Framework in Place for a Bright Future

By Manning Feraci | February 09, 2011

I recently visited with a biodiesel producer about the state of their business and our industry’s future. There is, after all, no better way to keep your finger on the pulse of what is happening in the marketplace. As the conversation progressed, this member noted that 2010 was akin to a rollercoaster ride for both him and the industry.  I, like most associated with our industry, wholeheartedly agree with this apt description.


Turning the calendar from 2010 to 2011 provides a good opportunity to not only take stock of where we have been, but more importantly, to look forward at where we are going. Without question, 2010 was a turbulent year. That said, there is good reason to be optimistic about 2011 and beyond.


Those who are successful over time—be they companies, trade associations, entrepreneurs, or sports franchises—have one thing in common. Their long-term viability is the result of a larger vision that establishes a framework for future success. Such is the case with the leadership of the U.S. biodiesel industry. In the 1990s, the industry recognized that the consumers must have confidence in the quality of our fuel. As a result, the National Biodiesel Board formulated and implemented an aggressive effort to secure U.S. EPA health effects data; worked at ASTM to put in place a biodiesel fuel specification upon which the marketplace could depend; and has worked constructively with engine manufacturers and auto makers to warranty the use of biodiesel. The results speak for themselves. Biodiesel is the best tested, most reliable advanced biofuel available in the commercial marketplace today.


Our industry’s leadership also saw the importance of favorable federal policy. History has clearly demonstrated that the success or failure of various areas of the energy sector, particularly nascent industries, is directly affected by the legislative, regulatory, and legal framework at the federal level. By any objective measure, there are significant economic, energy security and environmental benefits associated with displacing petroleum diesel fuel with biodiesel. At the beginning of the last decade, however, the policy framework simply was not in place for the nation to accrue the benefits associated with expanded production and use of biodiesel.


To help make biodiesel price competitive in the marketplace, the NBB and its allies moved forward with a plan to advocate for and ultimately enact a tax incentive that would help offset the inherent price advantage petroleum diesel fuel enjoys in the marketplace. The result of this effort was enactment of the biodiesel tax incentive in 2004. 


The big picture goal of the biodiesel tax incentive was to encourage expanded production and use of biodiesel, and by that measure, the tax credit has been an overwhelming success. When the credit was enacted in 2004, the U.S. industry produced a mere 25 million gallons of biodiesel. In the five years that the credit was seamlessly in place, we built the production capacity to become America’s first commercial-scale advanced biofuel and produced more than 2 billion gallons of fuel.


Even with the tax incentive in place, it was readily apparent that to get significant penetration in the U.S. diesel fuel marketplace, the renewable fuel standard—an existing program that provided for a minimum renewable content in the nation’s transportation fuel—had to be structured to accommodate biodiesel. Again, the biodiesel industry’s leaders took decisive steps to address the long-term interests of U.S. biodiesel stakeholders. An internal task force carefully analyzed available feedstock and market dynamics, and based on this work, proposed the inclusion of an aggressive yet attainable biodiesel volume requirement as part of the renewable fuel standard. This volume schedule became the basis of the NBB’s lobbying efforts in Washington and, as a result of these advocacy efforts, the 2007 energy bill expanded the renewable fuel standard (RFS2) and for the first time provided a renewable component in U.S. diesel fuel—a renewable demand that the U.S. biodiesel industry is ideally situated to meet.


Our industry again rose to meet a great challenge during the RFS2 rulemaking process. The EPA, the federal agency charged with implementing the RFS2 program, initially proposed an unworkable rule that would have disqualified domestic vegetable oils from qualifying as biomass-based diesel. The NBB marshaled technical resources to demonstrate shortcomings in the EPA’s life-cycle analysis; legal assets to justify a program structure that was optimal for the U.S. biodiesel industry; lobbying efforts to keep elected officials engaged; and perhaps most importantly, grassroots initiatives that yielded thousands of favorable comments to the EPA. The result was a final rule that works for the U.S. biodiesel industry and fulfills the vision of a RFS2 program that displaces petroleum diesel fuel with biodiesel. The 800 million gallon 2011 biomass-based diesel volume obligation published by the EPA in November and the unanimous decision by the D.C. Circuit to reject litigation lodged by the petroleum industry to stymie RFS2 implementation further reinforces the reality of this important and worthwhile program.


Without question, the lapse of the biodiesel tax incentive at the end of 2009 had a detrimental impact on the U.S. biodiesel industry. The absence of the incentive combined with marketplace uncertainty had a predictable impact. U.S. biodiesel production dropped significantly, plants mothballed or, in worst case scenarios, went out of business altogether, and thousands of workers lost their jobs. The chattering class wondered if this was the end of the U.S. biodiesel industry.


To borrow from an old adage, I am pleased to state that reports of the U.S. biodiesel industry’s demise have been greatly exaggerated. Last year was without question a tough year, but we have weathered the storm, and the policy framework is in place for a robust 2011.


The federal tax incentive has been reinstated through 2011, and, as it has previously, will help make biodiesel price competitive with petroleum diesel in the marketplace. Going forward, the NBB—consistent with the sentiment of its membership—will work to achieve the certainty and reliability that comes from a long-term extension of a biodiesel tax incentive that is restructured as a production excise tax credit. This will focus the credit’s benefit on the domestic industry and help the entrepreneurs who are the heart and soul of this dynamic industry make the long-term business decisions that will yield future growth and prosperity.


In 2011, the U.S. biodiesel industry has both the production capacity and available feedstock to meet and exceed the 800 million gallon RFS2 biomass-based diesel requirement. Beyond 2012, the RFS2 program gives the EPA administrator the ability to responsibly grow the biomass-based diesel program beyond the 1 billion gallon requirement provided by law. Already, an NBB task force is analyzing the data that will be crucial to demonstrating our ability to produce increasing amounts of advanced biofuel going into the future, and as we have in the past, the NBB will bring a host of assets to bear to make the RFS2 program work in an optimal way for the U.S. biodiesel industry.


By any objective measure, the U.S. biodiesel industry has come a long way. Through good times and bad, the long-term perseverance and vision of the industry’s leadership has benefited not only biodiesel stakeholders, but the nation as a whole. As a result, we are poised to accomplish great things in 2011 and beyond. Without question, our best days lie ahead.


Manning Feraci, vice president of federal
affairs, National Biodiesel Board    

 

1993 NBB is established as the trade association for the biodiesel industry

1999 The U.S. biodiesel industry produces 500,000 gallons

2001 December―ASTM approves full standard for biodiesel (D-6751) through NBB technical efforts

2004 The U.S. biodiesel industry produces 25 million gallons

2004 Oct. 22―Biodiesel tax incentive first enacted as part of H.R. 4520, the American Jobs Creation Act of 2004 (P.L. 108-357)

2005 Biodiesel tax incentive extended through Dec. 31, 2008, as part of H.R. 6, the Energy Policy Act of 2005 (P.L. 109-058)

2007 Dec. 19―H.R. 6, the Energy Independence and Security Act of 2007 (P.L. 110-140) is signed into law.  Legislation expands Renewable Fuel Standard (RFS2) to provide for renewable component in U.S. diesel fuel

2008 H.R. 1424, the Emergency Economic Stabilization Act of 2008, (P.L. 110-343) extends the biodiesel tax incentive through Dec. 31, 2009

2008 The U.S. biodiesel industry produces 700 million gallons

2009 May 26―EPA publishes proposed RFS2 rulemaking in the Federal Register


2009 June-September―NBB grassroots efforts orchestrate more than 8,000 comments to the EPA on the RFS2 proposed rule

2009 Sept. 25―NBB submits formal comments to EPA on the RFS2 proposed rule

2009 Dec. 31―Biodiesel tax incentive lapses

2010 March 26―Final RFS2 rule published in Federal Register: NBB technical, legal, and grassroots efforts yield workable RFS2 program that qualifies biodiesel as an advanced biofuel

2010 Nov. 23―EPA administrator signs rule requiring the use of 800 million gallons of biodiesel under the RFS2 program in 2011

2010 Dec. 17―H.R. 4853, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, (P.L. 111-312) is signed in to law. The bill retroactively extends the biodiesel tax incentive through Dec. 31, 2011

2010 Dec. 21―D.C. Circuit court unanimously rejects litigation lodged by petroleum industry against the RFS2 program

2011 U.S. biodiesel is the only commercial-scale advanced biofuel in America, as defined by the EPA

 
 
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