How a 19% higher advanced biofuel RVO is an 83% growth opportunity for biodiesel

With the 2017-'18 final RFS RVOs out, undifferentiated advanced biofuels are growing from 353 million biodiesel-equivalent gallons in 2016 to 646 million gallons in 2017, which means an 83 percent growth opportunity for biodiesel in this category
By Ron Kotrba | November 23, 2016

The U.S. EPA just released its 2017-’18 RVO final rule under the RFS Nov. 23, and on first glance the news appears to be modestly good news for biodiesel. The rule increases the biomass-based diesel category by 100 million gallons from 2017-’18, from 2 billion gallons to 2.1 billion gallons, as proposed last May. The agency boosted the advanced biofuel category, however, from 3.61 billion ethanol-equivalent gallons in 2016 to 4.28 billion in 2017, a 19 percent increase year-over-year, and up 7 percent from its proposal of 4 billion gallons.

When the numbers are run though, this becomes a much greater opportunity for biodiesel than what it appears on the surface. In fact, it turns out to be an 83 percent growth opportunity in the undifferentiated advanced biofuel category year-over-year. Follow my logic.

The RFS is broken into two major fuel categories: conventional biofuel (meeting 20 percent minimum GHG reduction threshold, mostly corn ethanol but some palm biodiesel and renewable diesel) and advanced biofuel (meeting 50 percent minimum GHG reduction threshold). Combined, these two categories make up the total renewable fuel volume under the program. 

The advanced biofuel category, listed in ethanol-equivalent gallons—and remembering that biodiesel generates 1.5 RINs per gallon and renewable diesel generates 1.7—consists of two sub-categories: cellulosic biofuel (meeting 60 percent GHG reduction threshold) and biomass-based diesel (meeting 50 percent GHG reduction threshold).

The advanced biofuel RVO for 2017 is now set at 4.28 billion ethanol gallons, so if you subtract out the cellulosic mandate, which now has been set at 311 million gallons (assuming all of this is ethanol), this would leave 3.97 billion ethanol-equivalent gallons, or 2.646 billion biodiesel-equivalent gallons.

Since we know the biomass-based diesel standard is 2 billion gallons for 2017 (set last year), this would mean what remains as undifferentiated advanced biofuel gallons for 2017 is roughly 646 million biodiesel-equivalent gallons, which can be filled with biodiesel, renewable diesel, imported sugarcane ethanol and other advanced biofuels.

Essentially, one could look at this as biodiesel having the room and opportunity to grow beyond 2017’s biomass-based diesel standard of 2 billion gallons by another 646 million gallons.

If the proposed advanced biofuel volume for 2017 were to have been finalized, which was 4 billion ethanol gallons, and after subtraction of the 311 million cellulosic gallons (assuming again this is all ethanol), this would have meant only a growth opportunity beyond the 2 billion gallon biomass-based diesel standard of just 460 million biodiesel gallons vs. 646 million. This means the undifferentiated category in the final rule is 40 percent higher than the proposal. 

For 2016, the advanced category was 3.61 billion gallons. Minus the cellulosic of 230 million gallons (assuming again that all of this is ethanol) and biomass-based diesel’s 1.9 billion gallons, this left 353 million gallons beyond the biomass-based diesel standard. 

Comparing 2016’s final numbers to 2017’s, this equates to a growth opportunity for biodiesel in the undifferentiated advanced category of 83 percent year-over-year. 

“Overall there are pluses and minuses in the EPA announcement,” Donnell Rehagen, CEO of the National Biodiesel Board, tells me today. “While we definitely would have liked to see the biomass-based diesel numbers increase, we are pleased with the significant bump in the advanced volumes as well as with the total program. When you look at it, the advanced category is increasing almost three quarters of a billion gallons, and much of that will be made up of biodiesel and renewable hydrocarbon diesel. The total program is increasing by 1.2 billion gallons, and biodiesel and renewable hydrocarbon diesel will be used in advanced and conventional categories. In 2016, volumes are expected to top 2.6 billion gallons. With the new RFS numbers, that category might hit 2.8 billion or even more in 2017. The bottom line is this growth is good for America’s advanced biofuel but it’s also good for consumers and communities. We will work with the incoming administration to help them understand the benefits provided by our growing domestic biodiesel industry and the potential to support additional jobs and investment in rural economies.”

According to the National Biodiesel Board’s Washington, D.C., team, however, the EPA is projecting the 670 million additional ethanol-equivalent gallons from the 2016-’17 advanced biofuel category to be filled in something like this: 300 million gallons of domestic and imported biodiesel and renewable diesel (300 million gallons times a combined biodiesel and renewable diesel multiplier of 1.55 equals 465 million ethanol gallons); 200 million gallons of sugarcane ethanol; and 50 million other advanced biofuels, which comes to 715 million gallons (yes, this is higher than the increase of 670 million gallons year-over-year).

The EPA’s projections for 2017 are simply that—projections. So, the question is, with this great opportunity in the undifferentiated advanced biofuel category in 2017, will the domestic industry be able to capitalize on this?