2014 and 2015 have been difficult years for the biodiesel industry. Indeed, many of the producers that are comparable or smaller in size to TBI have experienced significantly reduced production, idling, or even closure. Many biodiesel plants have been forced to just collect WVO and sell it into the feed industry, thus not really acting like a biodiesel refinery as much as they are waste vegetable oil aggregators. Of particular concern is the lack of consistency in the regulatory standards and subsidies that have been in play for 2014 and 2015. That appears to all be changing soon however. Calls into congressional offices and information from the NBB leads us to several conclusions (or assumptions, depending upon who you ask):
What’s in play:
- The EPA will finalize volume requirements for 2014 and 2015 and resolve a pending waiver petition for 2014, and also finalize RFS volume requirements for 2016 . This has already yielded a slight increase in RIN pricing for 2015 and a premium for 2016 RINs (2016 Biodiesel RIN futures might be a good thing to buy right now, if you can get them).
- The Biodiesel tax credit is expected to be voted on under the Tax Extenders package as a part of the Omnibus bill. This is expected to be put on the floor of both the Senate (S 1946) and the House (H.R. 4040, et. al.).
Biodiesel Tax Credit
As this is the most important to biodiesel producers, we’ll start here. These bills are expected to go to the floor sometime after Thanksgiving, most likely in the December short session. This gives roughly 12 working days on the Congressional calendar for Congress to pass the bill in both the House and Senate. The good news is that they have passed through the committee, and are ready to go to the floor.
Assuming we don’t have more important pressing bills that need debate (such as blocking Syrian refugee aid or not), it appears we might have the tax credit passed as part of the Omnibus package by the end of the year. This currently is set as a “back one, forward one” credit for retroactive sales in 2015 and forward for 2016. Further, the 2016 year would be a producer’s credit, limiting the credit to be only available to active biodiesel producers. Needless to say the petrochemical industry does not like this, as they no longer get to put their hand in our cookie jar, but I predict Congress in it’s usual ineptitude will leave enough loop holes in the legislation to allow for Big Oil to get it’s fair share of our revenue stream. For now at least, 2 years looks to be about the most we can get for the biodiesel tax credit. This is far below the needed 3 to 5 years for a reliable tax credit program to bring stability to the biodiesel industry. But when I’ve asked specifically what was impeding a multi-year tax credit more than 2 years, I was informed that the primary concern was the Obama administration’s repeated claims that they would veto any multi-year tax credits which would impede funding their programs. So the most likely and high probability beneficial outcome for our industry is to be conservative about the timeframe and stuff it into a large, encompassing package such as Omnibus to ensure that there’s enough pork for everyone to get passed. And there you have it, Beltway gridlock at it’s finest.
The EPA Renewable Fuel Standard drama seems to be coming to a businesslike conclusion, with some reasonable expectations for production in the biodiesel spectrum (I won’t address the blend wall issue craziness for ethanol. Not my circus, not my monkeys). The incremental increases while not substantial relative to the domestic production capability, at least ARE increases and can be met by the industry and consumed by the obligated parties without much suffering and stress.
Similar to the biodiesel tax credit loophole, particular interest needs to be pointed at the EPA program allowing imported biodiesel to be permitted to generate renewable fuel credits and cashing them in at the expense of the taxpayer. That creates an uneven playing field for domestic producers, and effectively functions as a subsidy to foreign countries at the taxpayer’s expense. The regulatory logic is that it benefits the consumer by providing a renewable carbon neutral fuel supply to help offset diesel emissions, but the net effect is that it strangles domestic producers who not only have higher input costs to consider, but also a larger regulatory burden by the same entities that are enabling the foreign competition in the first place.
The Short Version
If you’re still reading and haven’t fallen asleep, or just skipped to this section to find out what all the above ranting really means, it means the biodiesel industry appears to be coming into a turnaround phase rather soon. With higher than expected soybean oil surpluses in 2015, expected increases in demand from the RFS program finalizing incremental increases, and the biodiesel tax credit looming, biodiesel should expect a boom for at least 2016, and probably beyond.