Biodiesel Blended Sales Trends in Iowa
By S. Patricia Batres-Marquez
Decision Innovation Solutions, 11107 Aurora Avenue, Urbandale, IA 50322
The Iowa regulation of renewable fuels and energy contained in House File 2754 was approved in 2006 by the Iowa General Assembly. This regulation established the goal that 25 percent of all petroleum used in the formulation of gasoline in Iowa be replaced by biofuels by 2020. To help meet this goal, the Iowa Legislature authorized several tax credit incentives for biofuel retailers, including the Ethanol Promotion Tax Credit, the E85 Gasoline Promotion Tax Credit, the E15 Plus Gasoline Promotion Tax Credit, and the Biodiesel Blended Fuel Tax Credit (IDR, 2014).
We will present here the biodiesel blended sales in Iowa. Sales of ethanol-gasoline blends were presented in the May 2017 AgMRC Renewable Report Overview of Iowa Biofuel Tax Credits and Ethanol Blends Sales: E10, E15, E20, and E85.
Biodiesel Blended Fuel Tax Credit
Biodiesel Blended Fuel Tax Credit (BBFC) was first available on January 1, 2006. To qualify for this tax credit, 50 percent or more of total gallons of diesel fuel sold had to be biodiesel blended fuel with 2 percent biodiesel (B2) or more (see Table 1). The credit applied on a company-wide basis, not at each separate retail location. From 2009 to 2011, the eligibility tax credit requirement of 50 percent of total diesel sales containing a minimum of 2 percent biodiesel applied to each retail location instead of on a company-wide basis. From calendar year 2006 to 2011, the tax credit equaled $0.03 times the total number of gallons of B2 or higher sold at each qualifying retail station (IDR 2014).
The Iowa Legislature made changes to BBFC in 2011. The 50 percent biodiesel sale requirement was dropped, and the tax credit applied to all biodiesel sold on a company-wide basis. The rate per gallon in 2012 was $0.02 for biodiesel blends with 2 to 4 percent biodiesel (B2 and B4). For blends with 5 percent biodiesel (B5) or higher, the rate was $0.045 per gallon. From 2013 to 2017, only B5 or higher blends qualified for BBFC with a rate per gallon of $0.045. This tax credit was set to expire on January 1, 2018, but in 2016 Senate File 2309 extended the expiration date of BBCF until January 1, 2025. Starting in 2018, there are two tax credit rates. The first rate is $0.035 per gallon for B5 or higher blends but less than 11 percent biodiesel content (B11 blend). The second rate is $0.055 per gallon for blends containing 11 percent or more biodiesel (see Table 1).
Table 1: Iowa Biodiesel Blended Fuel Tax Credit Rate Schedule
Iowa Biodiesel Blended Sales
The Retailers Motor Fuel Gallons Annual Reports published by Iowa Department of Revenue (IDR) contain information on sales of Iowa diesel and biodiesel blended fuels at the retail level starting in 2011. Diesel (non-blended) sales were down 47.2% to 385.064 million gallons in 2012 compared with 729.521 million gallons in 2011. Sales of diesel (non-blended) continued to decline in 2013. Although sales of this fuel have increased since 2013, sales remain below the 2011 levels (see Figure 1). In 2016 sales of this fuel reached a volume of 461.763 million gallons.
Overall, since 2011 sales of biodiesel blended have increased in Iowa (see Figure 1). Total biodiesel blended sales in Iowa was equal to 246.013 million gallons in 2011, increasing 54.4 percent to 379.787 in 2016. From 2012 to 2014, B5 was the most sold biodiesel blend in Iowa, with an average share of 36.7 percent (118.141 million gallons, on average) of total biodiesel blend sales during that period (see Figure 2). In 2012, B5 sales jumped 132 percent to 141.672 million gallons from the previous year (61.115 million gallons). 2012 was the first year in which BBFC credited retailers $0.045 per gallon of diesel containing a minimum of 5 percent biodiesel. This may have contributed to the larger B5 sales. Before 2012 the rate paid by BBFC was $0.03 per gallon of B2 or higher (see Table 1).
Figure 1: Iowa Total Diesel and Biodiesel Sales
Figure 2: Iowa Gallons of Biodiesel Blended Sales (Retail Level)
In 2015, the way in which biodiesel blended fuels were reported in the IDR’s Retailers Motor Fuel Gallons Annual Reports was modified in response to the changing patterns of sales (IDR, 2016). Several categories of blends were combined and the “Other” category was eliminated (see Figure 2). With the new classification, blends containing 11 to 19 percent (B11-B19) biodiesel were the most sold blends in Iowa in 2015, followed by blends with 5 to 10 percent of biodiesel (B5-B10). Almost 153 million gallons of diesel containing 11 to 19 percent biodiesel, and 146.434 million gallons of diesel with 5 to 10 percent biodiesel, were sold in 2015. Last calendar year (2016), sales of B11-B19 blends and sales of diesel blended with 20 percent to 49 percent biodiesel (B20-B49) were up 33.2% to 203.548 million gallons and 83.7% to 37.860 million gallons, respectively. In contrast, blends with lower biodiesel content declined. As Figure 2 indicates, B1-B4 blends fell 47.4 percent to 11.578 million gallons in 2016. Also, B5-B10 blends declined 13.5% to 126.701 million gallons year over year. Overall 2016 total biodiesel blended fuel sales were up 11% to 379.787 million gallons year over year.
Iowa Pure Biodiesel Sales
The amount of pure biodiesel used in the blends in Iowa has consistently increased since 2011, due to higher volumes of biodiesel blended fuel sales and shifting demand for biodiesel blended fuels with higher content of this biofuel. Figure 3 indicates sales of pure biodiesel have grown 234.3% from 13.973 million gallons in 2011 to 46.712 million gallons in 2016.
Figure 3: Iowa Gallons of Pure Biodiesel Sales by Type of Biodiesel Blended (Retail Level)
Biofuel Distribution Percentage
As indicated by IDR, the main purpose of the Retailers Motor Fuel Gallons Annual Reports is to provide the information required to assess Iowa’s progress toward replacing 25 percent of petroleum in gasoline with biofuels by the year 2020. Retailers are required to report to IDR gasoline, diesel, and biofuel sales each calendar year. Annual participation rate by retailers was 88.4%, on average, from 2011 to 2016 (IDR, 2011-2016), despite retailers’ requirement to report this annual information.
The retailer’s biofuel distribution percentage is computed as the ratio of pure ethanol gallons plus pure biodiesel gallons to total gasoline gallons sold (excluding any biodiesel or diesel gallons sold). Total gasoline sold includes total pure gasoline gallons plus ethanol blend gallons.
The formula to estimate the biofuel distribution percentage is:
Biofuel Distribution Percentage = (Pure Ethanol Gallons + Pure Biodiesel Gallons) / Total Retail Gasoline Gallons
Figure 4 shows the different components of the biofuel distribution percentage estimate (in million gallons). From 2011 to 2016, gallons of pure ethanol represented most of the pure biofuels (numerator) used to estimate the biofuel distribution percentage during this period, since ethanol, particularly E10 (gasoline blended with 10 percent ethanol), is the most sold fuel in Iowa. Pure ethanol sales have ranged from 126.159 million gallons in 2012 to 146.795 million gallons in 2016. On the other hand, pure biodiesel gallons sold ranged from 13.973 in 2011 to 46.712 in 2016. Again, since E10 fuel is the most sold fuel in Iowa, the largest component of the denominator in the biofuel distribution percentage formula is ethanol blended fuel sold. Total gallons of ethanol blend sold, which from 2011 to 2014 included E10, E15/20, and E85, and from 2015 to 2016 comprised E10, E15 registered, E15 flex, E20, and E85, ranged from 1.199 billion gallons in 2012 to 1.369 billion gallons in 2016. Sales averaged 1.275 billion gallons during the six-year period. Total gallons of pure gasoline sold in Iowa averaged 240.372 million gallons from 2011 to 2016 (see Figure 4). Pure gasoline sales in Iowa have declined from 261.786 million gallons in 2011 to 218.550 in 2016.
The biofuel distribution percentage increased from 9.7% in 2011 to 12.2% in 2016 (see Figure 5). The percentage attributed to pure ethanol in this estimate has increased from 8.6% in 2012 to 9.2% in 2015 and 2016. In addition, the percent attributed to pure biodiesel in the biofuel distribution percentage estimate ranged from 0.9 percent in 2011 to 2.9 percent in 2016 (see Figure 5). Any increase in biodiesel blend sales has a direct positive impact on the growth of the biofuel distribution percentage. The amount of pure biodiesel used in the blend sold is plugged into the numerator of the equation that estimates the biofuel distribution percentage, but the diesel and biodiesel blends sold are not part of the denominator of that equation (see equation above).
Figure 4: Iowa Biofuel Distribution Percentage Estimate Components | Figure 5: Iowa Biofuel Distribution Percentage
Other Iowa Laws and Incentives for Biodiesel
Besides the Biodiesel Blended Fuel Tax Credit, Iowa has other incentives for biodiesel, including the Renewable Fuels Infrastructure Program (RFIP) and the Biodiesel Producer Tax Refund. For details about the RFIP, see our May 2017 report. According to the U.S. Department of Energy, the Biodiesel Producer Tax Refund allows a biodiesel producer to apply for a refund of Iowa state sales or use taxes paid on purchases. The producer must register with the U.S. Environmental Protection Agency as a manufacturer to qualify for this refund. In addition, the biodiesel produced must be used in biodiesel blended fuel. The amount of the refund is calculated by multiplying the total number of gallons manufactured by the producer times $0.02. Each calendar year, the producer is eligible to receive a refund for up to 25 million gallons of biodiesel produced at each facility. The producer must file refund claims with IDR on a quarterly basis. IDR refunds the amount claimed by the biodiesel producer after subtracting any amount owing from the sales or use taxes imposed and paid on purchases made by the producer.
The Iowa Biodiesel Blended Fuel Tax Credit may be a factor that has contributed to stimulate retail biodiesel sales growth in the state. Not only did the overall amount of Iowa biodiesel blended sales increase from 2011 to 2016, but the demand for higher biodiesel content in the blends also increased. In 2011 the most common biodiesel blend sold in Iowa was B2 (diesel containing 2 percent biodiesel), whereas in 2016 the most popular biodiesel blend contained 11 to 19 percent biodiesel. The Iowa biofuel distribution percentage also grew from 2011 to 2016, with the most contribution coming from the sales of ethanol during this period, particularly from the sales of ethanol used in the E10 blend.
Although smaller than ethanol, continued increases in biodiesel sales from 2011 to 2016 have furthered the biofuel distribution percentage upward trend during this period, particularly in 2015 and 2016. Despite the increase in the biofuel distribution percentage, the percentage remains well below the legislative goal of 25 percent that needs to be achieved by 2020. With only three more years to reach this goal, increases in sales of higher blends of ethanol, such as E15 and E85, and biodiesel, such as B20, are needed to advance the Iowa biofuel distribution percentage.
On March 2, 2017, the Consumer and Fuel Retailer Choice Act (S. 517) bill was introduced in the U.S. Senate (Congress, 2017). The bill revises the Clean Air Act regarding the limitations on Reid vapor pressure (RVP) that are placed on gasoline during the summer ozone season. The bill seeks to apply the RVP requirements that pertain to E10 to gasoline blended with more than 10 percent ethanol. Approval of this legislation would allow consumers to have access to gasoline blended with 15 percent ethanol (E15) year-round. Iowa is one of the states in which E15 is not allowed to sell during the summer months (June 1 to September 15). Currently, retailers can only continue to sell E15 during these months if they use low volatile gasoline for blending, which is not piped into Iowa. If the S.517 legislation is approved, the disruption in availability of E15 during the summer months would be eliminated, and Iowa’s biofuel distribution percentage may get a boost, as accessibility to a higher ethanol blend would increase.
Congress, 2017. S.517 - Consumer and Fuel Retailer Choice Act. March.
Iowa Department of Revenue, 2014. Iowa’s Biofuel Retailers’ Tax Credits, Tax Credits Program Evaluation Study. December.
Iowa Department of Revenue, 2016. 2015 Retailers Fuel Gallons Annual Report. April.
Batres-Marquez, S. Patricia. 2017. “Biodiesel Blended Sales Trends in Iowa." Renewable Energy Report, Agricultural Marketing Resource Center, Iowa State University. August.