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Why 2013 will be a good year for biodiesel

Six reasons why the U.S. biodiesel industry should have a monumental year in 2013
By Ron Kotrba | December 05, 2012

Much sensationalized chatter has circulated in recent news reports about biodiesel demand slowing down this quarter, despite production volumes released by the EPA indicate that 83 million gallons of U.S. biodiesel was produced in October. While this is a decline from earlier months, it’s not in my mind the makings of sordid tales by misinformed journalists overzealously ringing the alarm bells about the so-called downfall of the biodiesel industry. It is, rather, simple market-based economics driving the temporary slowdown.

We are still looking at strong year-to-date totals of 925 million gallons with two months left in the calendar year. While it is possible, if not likely, demand and production will remain unimpressive until the end of the reporting year (Feb. 28), I list below six reasons why 2013 could be a very good year for biodiesel.

1) RFS intact. The renewable fuel standard (RFS) has been under attack all year as several states backed by very strong lobby organizations petitioned EPA to waive the RFS. After serious consideration, EPA denied those requests, leaving the RFS intact—even if it’s only “for now”—providing certainty to the renewable fuel markets.

2) Biodiesel RVO increase. Before the EPA ruled on the RFS waiver requests, it had finalized the 2013 biomass-based diesel volume obligation at 1.28 billion gallons, up 28 percent from the floor (and this year’s volume requirement) of 1 billion gallons. The move was lauded by the industry but as EPA’s decision on the RFS waiver requests loomed, the excitement was buffered. Now that the RFS is to remain intact with the significant increase in the biomass-based diesel category, the industry can perform at greater capacity under the additional certainty. This increase is both unprecedented, and sets a new precedent. To put this in perspective, the 2013 biodiesel RVO is 130 million gallons more than that for the combined 2009-‘10 program years, and 280 million gallons more than this year’s. If you forgot where we started from in RFS2, in 2009 the RVO was 500 million gallons; in 2010, 650 million gallons; in 2011, 800 million gallons; this year, 1 billion gallons; and next year, 1.28 billion gallons. By anyone’s estimation, that is significant growth.

3) RIN integrity. After a year filled with reports of renewable identification number (RIN) credit fraud culminating in congressional hearings prompting EPA to restructure its RIN program, with input from all parties involved, progress is being made to provide the necessary tools to prevent fraud, providing obligated parties, RIN traders and biodiesel producers more marketplace certainty and stability in 2013. EPA recently released its draft quality assurance plan guidelines, and the agency is expected to release its proposed rule by year’s end. Knowing it is on an expedited path, there is good reason to believe that the agency’s final rule will be released by the 2012 reporting year deadline, or shortly thereafter.

4) Pathways. EPA is expected to make decisions on feedstock pathways under RFS2 in the coming year, the next most likely being palm oil. It’s been under consideration by the agency for some time, and any decision it makes—to approve or disapprove palm oil biodiesel based on greenhouse gas emissions reductions compared to petroleum diesel—will reduce some of the unknowns that currently exist.

5) 2014 RVO proposal. EPA is expected to come out with its 2014 RVO proposal at some point in the near future (if the agency is on time with its release); will we see another big increase? Despite the fact that the oil lobby is suing EPA to reverse its 2013 RVO, you can bet the National Biodiesel Board, backed by sound feedstock and economic data, is working even harder to achieve another milestone jump in the biodiesel carve-out for the 2014 calendar year.

6) Tax credit? And lastly, it is still possible, although maybe not probable at this point, that the $1 per gallon biodiesel tax credit will pass in an extenders package by end of year, retroactively as it did in late 2010.

 

5 Responses

  1. Wayne Lee

    2012-12-05

    1

    Good article, Ron. I agree with your reasoning that 2013 will be a banner year in the industry. I do wish we could reach a point where these tax credits and extensions were more certain and not "year to year" items. If used in financial planning, these uncertainties make investors a bit nervous. Also, I hope 2013 is a time when the smaller plants get back in the game. 2012 was largely a banner year for the larger scale operations.

  2. Roman Wolff

    2012-12-06

    2

    Ron, as always, I enjoyed your view. Every year the industry grows or is expected to grow with some certainty, is a good year. What would make 2013 a banner year is a 5 year RVO proposal from the EPA from 2014 to 2019 with a 20% increase year over year, every year (it could be a different percentage, but some certainty in the RVO over 5 years). Certainty brings investment and investment helps an industry grow.

  3. James Bauernschmidt

    2012-12-09

    3

    I have a question about this tax credit addressed in point #6. Can biodiesel producers claim this credit retroactively? As a producer of biodiesel primarily for my own use, I pay taxes on the stuff yearly to the Comptroller's office in Maryland. It's usually about $100 per year. Can I now claim some kind of rebate based on the gallons produced?

  4. hank

    2012-12-10

    4

    I CAN SMELL THE FEAR

  5. Roman Wolff

    2013-01-02

    5

    TAX CREDIT STATEMENT FROM REG PRESIDENT & CEO, DANIEL J. OH ON FISCAL CLIFF PACKAGE PASSAGE At approximately 10:00 p.m. central on Jan. 1, 2013 the U.S. House of Representatives approved the Senate’s “fiscal cliff” bill. Upon signature by the President, the package reinstates a set of tax extenders items including the reinstatement of the 2013 federal #biodiesel blenders tax credit and retroactive 2012 credit. Below is a statement from Renewable Energy Group. “We are thankful that Congress and the President support the growth of the biodiesel industry through the reinstatement of the credit and for recognizing biodiesel’s important role in energy and food security and job creation. This tax credit provides certainty for our petroleum distributor customers and, in turn, market stability for commercial biodiesel producers like us.”

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