By Frank Lovece, Habitat
Biofuel tax credits may be the next big thing in energy savings.
He has seen the soybean, and it works. Plus, it gives him a tax credit.
“There were really no downsides,” says Paul Miller, president of the prewar co-op at 308 East 79th Street, speaking of his 189-unit building’s seamless conversion to biofuel heating oil. “There were no capital costs in terms of equipment changes, since you use the same equipment as you do for regular [petroleum] oil, and our upkeep costs went down, since [biofuel] burns so much cleaner,” he says. “We had a monthly contract for maintenance of the physical plant, and almost immediately we were able to go to every other month. So, we saved money right away. It makes our accountant and our treasurer smile,” he adds, chuckling.
As well they should: for a 1928 building, Miller’s co-op is being very 21st century. And just in time, too. Starting in October 2012, the recently signed Local Law 43 will require all heating oil sold within New York City to contain at least two percent biodiesel. That law will also require the familiar No. 4 heating oil to contain no more than 1,500 parts per million of sulfur, half of what’s allowable now. And both those things come atop New York State’s new “Clean Heating Oil” law, which mandates that No. 2 heating oil go from 2,000 ppm of sulfur to just 15 ppm, a drop of 99 percent.
“The intention of the state and the city are to clean up the fuels in New York, and biodiesel has zero sulfur,” says Gene V. Pullo, CEO of the Brooklyn-based Metro Energy, Miller’s supplier and one of a handful of companies that locally supply biofuel (some others include: Schildwachter Fuel Oil and Tri-State Biodiesel).
That’s the generic name for any fuel that contains plant product or animal fat, whether it’s corn-based ethanol for cars or soybean-based “biodiesel” for heating oil. (Biodiesel can include many types of oil or fat, but a treated form of soybean oil is the most common.) Biofuel heating oil ranges from B2, which is two percent biodiesel and 98 percent petroleum, to B20, which is 20 percent biodiesel and 80 percent petroleum.
“New York City consumes one billion gallons of heating oil annually, more than any other city in the United States,” City Councilman James Gennaro, who sponsored the legislation, said in August when Mayor Michael Bloomberg signed the bill into law. “This will annually replace 20 million gallons of petroleum with an equal volume of renewable, sustainable, domestically produced biodiesel.”
Credit Where Credit Is Due
To help with the transition, the New York State Department of Taxation and Finance has been offering a “Clean Heating Fuel Credit” (tax form IT-241) for all biofuel purchases made through December 31, 2011. Buildings using biofuel get a tax credit of one cent a gallon for each percent of biodiesel blended with conventional home heating oil, up to a maximum of 20 cents a gallon. Or as Miller puts it simply, “The tax credit is based on the percentage of ‘B’ used. Using B20 would give you 20 cents tax credit per gallon used.”
Think about how many gallons of heating oil you utilize a year, and you get an idea of the size of the tax credit. There’s even a provision in case your tax credit winds up being more than your tax liability for a given year: you get a refund (as opposed to a carryover credit into the next tax year).
“It’s a one-page form that you fill out and give to your accountant, and it gets attached to your tax return,” says Miller. “That’s as simple as it is. You put down your usage and your percent of biofuel. It’s not like you have to go through arm wrestling – you have the paperwork documentation to prove it,” in the form of the same type of delivery receipts you’d get from any other heating-oil company.
However, cautions CPA Stephen Beer, a partner in the accounting firm Czarnowski & Beer, the credit applies to the New York State corporation tax, “so it generally will only benefit co-ops. Condos don’t generally pay New York State corporation tax. They are taxed as a corporation,” he says, “but there’s a specific exception for homeowner associations that don’t have taxable income on the federal return. So unless a condo shows a profit on its federal return, it doesn’t pay New York State corporation tax,” which, he adds, “caps at $1,500 anyway, though there’s also a 17 percent surcharge [on the tax amount] in the New York City metropolitan area.” His bottom line, for condos in particular: “Evaluate it with your tax adviser.”
An Oily Adopter
In any event, says Pullo, his company sells biofuel to “well over a hundred” residential buildings in Manhattan, including co-ops, condos, rental buildings, and townhouses. Miller’s co-op hopped on the biofuel bandwagon earlier than most, partly because he was familiar with it through his job as creative director of the marketing and branding company the Pinwheel Group (pinwheelgroupinc.com), which consulted with the city on the clean-fuel mandates. But as part of a young-blood slate that replaced the leadership that had dominated the six-member board since the building’s conversion 24 years ago, Miller also spearheaded the change “to help get rid of some of the negative baggage that had accumulated” with his building’s image.
“Some of the online real estate blogs had been giving us a bad rap about the old board – that it was run with an iron fist, that the building didn’t allow certain animals, which we do, that we didn’t allow pieds-à-terre, which we do. Once you have negative postings on the internet you can’t get rid of them, so you have to put out a positive image and positive deeds. And one of our positive deeds is to take a strong, sustainable position in improving energy efficiency, water usage, and reduction of waste.”
That was part of a pattern of change to the calcified co-op. The new slate of board members, elected in March 2010, “changed a number things – our legal representation, our managing agent, and our conversion to biofuel within three months” of taking office. They also created a website (http://www.308east79.com) “in order to give people in the building a way to know what’s happening,” Miller says.
How did he sell the biofuel conversion to the shareholders? “We didn’t have to sell it to the shareholders,” he notes. “As a board it’s our fiduciary responsibility to do the right thing. One goal was not only to improve the indoor air quality but also be fiscally responsible because we needed to bring our costs down.”
Full Steam Ahead
What was his first step in going biodiesel? Talking to heating-oil companies and having them make presentations. Miller was familiar with Metro in particular because of the company’s outreach efforts. “I’ve spoken at a number of events,” says Pullo, “and we’ve made presentations to various agencies and organizations. Paul had attended one, and that’s actually how I got to speak with him.”
Once a firm was chosen, Miller’s board had to decide what type of biofuel to use. “We have two co-treasurers,” Miller says. “When they heard the tax credit we could get, they wanted to go straight right to B20,” which contains 20 percent biodiesel and offers 20 cents a gallon in tax credit. But at Metro’s suggestion, the board decided to transition more gradually – no two boilers and buildings are exactly alike, and there’s no single formula for what will be the most efficient bioblend.
“We were on No. 6 oil,” Miller says. “We switched to a B5 blend of No. 6, and we have just changed to a B10. And by next year we’ll be moving to a No. 4 oil with B10. The BTU value is up,” he notes, referring to British Thermal Units, a standard measure of heat, “and the efficiency peak seems to be around the B10 area.” So, while in this case a B20 biofuel might not produce heat any more efficiently, the building may eventually move to it anyway for the tax credit, which at 20 cents per gallon is double that of the credit for B10.
While biofuel generates fewer BTUs than a comparable amount of petroleum oil, the difference is arguably offset by burning biofuel more cleanly, thereby producing less soot inside the boiler and the “stack,” which is the industry term for a chimney or similar outlet. “As the boiler gets impacted with a buildup of soot inside,” says Pullo, “the burner has to work harder to generate heat because the boiler metal isn’t getting heated as fast. With biofuel there’s less sooting.”
You can determine your system’s heat efficiency by measuring what’s called the “stack temperature.” If the stack temperature is high, it means heat is escaping up the chimney, says Pullo, “because the boiler has to overwork because of the [soot] impaction.” With a cleaner burn and less soot, “you’re not impacting your boiler as fast and your stack temperature goes down drastically. In Paul’s case, it went down 50 degrees in the first couple of weeks of using biofuel. That’s a big improvement.”
All this might sound like sales hyperbole – except that Miller, who is there in the trenches, agrees with Pullo. “It burns so much cleaner,” the board president says of the biofuel his building uses. “You can tell because of the stack temperatures. We have a chart that’s now a year old and we can see the progress, which is wonderful to see.”
Not everyone’s convinced, however. “Buildings of mine that have done it haven’t seen the savings,” says Beer. “They may get the tax credits, but they’re not getting the cost savings they expected.” While biofuel may burn more cleanly, those buildings’ boards “may not be getting the BTUs they expected.” Then, again, the CPA admits: “Maybe the buildings where it does save money aren’t out there saying, ‘We’re getting the benefits,’ and I’m just hearing the negative side.”
Still, biofuel isn’t a panacea – two studies published in the journal Science in 2008 suggest that biofuel production results in new lands being cleared, either for food or fuel, and that replacing rainforests, grasslands, or scrubland with cropland adds to the greenhouse effect. And while biofuel burns cleaner than petroleum oil, a certain amount of carbon emissions occurs from refining and transportation. (Nor is natural gas a silver bullet. While it also burns more cleanly than oil, it still contains carbon emissions and the extraction process called hydraulic fracturing can contaminate watersheds.)
But other sources purport to show statistically that rainforest deforestation decreased from 1990 to 2005, a period in which biofuel began to be available in mass-market amounts, and still others point to myriad complexities that cloud simplistic claims one way or the other. And most everyone agrees that moving away from petroleum oil has to happen in the long run, its place taken by a variety of alternatives from solar to wind to wave to geothermal to biofuel.
And in terms of thinking globally and acting locally, the biofuel conversion at 308 East 79th Street has been “nothing but a plus,” Miller says. “Families are thrilled we’ve taken the initiative to go to biofuel, to be a trendsetter and a leader.”