs: Renewable Identification Numbers
Renewable Identification Numbers are the newest economic component in biodiesel blending. RINs are the compliance mechanism for petroleum importers and refiners to meet the EPA’s annual volume requirements. Compliance is tracked using the EPA’s Moderated Transaction System (EMTS) the web-based portal for RIN movement.

Option 1, Accept RINs: Truck stops and travel centers can benefit by blending biodiesel and selling their RINs.  Every gallon of biodiesel has 1.5 RINs attached. On May 1, 2013 the RIN value on a "wet gallon of biodiesel" was $1.38-$1.425.

Next, you should decide if you want to manage the RINs yourself or hire a firm to manage your RIN positions for you. Operators with robust accounting teams may elect to manage RINs internally while smaller offices may want to select a RIN management firm to walk you through the process. Either way, the first step is to register with the EPA.

Whether you manage RINs yourself or hire a firm, you need to know that when you start blending, you only have access to the value of the RINs when you blend to B80 or below. At B79 or lower blends, your RINs are called K2 RINs and become marketable. Then you, or your hired firm, will need to find a counterparty to buy them in order to extract the value. This could be an obligated party, diesel refiner or diesel importer, RIN brokers, RIN traders, or done on an exchange. Often, RINs are traded in lots by the millions.

Option 2: Forfeit biodiesel RINs. This is as simple as signing an agreement with your biodiesel (B100) producer or provider.  RINs values are available though services such as OPIS and you can often negotiate a pricing arrangement with your wet-gallon biodiesel provider based on the RIN value. 

/// Read more guest posts on biodiesel posts here

{Guest Post} Guest post provided by NATSO Chairman's Circle member Jon Scharingson, Renewable Energy Group. Renewable Energy Group® is a leading North American biodiesel producer with a nationwide distribution and logistics system. With more than 210 million gallons of owned/operated annual production capacity at biorefineries across the country, REG is a proven biodiesel partner in the distillate marketplace. Learn more about Renewable Energy Group.

The opinions and advice given by guest post contributors are not necessarily those of NATSO Inc. The posts should not be considered legal advice. Qualified professionals should be sought regarding advice and questions specific to your circumstances.

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About the Author

Jon Scharingson

Jon Scharingson