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Back On Solid Ground

After an extended period of policy uncertainty, the final renewable fuel standard (RFS) rule and a two-year retroactive reinstatement of the $1-per-gallon blenders tax credit are expected to bring stability back to the U.S. biodiesel sector.
By Ron Kotrba | January 15, 2016

After two years in limbo without renewable volume obligations (RVOs) under the federal renewable fuel standard (RFS) for 2014-’15—not to mention uncertainty regarding future years—the U.S. biodiesel industry had once again found itself in a state of precariousness following the strong growth year of 2013. The pattern of good years followed by bad years is, unfortunately, something the sector has come to expect with seriously delayed RFS targets and the on-again, off-again nature of the $1-per-gallon blender tax credit over the years. But events in late 2015 show signs that this pattern may finally be broken, or, at minimum, the U.S. sector is heading into a period of stability.

On Nov. 30, the U.S. EPA released its final 2014-’17 RVOs for biomass-based diesel and its final 2014-’16 RVOs for the overall advanced biofuel category, and both were higher than the proposal released in May. Moreover, the agency vows to get the program back on track while indicating it plans to continue increasing biomass-based diesel RVOs in years to come.

The final RVOs for biomass-based diesel are 1.63 billion gallons for 2014, 1.73 billion gallons for 2015, 1.9 billion gallons for 2016, and 2 billion gallons for 2017. The proposal issued last spring called for 1.63 billion gallons of biomass-based diesel for 2014, 1.7 billion gallons for 2015, 1.8 billion gallons for 2016 and 1.9 billion gallons for 2017.

The advanced biofuel bucket, another important category for biodiesel producers, also increased slightly for 2015 and 2016 years compared to the proposal. The final rule for advanced biofuels issued Nov. 30 requires 2.67 billion ethanol-equivalent gallons for 2014, 2.88 billion gallons for 2015 and 3.61 billion gallons for 2016. The proposal for advanced biofuels issued last spring called for 2.68 billion ethanol-equivalent gallons for 2014, 2.9 billion gallons for 2015 and 3.4 billion for 2016. 

The National Biodiesel Board’s CEO Joe Jobe and his organization applaud the Obama administration for boosting the volumes from the proposal and recommitting to biodiesel. “It is a good rule,” Jobe says. “It may not be all we had hoped for but it will go a long way toward getting the U.S. biodiesel industry growing again. We have seen three years of damaging delays, but the administration took a strong step forward that should put biodiesel and the RFS on a more stable course in the years to come.”

Jobe says NBB will continue working with the administration toward stronger standards, and notes that the advanced biofuel standards “could and should have been higher,” he says. “The production capacity is there, and we have surplus fats and oils that can be put to good use.”

The Iowa Biodiesel Board indicates that while the final RFS rule is better than the proposal, it is not perfect. “While we are thankful for the improved numbers from EPA and the White House, they still fall a little short of what the industry had asked for and what the industry is capable of,” says Grant Kimberley, executive director of the IBB. “This is especially true in light of the imports of subsidized foreign-produced biodiesel we’ve seen from places like Argentina and Southeast Asia. Yet, overall, we are still pleased with the modest increase and grateful to have more market certainty. In future years, we hope implementation of this policy will have clearer direction for our producers well in advance, and reflect actual production capabilities.”

The final rule represents a commitment from EPA to get the RFS program back on track, Jobe said during a press call in early December, to meet the statutory deadlines going forward. This is extremely important to the stability of this industry and its ability to attract investment. “This has been one of the biggest flaws in the program in the past few years,” he says. “It comes out strongly as a commitment to get on track and move forward.”

Getting the RFS program back on track means that the 2018 RVO for biomass-based diesel must be out 14 months in advance of the program year—or by Nov. 1, 2016. Ben Evans, director of federal communications for the NBB, says the organization fully expects EPA to meet its deadlines moving forward. So with the final rule for 2018 to be published by Nov. 1, 2016, this means that the proposal for 2018 should be out by summer.

Steady, sustainable and meaningful growth is what this industry needs and, as Jobe says, this rule provides just that. “We’re going to see a doubling of our industry that is on track to happen in a five-year period,” Jobe says, referring to 2012-’17. “That is demonstrable success.”

Jobe says the NBB’s goal is to push for doubling the RVOs again in the next five years, from 2017-’22. “This is a very achievable and sustainable goal our industry will work to achieve,” he says.

And according to what EPA writes in its final rulemaking, the agency agrees that continued growth is what’s needed for biomass-based diesel. “Although the biomass-based diesel industry has performed well in 2013 and in subsequent years, we believe that continued appropriate increases in the biomass-based diesel volume requirement will help provide stability to the biomass-based industry and encourage continued growth,” EPA states. “This industry is currently the single largest contributor to the advanced biofuel pool, one that to date has been largely responsible for providing the growth in advanced biofuels envisioned by Congress. Nevertheless, there has been variability in the number of biodiesel facilities in production over the last few years, as well as the percent utilization of individual facilities, both of which contribute uncertainty in the rate of production in the near future, and which can be mitigated to some degree with an increase in the biomass-based diesel applicable volume. Increasing the biomass-based diesel volume requirement should help to provide market conditions that allow these biomass-based diesel production facilities to operate with greater certainty. This result is consistent with the goals of the Act to increase the production and use of advanced biofuels.”

Jobe says another positive aspect of this final rule is that it shows commitment on the part of the EPA and the administration to utilize this existing law and this program as a primary tool to achieve GHG reductions in the heavy-duty transportation sector.

Producer Reactions
Most producers Biodiesel Magazine spoke with are excited and encouraged by the higher biomass-based diesel volumes in the final RFS rule after the industry has suffered considerably for the past two years operating without a federal mandate.

Ron Marr, director of regulatory affairs for Minnesota Soybean Processors, which owns and operates a 30 MMgy biodiesel plant in Brewster, Minnesota, tells Biodiesel Magazine  that the EPA’s final RFS rule is good and solid. “When you look at where we were in 2013 when the EPA issued its proposal that flatlined biodiesel at 1.28 billion gallons, and now we’re up to 2 billion gallons in the RFS for 2017, that is fireworks,” he says. “The increased volumes really show all the hard work and dedication of the D.C. [National Biodiesel Board] lobbying efforts, supported by Jefferson City, along with all the member involvement from the comments they submitted on the proposed rule. Overall, this is very good news.” Marr also says that U.S. biodiesel producers manufactured 1 billion gallons in 2012, and with the new final rule, the industry will be producing twice that in 2017. “To double production volumes in just five years is truly amazing,” he says.

The nation’s largest biodiesel producer, Renewable Energy Group Inc., is also pleased with the final rule. “This increased final RVO provides a solid foundation for REG to continue growth,” says Daniel J. Oh, president and CEO of REG. “We asked EPA for two things in this process—longer-term certainty and growth for biomass-based diesel—and this final rule provides both. This supports a solid, positive growth trajectory for biomass-based diesel over the next two years, particularly when you consider that this was a 1 billion gallon industry less than four years ago.”

Michael Doyle, president of Agron Bioenergy, a 15 MMgy biodiesel plant in Redwood City, California, says that the news is “really encouraging. It’s really positive that these volumes are going up.” 

R. Delbert LeTang, president and CEO of SG Preston, a company with plans to construct five renewable diesel production facilities in North America, says that the EPA’s final RFS rule is an “exciting piece of news. These figures show a lot of progress. It tells us there is a growing acceptance for the ability of our industries to attain these kinds of volumes.”

Gabe Neeriemer, president of Patriot Biodiesel LLC, a 5.2 MMgy biodiesel plant in Greensboro, North Carolina, says the EPA’s feet-dragging on issuing a final RFS rule for 2014-’15 and the policy inconsistency and uncertainty has destroyed the industry. “The damage is done,” he says. “It’s too little, too late,” he says about the Nov. 30 final rule. “There’s no way it’s going to incentivize us to invest more or expand. We’re just trying to get our heads above water.” He adds, however, that he does like the direction RIN prices are going since the final rule was issued. “If they’re at $1 or more, I like it,” Neeriemer says. “But with diesel prices so low, it’s not going to make up for the losses we’ve incurred over the past 24 months.”

Blenders Tax Credit Reinstated
At press time, a tax extenders package that included the two-year retroactive extension of the $1 per gallon biodiesel and renewable diesel blender tax credit was passed by both chambers of U.S. Congress as one of the legislative branch’s last items for the session. The biodiesel blender tax credit will be retroactive to Jan. 1, 2015, and in effect through Dec. 31, 2016.

While U.S. biodiesel producers and the NBB had high hopes the incentive would pass as a reformed production vs. a blender credit, the sector will continue the fight next year to educate lawmakers on the benefits of the restructuring.

“While this is a missed opportunity to reform this tax incentive, biodiesel plants across the country will have a greater degree of predictability and stability under this extension,” says Anne Steckel, vice president of federal affairs for NBB. “We will continue pushing to reform this as a producer’s credit next year to ensure that U.S. tax dollars are supporting U.S. workers and productivity.”

Oh, the CEO of REG, says he is pleased with and thankful for the extension. “With the president’s signature, this worthwhile incentive, combined with higher RFS biomass-based diesel volumes, will reinforce our company’s continuing growth by encouraging higher blends and usage of advanced biofuels throughout North America,” Oh says. “We will continue to work with [legislators] and our industry partners to advocate for a conversion to a producer’s tax credit in the future because we believe that is how this credit should be structured.”

Kimberley with IBB says he is grateful but also disappointed Congress did not follow Sen. Chuck Grassley’s lead in restructuring the credit to go to actual biodiesel producers. “Our state’s biodiesel producers will have some degree of business clarity in the 2016 landscape, rather than gambling on whether it will be reinstated retroactively,” Kimberley says. “That’s a major step forward in creating stability for this truly American energy industry. We’re glad Congress recognized its importance. Making it a producer’s credit would ensure that foreign-made biodiesel would not be eligible for the credit, better-fulfilling Congress’s original intent with establishing this policy. We hope closing this loophole will still happen in future years.”

The new CEO of Canadian biodiesel producer Biox Corp., Alan Rickard, says the reinstatement of the tax credit will provide much-needed industry stability and support. “On the retroactive passage of this legislation, Biox expects a positive impact of approximately $7 million to be recorded in our fiscal Q1 results, related to the entire 2015 calendar year,” he says. “Even greater is the market stability that the proactive passage of this legislation provides. This, combined with the EPA setting the RFS RVOs from 2014-’17, and Ontario’s Greener Diesel requirement increasing to 3 percent in 2016, gives us a positive outlook for the biomass-based diesel market in North America.”

More Work Ahead
So while the industry celebrates victories in a renewed tax credit and final RFS rule that establishes a growth trajectory through 2017, along with a commitment from EPA to get the program back on track, plus signs the agency will continue growing biomass-based diesel RVOs, work is far from over. NBB continues to urge EPA to reconsider its approval of a fast-tracked method for Argentine biodiesel to qualify under the RFS program, and the organization will pick up where its work left off at the end of 2015 in trying to educate legislators on the importance of restructuring the tax credit to a producer incentive. Furthermore, with the 2018 RVO proposal expected by midyear, NBB must determine what volume it should suggest to EPA for 2018. “I think it’s too early for us to say that,” Evans says. “We have an RVO task force that carefully analyzes the markets each year and makes recommendations, so we will conduct that process again and develop proposals accordingly.”

In the meantime, producers are making moves to ramp-up production and get this industry back on solid ground.


Author: Ron Kotrba
Editor, Biodiesel Magazine
218-745-8347
rkotrba@bbiinternational.com

 
 
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