In the spirit of good debate I write this blog entry. My friend in the biodiesel industry, Peter Brown, the president of International Procurement Tools, took the time to provide his always-welcomed comments to two of my online review stories summarizing the National Biodiesel Conference takeaways. Peter is a great writer—one of the best contributing writers I have ever worked with—and a very smart fellow.

In response to my article laying out the National Biodiesel Board’s priorities of defending the renewable fuel standard (RFS2), restoring integrity in the renewable identification number (RIN) credit markets after instances of fraud in the system designed by U.S. EPA to enforce RFS2 compliance were exposed late last year, and convincing EPA to stand by its original proposal to increase the biomass-based diesel carve-out from 1 billion gallons to 1.28 billion gallons for 2013, Peter writes:

“Mr. Kotrba, Your usual cogent summary of an evolving situation is much appreciated. But watching the feudal court surrounding the NBB is an exercise in frustration sometimes. Biodiesel people are a lot less complex than ethanol gurus. We understand that our real mission in life is creating gallons of biodiesel and not prepare for eventual exit strategies based on complex chemical processes. The other day I read with interest and awe that an ethanol group was spending $350 million to develop and build a technologically advanced cellulosic ethanol plant. For that price any biodiesel weenie could build multiple 100KTON biodiesel facilities, including purchasing the land hiring the people and purchasing multiple feedstock contracts. My point is that the NBB's only mission right now is to ensure that the plants are built in a financially competitive environment by instituting clear, permanent support structures. All this daily tweaking of the rules deters people from engaging in making money selling biodiesel. The obverse of that simple philosophy is the speculative ethanol market that never expects to make money selling the stuff, they will make their money selling the companies.”

Peter also commented on my Ed Note in the March/April issue, writing:

“Request permission to whine (again)? The number one issue not addressed by the NBB is the sad fate of the financing of biodiesel projects. We are all sitting on developments that could generate billions of liters (Used the small measure here to be more impressive). I see billions for ethanol pipe dreams and nothing for real stuff that works in real things. Ethanol is destroying the pricing structure of whiskey and tacos, biodiesel is a weed whacker for camelina, penny-cress and pond scum.”

My response to Peter is that we have more than 200 biodiesel plants in the U.S. with production capacity at or around 3 billion gallons. With those numbers, even in a record year of production as we saw last year in which the industry produced just above 1 billion gallons, we still have 2 billion gallons of idled capacity. So why should the end goal of NBB’s policy work be ensuring new plant finance given the existing idled capacity? My argument is not that new plants shouldn’t be built. My argument, however, is that given the fact that many existing small and medium U.S. biodiesel producers are struggling to monetize their RINs due to market fraud and lack of any yet-to-be established insurance backing, there is a more immediate need for these producers to secure operating capital through the expeditious sale of RINs than there is the need for proposed producers to gain financing capital. (We are talking $2.15 to $2.20 per gallon in RIN values alone.) In addition, NBB recognizes that without growing the federal mandate, the future of U.S. biodiesel is severely limited. Particularly, if the federal mandate is not expanded beyond 1 billion gallons in 2013 when the industry produced more than that in 2011—and if one accepts the argument that the volume that the U.S. industry produces is contingent on the volumes set by the federal mandate—then it doesn’t take an economist to see that adding more production capacity to the already distressed existing capacity does not make sense.

Peter if I thought the NBB’s goals were not in line with what its constituents need, I would say so. In fact, I believe the need to pursue extension of the tax credit is questionable at best, as many producers have also told me. But I do believe NBB’s pursuit of expanding the mandate, defending RFS2 and taking immediate and longer-term measures to restore confidence in the RIN marketplace are on track.

I welcome all debate on this issue. What do you think?