What is BioheatŪ?
BioheatŪ is a registered trademark for heating oil blended with varying percentages of biodiesel for use in conventional oil burners. Biodiesel is diesel fuel produced from domestic renewable resources such as recycled vegetable oils, rendered animal fats, and virgin oils (e.g. safflower, mustard, canola/rapeseed, cottonseed, jotropha, camelina, and soy). Biodiesel can also be produced from algae.

Most existing residential and commercial oil burners are compatible with bioheat blends up to at least 20 percent (20% biodiesel, 80% heating oil). A recent report estimates that B20 Bioheat has the following pollution benefits: CO2 (15% reduction), CO (12% reduction), PM (12% reduction), NOx (20% reduction), SOx (20% reduction) and Toxics (12-20% reduction). Just a 10 percent market penetration of B20 bioheat in Massachusetts would displace 19 MGY of imported oil and reduce CO2 emissions by an estimated 15,000 million metric tons per year.

Roughly 69 percent of the U.S. heating oil market - or about 4 billion gallons per year - is located in the northeast region. Bioheat can cost slightly more per gallon (usually several cents per gallon) than conventional heating oil, depending on the blend and the price of oil. However, heating oil consumer alliances have eliminated the additional expense, and at times the retail cost of Bioheat has been lower than regular heating oil. In addition, there are substantial local environmental and economic benefits to promoting bioheat. There is substantial local private sector interest in distributing bioheat and producing biodiesel.

Pennsylvania and Maine are using bioheat blends to heat public facilities. Rhode Island has been using bioheat in the public school system since 2002. New York provides a 1-cent per gallon consumer-side tax credit for biodiesel use in bioheat (i.e. 20 cpg credit for B20).

How should we promote the use of Bioheat?
One way to promote the use of Bioheat is to offer consumer-side state tax incentives for purchasing bioheat. New York State currently offers heating oil customers an income tax credit of 1 cent per gallon of biodiesel used for Bioheat (i.e. 20 cents credit per gallon of B20 Bioheat; 5 cents per gallon of B5 Bioheat). States could adjust the incentive, dynamically or manually, based on relative market prices of Bioheat and regular heating oil. The primary advantage of consumer incentives is the benefit is guaranteed to reach the consumer. The primary disadvantage is stakeholders must be willing to commit resources to making consumers aware of the program.

A second way to promote the use of Bioheat is to offer distributor-side incentives. Several states offer incentives to fuel wholesalers and distributors to store, blend, and distribute non-petroleum transportation fuels. For example, several states provide fuel wholesalers with a tax credit for every gallon of "biodiesel blend" sold (usually with a minimum blending percentage, e.g. 5 percent). A similar program could be implemented by northeast states. Like the consumer-side tax incentive, it could be dynamically or manually adjusted to create price parity with regular heating oil. The primary advantage of this approach is wholesalers are the decision-makers in the sector, and are in the best position to change the market. The primary disadvantage of this approach is there is no guarantee that savings will be passed on to the consumer.

Of course, such incentives would be far less important if the state or region enacts a fuel performance standard (e.g. Renewable Fuels Standard) that encompasses the heating oil markets. A performance standard would spur infrastructure investments as a natural consequence of predictable market demand increases.