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Legal Perspective

Protecting Fuel Quality
By Todd J. Guerrero and Mark J. Hanson | January 10, 2007
Following the recent well-publicized biodiesel testing results, the industry has appropriately focused its attention on assuring that only high-quality biodiesel is produced and sold in the United States. Poor fuel quality harms users, undermines political support, and ultimately, could weaken the industry. From a legal perspective, protecting fuel quality is straightforward on paper, but can often be difficult to sort out after the fact.

The disruptions that fuel quality issues can create within the marketplace were experienced firsthand in Minnesota last winter with problems involving clogged filters. Liability for fuel quality issues was difficult to determine. Was the clogging caused by poor-quality fuel or inadequate maintenance? If poor-quality fuel was the culprit, where did the fuel originate, and what caused it to be out of spec?

The National Biodiesel Board (NBB) and the industry at large are taking fuel quality seriously. The NBB, through its Fuel Quality Policy, has long stressed that all biodiesel manufacturers adhere strictly to the American Society for Testing and Materials (ASTM) D 6751, the industry standard for pure biodiesel that can be used in blends up to 20 percent with diesel fuel. The NBB's more recent BQ-9000 program seems to be gaining traction. The program offers accreditation and certification for producers and marketers, respectively, that follow approved storage, testing, blending, shipping and fuel management practices.

So what kind of legal provisions should biodiesel producers, marketers and purchasers (primarily wholesale) inquire about as they continue to conduct business in this marketplace? Producers should insist on three fundamental warranties from the firm that is design/building a plant-essentially warranties with respect to yield, throughput and specifications (quality). The yield warranty means that the plant, once commercially operable, will yield no less than x gallons of biodiesel per y pounds of applicable feedstock. If the plant is capable of utilizing multiple feedstocks, the yields will need to be adjusted accordingly. The throughput warranty is intended to assure that the plant will produce x gallons of biodiesel in any one continuous 24-hour day. The specification warranty is intended to assure that the plant produces ASTM D 6751 quality fuel. The contract should also allow for samples to be tested after the plant is commercially operable. In addition, producers selling biodiesel to marketers and blenders should now be requiring marketers to be BQ-9000 certified. Write it in the contract.

In purchasing biodiesel from a producer, contracts should have similar, but not identical, provisions. Purchasers can be less concerned about throughput and yield-those are the producer and design/builder's worries. Instead, with respect to fuel quality issues, the purchaser's main concern should be that the fuel meets ASTM D 6751 standards. Because actual fuel quality is subject to testing and samples, which purchasers should also provide for in purchase contracts, and because testing can take time and cost money, purchasers should consider requiring that the producer-in addition to warranting the product-be BQ-9000 accredited. Also put this in the contract.

Even those purchasing biodiesel from a marketer or blender for use in company vehicles/fleets should pass the fuel quality obligation upstream. Include in your purchase agreements a requirement that the marketer certifies the biodiesel being purchased as ASTM D 6751 spec and was sourced from a BQ-9000 accredited producer. Require also that the marketer itself be BQ-9000 certified. Again, put it in the contract.

Of course, what happens when poor fuel quality becomes an issue is often unpredictable. What is predictable is that it is unpleasant and disruptive. With well-constructed contracts, however, liability would be more likely to fall on those who fail to live up to their commitments regarding quality. Equally important is that more widespread use of these simple, straightforward representations in all biodiesel contracts will provide additional incentives for the industry to maintain biodiesel as a high-quality fuel.

Todd Guerrero and Mark Hanson are members of the Agribusiness & Energy Practice Group of Lindquist & Vennum PLLP, a leading provider of legal assistance on biofuels projects throughout the country. For more information, visit www.lindquist.com or call (612) 371-3211.
 

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