RFS proposal limits US biodiesel from full potential

By Ron Kotrba | July 05, 2017

The U.S. EPA has finally issued its first Renewable Fuel Standard proposed rule under the new Trump administration. The agency released its 2018 renewable volume obligations (RVOs) proposal for conventional, cellulosic and advanced biofuels, and its 2019 RVO proposal for biomass-based diesel. The 2018 biomass-based diesel RVO was set last year at 2.1 billion gallons, which is where EPA proposes to keep the RVO for 2019.

The agency also proposes to slightly lower the overall advanced biofuels category from 4.28 billion ethanol-equivalent gallons this year to 4.24 billion gallons next year. One gallon of biodiesel is equivalent to 1.5 gallons of ethanol in the RFS program.

The 2018 RVO proposal for conventional biofuels (i.e., corn ethanol) is at the statutory cap of 15 billion gallons. The cellulosic ethanol RVO proposal for 2018 is 238 million gallons.

The National Biodiesel Board has advocated for EPA to set the 2018 advanced biofuel requirements at a minimum of 5.25 billion ethanol-equivalent gallons, nearly a 1-billion-gallon increase over 2017’s advanced biofuel RVO of 4.28 billion gallons. For biomass-based diesel, NBB believes EPA should set the volume for 2019 at 2.75 billion gallons, an increase from 2.1 billion gallons for 2018 and a break from EPA’s annual increase of 100 million gallons over the past few years. The U.S. market absorbed nearly 3 billion gallons of biomass-based diesel in 2016, roughly a third of which was imported.

Larry Schafer, the co-founder of Washington, D.C.-based consulting firm Playmaker Strategies, spoke in June at the National Advanced Biofuels Conference & Expo in Minneapolis, where he said biomass-based diesel production and import numbers released so far this year indicate that—despite the lapsed tax credit and increased political uncertainty—the U.S. biodiesel market is on track to be about 5 percent greater this year over last, with a third of the market again supplied by imports.

The obvious concern for the U.S. biodiesel industry is that, with nearly 2 billion gallons of domestic biomass-based diesel production in 2016, a proposal of 2.1 billion gallons for 2019 doesn’t leave much room for growth—even if tariffs are imposed on Argentine and Indonesian biodiesel and the blenders tax credit is reformed to a domestic producers credit. Furthermore, if this proposal becomes enacted, it would end a trajectory of growth for biomass-based diesel established by EPA over the past several years, however modest an annual increase of 100 million gallons might be.

“This is only a proposal, and, in the past, the EPA’s final numbers have been higher than those in the proposal,” said Anne Steckel, NBB’s vice president of federal affairs. “We will continue to work with the EPA and ensure the administration doesn’t turn its back on our domestic energy producers.”

Steckel said the proposal continues to underestimate the ability of the biodiesel industry to meet the volumes of the RFS program.

“This is a missed opportunity for biodiesel, which reduces costs, provides economic benefits and results in lower prices at the pump,” she said. “Higher advanced-biofuel and biomass-based diesel volumes will support additional jobs and investment in both rural economies and clean-energy-conscious communities. The EPA should be committed to diversifying the diesel fuel market and prioritizing advanced biofuels. Targets like this ignore reality and the law, inhibiting growth in the industry.”

EPA’s reasoning in proposing to keep the biomass-based diesel standard at 2.1 billion gallons in 2019 is to encourage development and production of a variety of advanced biofuels. “We continue to believe that preserving space under the advanced biofuel standard for nonbiomass-based diesel advanced biofuels, as well as biomass-based diesel volumes in excess of the biomass-based diesel standard, will help to encourage the development and production of a variety of advanced biofuels over the long term without reducing the incentive for additional volumes of biomass-based diesel beyond the biomass-based diesel standard in 2019,” EPA stated in the RFS proposal. “A variety of different types of advanced biofuels, rather than a single type such as biomass-based diesel, would positively impact energy security.”

EPA continued, stating that, “While we believe it is important to provide continued support to the biomass-based diesel industry, we do not believe it is necessary to increase the biomass-based diesel set-aside in 2019 in order to do so … We expect that the 2019 advanced volume requirement, when set next year, will determine the level of biomass-based diesel production and imports that occur in 2019. Therefore, EPA continues to believe that the same overall volume of biomass-based diesel would likely be supplied in 2019 regardless of the biomass-based diesel volume we mandate for 2019 in this proposed rule.”

This begs the question, if EPA’s motivation in limiting biomass-based diesel is to foster development and production of a more diverse pool of advanced biofuels over the long term, why does the agency propose a cut in the advanced biofuel category from this year to next? One might also argue that if the biomass-based diesel subcategory is constrained within the overall advanced biofuels category, this could open the door to more imported sugarcane ethanol from Brazil—not exactly the diverse growth in advanced biofuels that EPA claims is its motivation behind limiting biomass-based diesel. Furthermore, growth of sugarcane ethanol from Brazil in the advanced biofuel category cannot achieve the energy security that domestically produced biodiesel provides.

Iowa Renewable Fuels Association Executive Director Monty Shaw said, “Unfortunately, a change in administrations did not change the EPA’s underappreciation for the potential of U.S. biodiesel production. Keeping biodiesel levels frozen at 2.1 billion falls short of U.S. industry capabilities, even before imports are considered. With plants in Iowa running under capacity, IRFA will be urging the EPA during the public comment period to increase the final biodiesel level. The best thing the Trump administration can do to impact biodiesel imports is to throw its full support behind Sen. Grassley’s bill to reinstate and revise the biodiesel tax credit into a producer’s credit, thereby ending the U.S. incentive for foreign biodiesel.”

Tom Brooks, chair of the Iowa Biodiesel Board and general manager of Western Dubuque Biodiesel in Farley, Iowa, said he—like most in the industry—is disappointed with the proposal. “This would set this important American manufacturing sector back at a time when we stand ready to take a large leap forward,” Brooks said. “I want to be clear that the influx of foreign-produced biodiesel we’ve seen in our market from places like Argentina and Southeast Asia is no indication that the U.S. cannot meet production demand. On the contrary, most biodiesel plants in Iowa and elsewhere are operating below capacity. The imports are pricing us out of our own market due to trade and other federal policies that need correction. This includes a loophole in the federal tax incentive for biodiesel, which allows other countries to claim our incentive, while also claiming their own country’s subsidies. Our industry has worked for years trying to get this adjusted so we can compete fairly in our own country.”

Brooks added that, if these volumes stand, the U.S. could restrict one of its most powerful opportunities to support American energy manufacturing. He said Iowa-based biodiesel plants have expanded capacity in anticipation of better times ahead. “But that is now looking bleaker,” he said. “Our own plant, Western Dubuque Biodiesel, had hoped to expand significantly, helping energy security and creating more good paying jobs in an area of rural Iowa that needs it. But so much uncertainty makes that less likely for us and other plants—a lost opportunity for Iowa and the nation.”   

The largest U.S. biodiesel producer, Renewable Energy Group Inc., has a new leader after president and CEO Daniel J. Oh resigned July 3. The board of directors appointed longtime director Randy Howard as interim president and CEO.

On the RFS proposal, Howard told Biodiesel Magazine, “We’ve been here before during my tenure on the board at REG. I can remember when we got disappointing RVO proposals and we were able to clearly put the facts in front of the decision makers during the comment period and make a change. We’re positive we can do it again.”

In a company statement following EPA’s release of its RFS proposal, Howard said, “This proposal offers REG and the American biomass-based diesel industry the opportunity to prove once again how we exceed expectations, and we fully embrace that opportunity. The RVO is only one tool that aids biomass-based diesel growth and it is our job to convince policymakers that it should not restrain growth of American-made renewable fuel … So, we look forward to additional meetings with the administration in the coming weeks to show how an industry that is only running at about 65 percent capacity, has ample feedstock supply and is helping fill growing diesel demand can help President Trump reaffirm his commitment to growing the supply of all American-made fuels.”

Howard added that REG remains confident that the U.S. will impose tariffs on imported biodiesel from Argentina and Indonesia. “And we are just as confident that U.S. production can make up for any lost import volumes,” he said.

Steckel told Biodiesel Magazine that the RFS does not discriminate against imports, so if the pending trade case and the potential for tariffs to be imposed had any influence on EPA’s proposal to keep biomass-based diesel at 2.1 billion gallons for 2019, then “that’s not the way to limit imports,” she said. “The way to address imports is through the trade case, not through RFS volumes. If EPA is not allowing advanced biofuels to grow, it’s only going to hurt the domestic industry.”

She added there are many strong reasons as to why EPA should increase the biomass-based diesel and overall advanced volumes in the final RFS rule. “We have a task in front of us to make that case,” Steckel said. “And it is our job to do just that.”  

Following publication of the proposed RFS rule for 2018-’19 in the federal register, a 45-day comment period will open. The final rule will be released late this year. 

Click here to view the proposal. 

 

 
 
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