Making sense of new diesel types in excise tax reporting

Written by: Bob Donnellan

Making Sense of New Diesel Types

As the industry continues to develop new fuel blends, it can be challenging to understand how to report them.  This challenge is especially true regarding diesel fuel and the rise of the renewable diesel product line.  Here is a breakdown of the renewable diesel category and how it can impact your reporting practices:

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    What's a renewable diesel?

    Renewable diesel, also known as green diesel, is chemically identical to traditional petro-diesel. The difference is how the final product is created because there is no petroleum is used in its development.  It has a higher cetane rating meaning it burns cleaner than petro-diesel and its stability makes it easier for engines to start in colder weather. It also lasts longer in storage.

    The creation process

    Renewable diesel is created in one of three processes: hydrotreating, thermal conversion, and biomass-to-liquids (BTL).

    Hydrotreating:

    A feedstock, as in a by-product from another refinery process, is reacted to hydrogen under elevated temperatures and pressure to change the chemical composition of the feedstock to diesel.

    Thermal conversion

    Carbon-containing solid waste and animal waste are processed to create a fuel that meets the standards of ASTM D396 and ASTM D975.

    Biomass-to-liquids (BTL)

    Cellulosic material, like algae, is converted through high-temperature gasification into a synthetic gas or syngas. A syngas is a mixture rich in hydrogen and carbon monoxide and is converted to liquid fuel by a set of chemical reactions.

    Regardless how the renewable diesel is created, the final product is the same and can be blended with traditional petro-diesel or used in its purest form.  Renewable diesel does not have a consistent naming convention across the industry, so it is imperative that filers can compare data types when receiving fuel information from suppliers and distributors.

    How to report renewable diesel

    Because of the new nature of renewable diesel, there isn’t an outlined procedure in the tax reporting of its movement or use.  Jurisdictions primarily lump renewable diesel with traditional petro-diesel taxation. Through our conversations with reporting agencies, a classification system will not be determined until market factors increase volume of renewable diesel in the market place.  However, once renewable diesel becomes more mainstream, we see incentives for users in reporting its use.

    Whether it is lower taxation moving forward from a point in time or refunds on previously handled renewable diesel, it is important you have a transparent data system that helps you track the flow of transactions. IGEN’s technology allows users to place internal classifications for speciality products and equate them into current reporting formulas.  We believe as the industry becomes more mainstream with renewables, our clients can easily report in the new paradigm.  Stay consistent on what categories you place specific fuel blends and keep open communication with your jurisdiction contacts. The IGEN staff will keep you informed of any updates that impact the reporting process.

    This analysis is intended for informational purposes only and is not tax advice.  For tax advice, consult your tax adviser. See the full disclaimer here.