Biodiesel production, activity impressive despite uncertainty

Policy uncertainty has adversely impacted the U.S. biodiesel industry, but media reports would have you believe the sector is teetering on collapse. The facts show otherwise.
By Ron Kotrba | November 19, 2014

There have been numerous reports in the past several months about how damaging federal policy uncertainty has been to the U.S. biodiesel industry. Beginning one year ago when the EPA issued its flawed and seemingly influenced RFS volume proposal for the 2014-’15 program years, which proposed stalling the biomass-based diesel standard at 1.28 billion gallons despite 2013 production levels far exceeding that, the tide has ostensibly shifted from a “the-sky’s the limit” attitude toward domestic biodiesel production to more of a “wait and see” disposition.

The RFS proposal was just the beginning, however, as it has been followed by 12 months of significant uncertainty as we get signs of hope that EPA plans to increase volumes from its proposal, to signs of distress as the powerful oil lobby and its food lobby cohorts flex their influence muscles in their attempt to shape energy policy and protect every cent of their multitrillion dollar interests.

Then there’s the issue of the federal tax credit, which helps biodiesel be competitive with diesel prices. While oil companies—the richest, most profitable businesses in the world—continue to get billions of dollars of government subsidies, the biodiesel industry has gone yet another year without its blenders tax credit. This happened in 2010, and again in 2012, and once again this year.

All of these factors together clearly have had adverse effects on the U.S. biodiesel industry, but biodiesel opponents want people to believe the worst of this situation. They want to make people think the biodiesel industry is crumbling in the face of uncertainty. They want people to believe biodiesel cannot grow, or even survive, without government tax credits and progressive mandates. Though it’s true the U.S. biodiesel industry has encountered setbacks due to policy uncertainty, it is not out yet. In fact, production has been solid and growth in the sector continues.

According to EPA data, domestic biodiesel production (not including renewable diesel) from January through October of this year was roughly 1.13 billion gallons—this is essentially on par with last year’s record production. This is impressive when you consider production in 2010—another year riddled with biodiesel policy uncertainty—was only 315 million gallons.

Along with solid production volumes for January through October, we have seen construction, expansion and optimization activity continue despite the prevalent uncertainty. Here are just a few examples of this activity. Buster Biofuels is constructing a 5 MMgy plant in San Diego and plans to open in Q1 2015. Bridgeport Biodiesel in Connecticut is expanding from 2 MMgy to 10 MMgy. BDI-BioEnergy International has been contracted to optimize the Crimson Renewable Energy LP plant in Bakersfield, Calif. Community Fuels in Port of Stockton, Calif., won a grant from the California Energy Commission totaling more than $4 million to expand its process capabilities. REG just completed a $20 million upgrade to its 30 MMgy Mason City, Iowa, biodiesel plant. The nation’s first biodiesel plant co-located at an ethanol refinery just came online. A Benefuel and Felda JV is retrofitting a 75 MMgy biodiesel plant in Malaysia. Appalachian Biofuels is building a biodiesel plant in Russell County, Va., in a JV with immobilized enzyme maker TransBiodiesel. Ahmed Tafesh, the chief technology officer at TransBiodiesel, tells me it is being built on a modular basis and will start at 9 MMgy and after 12 months expand to 28 MMgy. These are just a few of the activities that have occurred or been announced in the past couple of months.

None of this means that a strong RFS and a tax credit are not vitally important to the biodiesel industry and to our diversified domestic energy portfolio, the environment, and job creation. What I am saying, however, is if the industry can produce solid volumes and producers are investing in construction, expansion and optimization in this uncertain environment, imagine the growth and opportunity in this sector with the certainty of a predictable RFS and tax credit availability.

There is also a strong possibility, backed by historical patterns, that the biodiesel tax credit will be reinstated in a comprehensive tax extenders package in the lame duck Congress. We saw this happen in late 2010 and in late 2012/early 2013 when the credit was passed forward a year and retroactive back through the expired year. Reach out to your representatives today and tell them how important this is to you and your business.

Finally, in late September the American Petroleum Institute indicated it learned that EPA was going to boost the biodiesel mandate in the RFS from its proposal last November, and sent a letter to the agency once again flexing its influence muscles and instilling fear. This suggests EPA has revised its numbers up from the proposal.

The biodiesel industry has proven time and time again it can persist through tough economic and political times. This year’s impressive production and sector activity in the face of uncertainty speak loudly once again to its resiliency and fortitude. With a little market assurance, the sky truly is the limit for biodiesel growth.