Over a barrel

In his State of the Union address President Bush called for wider use of biodiesel and ethanol, as well as more clean-diesel vehicles. His goal is to reduce U.S. dependence on foreign oil and to decrease air pollution, but the plan raises many difficult and unanswered questions for truckers. One of the president's most ambitious targets is to reduce consumption of gasoline by 20% over 10 years. This

In his State of the Union address President Bush called for wider use of biodiesel and ethanol, as well as more clean-diesel vehicles. His goal is to reduce U.S. dependence on foreign oil and to decrease air pollution, but the plan raises many difficult and unanswered questions for truckers.

One of the president's most ambitious targets is to reduce consumption of gasoline by 20% over 10 years. This means a decrease of 8.5-million gallons by 2012. One of the ways to reach this goal, Bush said, is to establish a mandatory fuel standard that would require 35-billion gallons of renewable and alternative fuels by 2017, “nearly five times the current target.”

Currently, the Renewable Fuels Standard, outlined in the Energy Policy Act of 2005, calls for 7.5-billion gallons of renewable fuels by 2012. In addition, there is speculation that the Dept. of Energy will suggest a minimum mpg for heavy trucks as well as automobiles.

The president's proposals raise many questions. For one thing, one of the ways in which diesel use will be spurred is through tax credits. “So far, not one diesel has been certified for tax credits,” says Allen Schaeffer, executive director of the Diesel Technology Forum. “The first will likely be in 2008 or 2009.” Under the Energy Policy Act, owners of hybrid trucks are eligible for tax credits of up to $12,000 per truck to defray their higher price. The credits were supposed to be available in January 2006, but the EPA and IRS have not come up with a way to measure the fuel savings and determine their value. “These are new kinds of questions,” says Schaeffer.

Another issue is that of diesel cars and light-duty trucks, which, unlike the situation in Europe, have made little headway in the U.S. market. If the U.S. market begins to embrace diesel automobiles, will that increase interest in diesel distillation and lower the price per gallon as the economy of scale changes?

It's not certain, but a presentation at a Hart World Refining and Fuels conference in October, 2005 by Energy Information Administrations officials suggests that, assuming the U.S. does not create a separate light-duty vehicle (LDV) diesel fuel in the near term, refiners should see little impact of a developing LDV diesel market in the next decade. During this time period, refiners will see little shift in diesel/gasoline demand due to diesel LDV growth.

This is good news and bad news for truckers. On the one hand, they will not experience any shortages; on the other, they will not see any monetary benefits from a hoped-for increase in diesel use and subsequent production rise unless and until light-duty vehicles reach about 10% penetration, an unlikely scenario for the foreseeable future.

Another matter that complicates the issue for truckers is whether or not the federal government is serious about encouraging new technologies that go beyond the accepted sources of ethanol, corn and soybeans, into production of fuel from such items as wood chips and waste coal. On this issue, some say the Bush administration is sending a mixed message. For example, Bush's budget proposal cuts funding for an $800-million project in Pennsylvania, under way for more than a decade, to convert waste coal into zero-sulfur diesel fuel. “It's contrary to what the president said in his speech,” says Rep. Tim Holden (D-PA), in whose district the plant is operating.

In addition, some in the industry are concerned that Bush's push for greater use of alternative fuels will lead to a run-up in the price of biodiesel, for example. But according to Schaeffer, this is not likely to happen. “President Bush's comments in the State of the Union speech certainly raise the profile of renewable fuels like biodiesel as one solution to our addiction to oil,” he says. “But it is unlikely that his remarks would have any measurable effect on price or availability — it may buoy investors in that arena in the near term — but that's about it.”

Although both parties believe energy independence is vital, the details of such plans are complicated and bear watching by all stakeholders. Concludes Schaeffer: “It used to be a simple equation with diesel, but it's becoming more complex.”

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