The ins and outs of eco-friendly fuel.
In the Spring 2006 issue of Outside Bozeman, we told you about Scott Brown. He's a local guy who runs Desert Rose Catering and started making biodiesel on the side.
Scott's not the only American who's caught the bio-brewing bug. After all, if you can figure out how to make the stuff, you'll never have to buy gas again—you might even think about selling a little. But ironically, the mechanics of making and selling biodiesel is the easy part—at least for Scott Brown. His challenge is keeping up with regulatory and tax systems that are just trying to keep up with him.
Making Biodiesel Is the Easy Part
Even though Rudolph Diesel's namesake engine ran on biodiesel back in the 1890s, biodiesel is the cutting edge of today's alternative fuels movement. The exact "recipe" isn't hard to find (several websites like biodieselcommunity.org offer detailed online tutorials), but making it does take time, space, equipment, and some comfort with chemistry. Scott, for example, takes used vegetable oil from 13 to 15 restaurants around town (some biodiesel makers use "virgin" oil); strains it and puts it into reaction tanks where methanol and lye change the viscosity of the oil and get the glycerin out; transfers it to another tank that essentially "washes" the fuel to reduce the acidity; and then heats it to remove water. After about a week, what's left is biodiesel—amber-ale-looking fuel that produces far fewer emissions than conventional diesel and can run in any standard, unmodified diesel engine. And the customers are lining up.
Scott's Desert Rose Biodiesel is one of many one-man-show biodiesel blenders and sellers around the country. And although what he's doing is not illegal, regulations make it pretty hard to enter the business or just make your own biodiesel with the grease in your mother's Fry Daddy.
For example, according to the Montana Department of Transportation, anybody who produces, refines, manufactures, or compounds biodiesel for sale, use, or distribution is considered a distributor and has to get a license. This includes "all persons regardless of the amount they produce or manufacture, or if their intent is for personal use only." The Department's website doesn't quibble: "Every gallon of fuel used to propel a motor vehicle upon the highways, roads, and streets of Montana is taxable." So Scott spent the last year working with various licensing authorities and enduring visit after visit and meeting after meeting with various state agencies, the IRS, Congressional offices, and other parties that became involved through the domino effect.
Why didn't he just go underground and avoid the paperwork headache? Subsidies. If Scott jumps through the hoops properly, he'll be eligible for a $1 per gallon tax credit from the federal government and $0.10 a gallon from the state of Montana.
But there is something else he must do for those subsidies: taint the stuff. Scott has to add at least 0.1% of petroleum diesel to his biodiesel (a token 1.6 cups of petroleum diesel per 100 gallons of biodiesel)—and pay the excise taxes on that petroleum diesel—in order to qualify for the tax credit. Why? Because manufacturers generally don't have to pay excise taxes on biodiesel. They do on petroleum diesel, however. It's a good example of how a tangled regulatory environment often hounds emerging industries, and it partially explains why biodiesel is sold in a variety of blends, from B5 (diesel that's five percent biodiesel) to B99 (99 percent biodiesel), but rarely as B100. ("If we'd brought Gore into office," Scott says, "we wouldn't have to do this.")
One Man's Journey
Scott's production of 7,800 to 10,400 gallons of biodiesel a year might be a drop in the tank considering that the U.S. produced an estimated 150 to 225 million gallons of biodiesel in 2006. Yet Desert Rose is one of the largest producers in the Gallatin Valley. ("I can't keep up with demand!" he exclaims.) Over the last year, Scott's invested about $20,000 in equipment and gone from two processing tanks to 10.
Scott's making more money, of course. Last year, it cost him about $1.25 to make a gallon of biodiesel; today he says it's more like $1 (partially because he started buying methanol and lye in bulk). He sells his biodiesel for about five cents less than regular diesel (which cost about $3.45 a gallon at printing). With margins like that, it's no wonder 80 biodiesel plants were under construction in the U.S. as of September 2007 according to the National Biodiesel Board. Scott's already feeling the pressure: he's had to match Pacific Pride's price in Belgrade for subsidized B-20.
It's all enough to give the average guy a headache. But as with most entrepreneurs, Scott loves his business and industry. He's genuinely passionate about what he's doing for his community and his family ("Quit urbanizing all the farmland and start growing oil!" he says). And as with most entrepreneurial ventures, growth hasn't been smooth or easy. Yet somehow the byzantine state and federal regulations haven't intimidated Scott. "The most amazing part of this whole thing is that you don't need a permit to buy 10 drums of methanol and pounds and pounds of lye. The delivery guy is like, 'What does the fire marshal think of all this?'"