Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...

subsidies. Additionally, the Small Biodiesel Blenders Tax credit program and state tax
and credit programs offer some additional subsidies and credits, though the benefits are
modest in comparison to the Blender’s Tax credit.
3. Diesel Fuel Costs
Biodiesel fuel is blended into highway and nonroad diesel fuel, which increases
the volume and therefore the supply of diesel fuel and thereby reduces the demand for
refinery-produced diesel fuel. In this section, we estimate the overall cost impact,
considering how much refinery based diesel fuel is displaced by the forecasted
production volume of biodiesel fuel. The cost impacts are evaluated considering the
production cost of biodiesel with and without the subsidy from the Biodiesel Blenders
Tax credit program. Additionally, the diesel cost impacts are quantified under two
scenarios, with refinery diesel prices as forecasted by EIA’s AEO 2006 with crude at $47
a barrel and with refinery diesel prices based on $70 per barrel crude oil.
We estimate the net effect that biodiesel production has on overall cost for diesel
fuel in year 2012 using total production costs for biodiesel and diesel fuel. The costs are
evaluated based on how much refinery based diesel fuel is displaced by the biodiesel
volumes as forecasted by EIA, accounting for energy density differences between the
fuels. The cost impact is estimated from a 2004 year basis, by multiplying the production
costs of each fuel by the respective changes in volumes for biodiesel and estimated
displaced diesel fuel. We further assume that all of the forecasted biodiesel volume is
used as transport fuel, neglecting minor uses in the heating oil market.
For the AEO scenario, the net effect of biodiesel production on diesel fuel costs,
including the biodiesel blenders’ subsidy, is a reduction in the cost of transport diesel fuel
costs by $90 million per year, which equates to a reduction in fuel cost of about 0.15
c/gal. 71 Without the subsidy, the transport diesel fuel costs are increased by $118 million
per year, or an increase of 0.20 c/gal for transport diesel fuel. With crude at $70 per
barrel, including the biodiesel blenders subsidy, results in a cost reduction of $184
million per year, or a reduction of 0.31 c/gal for the total transport diesel pool. Without
the subsidy, transport diesel costs are increased by $25 million per year, or 0.04 c/gal.
B. Distribution Costs
1. Ethanol Distribution Costs
There are two components to the costs associated with distributing the volumes of
ethanol necessary to meet the requirements of the Renewable Fuels Standard (RFS): 1)
71
Based on EIA’s AEO 2006, the total volume of highway and off-road diesel fuel consumed in 2012 was
estimated at 58.9 billion gallons.
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