updated 1/7/2005 1:54:06 PM ET 2005-01-07T18:54:06

A major distributor of heating oil and diesel has started marketing “biodiesel” for home heating use, spurred by a new federal tax credit aimed at promoting alternative fuels.

Fred M. Schildwachter & Sons, the first New York-area terminal to market biodiesel for trucks, is offering the same fuel — a blend of 80 percent diesel and 20 percent soybean oil — to its home heating customers.

The move gives heating-oil consumers a means to lower their output of sulfur and other harmful emissions. If it catches on, the use of biodiesel could go a long way to ease the periodic supply tightness in the Northeast, the nation’s main heating oil market.

Schildwachter said the American Jobs Creation Act, which went into effect Jan. 1 and provides a $1 tax credit for each gallon of soybean oil used in petroleum products, will enable it to sell its biofuel at the same price as regular home heating oil.

'Win-win'
“People see the win-win situation of having a premium product at the same price,” said Dave Schildwachter, a principal of the family owned business. “It improves the environment, because there is no sulfur in soybean; it reduces our need to import oil from the Middle East; and it helps our farmers.”

Operating out of a terminal in the Bronx, Schildwachter sells about 40 million to 50 million gallons of heating oil a year to wholesalers and 5,000 and 10,000 retail customers.

Diesel, which is essentially a lower-sulfur version of regular heating oil, has long been used for heating purposes. But it’s never become a true substitute for heating oil, because it costs more. The new tax credit is aimed at making biodiesel more competitive with regular diesel and could have the effect of making it competitive with heating oil as well.

Media campaign
Schildwachter has been aggressively marketing its biofuel, running a radio commercial in the affluent Westchester County and taking out full-color ads in major news weeklies as well as the Swimsuit Issue of Sports Illustrated.

Recently Schildwachter conducted a survey of its customers and says the response was enthusiastic. Only a few more than 100 customers had signed up as of Friday, but the company is counting on steering a larger number of its customers to the environmentally friendly fuel.

“We hope to increase the market quite a bit, but we do it one step at a time,” Schildwachter said.

How big a market remains an open question. While biodiesel use has surged dramatically — the National Biodiesel Board estimates that 25 million gallons of biodiesel were sold in the United States in 2004 — it still represents less than 1 percent of the market.

The main reason is that biodiesel costs a lot more than regular diesel, according to Fred Mayes, an expert on alternative fuels at the U.S. Department of Energy. The high cost has been a “financial sacrifice for many people,” Mayes said.

Lower heat value but cleaner
As a heating fuel, biodiesel will have a slightly lower heating value, but that drawback will be more than offset for by its cleaner emissions, Mayes says.

“If the price is the same, there is no reason why it could not compete fairly comfortably with regular heating oil,” he said.

For now, only one other distributor is selling biodiesel for home heating — Abbott & Mills, which is based in New Jersey.

“It’s a drop in the ocean, but at least it’s a step in the right direction,” Schildwachter says. “It takes a bit of courage to do something new, but we see more pluses than minuses.”

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