innovate arkansas

Biofuels have generated more interest in Arkansas than any other “green” topic over the past couple of years. And that interest will be picking up as the Legislature gets set to ponder incentives for an industry that holds great potential.
Gov. Mike Beebe, in his inaugural address this month, said he would “work with the legislative leadership on crafting a tax credit for the construction of crushers and other biofuel infrastructure. For an investment today, we can seed the industry of the future right here in our own backyard.
“Today, there is the potential to create gasoline — not ethanol, but gasoline — from cellulose products already growing right here in Arkansas.
“Imagine stopping at a gas station and filling your tank with fuel made from Arkansas wood products and created at an Arkansas biorefinery.”
What Beebe was referring to is more than just biofuels. Biofuels are part of the equation, but the real opportunities for the state lie in bio-mass production that produces cellulosic biofuels, which will lead to a bioenergy economy, said Chris Benson, director of energy programs for the Arkansas Energy Office, part of the state Department of Eco-nomic Development.
President Bush has pushed biomass in his State of the Union addresses the past couple of years, but little has been done since to move the nation to a renewable energy economy.
Most hear only about ethanol or biodiesel, two biofuels, but biomass encompasses much more. Benson said the state was rich in biomass sources such as rice straw, wheat straw, wood chips from forest residue, chicken litter and, yes, the switchgrass that drew ridicule after Bush mentioned it in his speech last year.
University of Minnesota researchers say the entire U.S. soy crop could supply only 6 percent of the nation’s diesel needs, but fuels “produced from low-input biomass grown on agriculturally marginal land or from waste biomass could provide much greater supplies and environmental benefits than food-based biofuels.”
Last week, Bush, emphasizing the need for energy independence and security, called for a plan that would give a 20 percent cut in gasoline consumption over the next decade through new fuel-economy standards and federal mandates for using ethanol and other alternative fuels.
Last year, the president called for doubling the research for fuels made from farm wastes such as corn stalks and straw. However, his proposed funding for the first commercial-sized plants never made it through Congress.
His new plan seeks to increase federal targets for use of renewable and alternative fuels to 35 billion gallons by 2017, an amount the president said would reduce projected gasoline consumption by about 15 percent.
All that sounds very promising for a state that could become a large energy producer using what is now essentially waste material.
There seems to be little doubt Arkansas could be a national leader in a changing energy market, not to mention the economic opportunities it could bring to the state.
It’s hard to find anyone against the use of biofuels. After all, they could help the United States reduce its dependence on foreign oil, they are cleaner-burning and so could reduce air pollutants, and they come from renewable sources, unlike the finite supply of petroleum.
Many Arkansans are beginning to see a transition that will bring about a steady and growing market for soybeans, corn, sugarcane, grasses, wood chips — just about any renewable source that can be turned into fuel. Getting the most statewide attention, at least so far, has been biodiesel, a low-polluting diesel alternative made from vegetable oils, animal fats or even recycled cooking greases.
Another biofuel, ethanol, is simply not seen as a good fit for the state. Ethanol is an alcohol-based fuel derived from crops such as corn, barley and wheat.
There are, of course, other alternatives such as natural gas, electricity and propane, but those that come from crops have the most new potential.
State Incentives
Although there are a few who suspect recent Legislative initiatives to boost the state’s fledging biofuel industry are just another welfare plan for the Delta region, everyone influenced by agriculture in the state — and that’s just about everybody — remains solidly behind the development of a biofuel industry as a way to create jobs and wealth.
Both the federal and state governments have adopted numerous incentives for biodiesel. And more are likely to get legislative approval in the current session.
House Speaker Benny Petrus, D-Stuttgart, who wants to make Arkansas the “Silicon Valley of alternative fuels,” has introduced one measure and plans to introduce a major biofuel bill this week to help both farmers and biodiesel producers.
Already before legislators is a measure to change the sales tax on off-road fuels to a per-gallon tax and lower the tax rate on the bio part of the diesel fuel.
This week Petrus said he would present a $20 million measure that would make available $16 million of incentives and provide $2 million for Univer-sity of Arkansas research and development on biofuels and another $2 million for weatherization efforts.
The incentives are broken into three parts, he said. The first is for infrastructure for biodiesel producers. It would pay 15 cents a gallon but with a $2 million cap per firm per year.
The second component of the bill would be for grants up to $50,000 for distributors of biofuels for warmers in tanks to prevent jelling or for extra tanks.
The last component is a tax credit to boost feedstock production — such infrastructure needs as crushers — and again capped at $2 million.
“It makes sense [for ADED] to support the biodiesel efforts,” Benson said. “It will increase the value of biomass in the state.” Currently, he said, 90 percent of the money Arkansans spend on petroleum goes out of state.
“If we can replace some of that with a homegrown resource, it will add to the state’s economy,” Benson said. Arkansas is among the top seven states in production of substances that could be used to produce cellulosic biofuels, he said.
So ADED sees two goals in helping the biofuel industry get off the ground: economic development and lessening the dependence on petroleum.
The three biggest barriers are price, availability and awareness, Benson said. Incentives can help increase the supply, which will help the price; and incentives are needed to build the infrastructure to make biofuels readily available, he said.
A concerted effort to inform people about biofuels is also needed. “People don’t know about it; they don’t know what to do or where the outlets are,” he said.
Another measure that has been talked about would expand the state Rice Straw Tax Credit to include not only rice straw but any available biomass.
Currently, the state’s Biodiesel Incentive Act of 2003 allows for an income tax credit for biodiesel suppliers for up to 5 percent of the costs of the facilities and equipment used in the wholesale or retail distribution of biodiesel fuels.
The act also provides a tax refund to suppliers on the sale of biodiesel fuel that is to be used in producing a biodiesel fuel mixture. The refund will be 1 cent for each gallon of biodiesel fuel used by the supplier to produce a biodiesel mixture of more than 2 percent biodiesel.
At the federal level, the Energy Policy Act of 2005 offers a small producer of biodiesel or ethanol a 10-cents-a-gallon tax credit for up to 15 million gallons of agri-biodiesel produced. Congress has also put in place a volumetric “blender” tax credit as well as an alternative fuel refueling infrastructure tax credit.
The Environmental Protection Agency’s alternative fuels incentive grant program promoted the use of alternative fuels and vehicles by helping school districts, transit authorities, local government agencies and nonprofit organizations buy down the added cost to use biodiesel fuel.
Central Arkansas Transit has been using biodiesel since last October, said Barry Beaver, director of maintenance. The system’s 57 big buses and 19 vans are using B5, a 5 percent blend of biodiesel with regular diesel. “So far, there’s nothing negative,” Beaver said, “except that it’s hard to get.”
He said the diesel engine manufacturers had warned that using any blend higher than 5 percent biodiesel would void their warranties. The system uses 15,000 gallons of fuel a week, about 800,000 gallons a year.
Other users of biodiesel include the three public school districts in Pulaski County, Central Arkansas Water and the Little Rock Air Force Base. (All Department of Defense vehicles at posts and bases nationwide use biodiesel under a federal mandate.)
The state Energy Office is trying to encourage fleet operators to use biodiesel, for which there is a credit of 1 cent per percentage of biodiesel in each gallon.
Biodiesel Today
So, where does the state stand today? Six companies have announced plans to produce biodiesel in the state. Only two are actually producing now.
Patriot BioFuels Inc. of Stuttgart was the first company to announce plans and is currently producing 13 million gallons a year. Future Fuel Corp. of Batesville is producing 24 million gallons a year.
The four that have announced but not opened for business are:
• Green Way Bio Energy LLC of Little Rock, which expects to produce 5 million gallons a year;
• Pinnacle Biofuels Inc. of Crossett, 10 million gallons a year;
• Arkansas SoyEnergy Group LLC of DeWitt, 6 million gallons a year; and
• Delta American Fuels LLC of Helena, the most ambitious at 40 million gallons a year.
Together, if indeed all make it to production, the total capacity would be 98 million gallons of biodiesel a year, almost 10 percent of the 1 billion gallons of diesel Arkansans use every year (along with 1.5 billion gallons of gasoline, according to Energy Office figures). Arkansas ranks second in the nation in the amount of energy consumed per registered vehicle.
Truman Arnold Cos.’ Arkansas Terminaling & Trading in North Little Rock buys biodiesel from the two operational refineries in the state and blends biodiesel with conventional petroleum for delivery to filling stations. Mike Coulson of Coulson Oil Co. in North Little Rock is a partner in the terminal operation, which offers computerized ration blending.
A study by the National Biodiesel Board found that biodiesel plants sprouting up across the nation will add $24 billion to the U.S. economy between 2005 and 2015, assuming biodiesel growth reaches 650 million gallons of annual production by 2015. And biodiesel production will create a projected 39,102 jobs in all sectors of the economy.
The board claims the additional tax revenue from biodiesel production will more than pay for the federal tax incentives provided to the industry. And it will keep $13.6 billion in America that would otherwise be spent on foreign oil.
The board said late last year that there were 88 plants in the United States producing an estimated 200 million to 250 million gallons of biodiesel in 2006.
In Arkansas, biofuel production is projected to be 66 million gallons this year; none was produced in the state before last year. Arkansas is a major producer of soybeans, one of the best resources for producing biodiesel. Unfortunately, about 85 percent of the crop is shipped out of the state to be crushed to produce oil.
The only two soybean crushers in the state at present are at Riceland Foods Inc. and England Dryer, and both make cooking oil. Arkansas SoyEnergy has plans for a crusher on the site of the plant at DeWitt, Benson said, and this is the type of investment that incentives can help with.
“We have the potential not only to develop our agriculture sector, but our industrial sector through biorefineries, making agriculture and industry partners at some point. It is a big economic deal and brings all sorts of possibilities.”

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