Biodiesel Tax Credit Passed!

The Biodiesel Tax Credit passed and was signed into law on December 18th. 

The bill was for retroactive production of 2015, and forward production of 2016 will be eligible for a $1.00 per gallon subsidy for each gallon of biodiesel produced and sold.  The credit was originally designed to be a producer’s credit for 2016, but was modified to remain as a blender’s credit.   This initially spelled a problem, but at the same time the oil export ban was lifted, meaning that a significant portion of exported diesel fuel may now contain biodiesel.  That could mean an expanding market for US biodiesel.

Coupled with the recent EPA RFS mandates volumes being finalized for previous and upcoming years, this should mean a good year in 2016 for the biodiesel industry.    If the politics further sway towards Republicans in the 2016 election, it would ironically point to better times for the renewable fuel industry.

The biodiesel industry has suffered not from lowering oil prices or increased feedstock  prices.  Well… okay, it has, but not nearly as much as it has suffered at the hands of an indecisive Legislative body that will not consistently pass a biodiesel tax credit subsidy, AND from an ever more indecisive Executive branch that will not implement and enforce RFS policy that has already been established.   Both of these issues are resolved for 2016 finally, so perhaps we can get on with the process of making biodiesel now (and making money).


RFS for Biodiesel Isn’t the Same RFS for Ethanol

This past week the presidential hopefuls for 2016 attended the Iowa Ag Summit, which for all practical purposes served as a test run for the Iowa caucus hopefuls.  Of particular concern for all the candidates was how they were going to position themselves with respect to the RFS program.  Iowa is big on corn.  Corn means ethanol, and that means jobs for Iowans.

The EPA’s Renewable Fuel Standard (RFS) is a controversial program where the government has mandated that all petroleum motor fuels must have a certain amount of renewable fuel added to them in order to reduce harmful combustion emissions (so as to reduce greenhouse gases).   This is why you see the “This product contains up to 10% Ethanol” at the gas pump.

The government is essentially forcing the private industry (Oil and Gas) to purchase a product that under certain circumstances it would not purchase.  Ethanol by far makes up the bulk of the sales under the RFS program.  The program has increased the volume of renewable fuel required to be blended into transportation fuel from 9 billion gallons in 2008 to 36 billion gallons by 2022.   Most of this will be ethanol.

From the US EPA’s RFS site, here is the 2014 data, showing the number of RINs (Rewewable Identification Number) generated by each fuel class industry.  Biodiesel, the stuff we make at TBI, is listed under D4.  Ethanol would be under D3 and D6.

Fuel (D Code) Domestic Importer Foreign Generation
Cellulosic Biofuel (D3) 33,360,560 0 0
Biomass-Based Diesel (D4) 2,212,736,209 203,958,762 291,970,178
Advanced Biofuel (D5) 78,838,620 64,474,655 0
Renewable Fuel (D6) 14,009,755,793 79,009,021 257,366,277
Cellulosic Diesel (D7) 8,859 50,446 0

Biodiesel has long been the red-headed stepchild that just “tags along” under Ethanol in the RFS program.  Indeed, when the RFS program was first implemented, it was confusing for biodiesel producers to even comply with it because the program was so blatantly skewed towards ethanol.   But as you can see, Ethanol produced roughly 14 Billion RINs for 2014, with biodiesel trailing with a paltry 2.2 Billion domestically produced RINs.  Thus, naturally, the biodiesel faction really doesn’t have much influence into the RFS program, and we just go along with whatever big Ethanol can lobby and push to put in place.

The main issue I have as a biodiesel producer is I don’t think biodiesel needs the RFS.  As far as I can tell, it has not helped my industry.  In fact, in the past some unsavory types have fraudulently fabricated RFS data that put a black eye on my industry.   Instead we have layer upon layer of regulation, which encumbers business operations for small companies, and puts us at the mercy of political jockeying like we have seen in 2014 and 2015.

The EPA STILL hasn’t released the mandate requirements for RFS for 2014 and 2015.  This is supposed to be done in June of the year prior to the mandate year, meaning in 3 months, we should be receiving the mandate requirements for the 2016 production year.   This hasn’t happened, and it has created uncertainty and trepidity in our market.   That means depressed prices, depressed orders, and depressed revenues for producers.

The ethanol producers are big names you know well.  They have deep pockets, and can afford very powerful lobbyists and PACs in Washington DC to further their interests.   There are roughly 160 biodiesel plants in the US, most of which are 10 Million Gallons per Year (MGY) production, or less.

The shame of all of this is that biodiesel is a great renewable fuel.  It’s a drop in replacement for diesel, could be a stand alone fuel all by itself if the market were allowed to grow naturally.  (Ethanol is never sold “neat”, because of BATF regulations around ethanol and it’s low temperature ignition problems.  It is always blended with gasoline in some ratio.)

Further, there is no “Blend Wall” with biodiesel, you can blend it as high as you like as long as your engine is rated for it.  We regularly burn straight biodiesel in our cars and trucks without incident.

Biodiesel is here now.  No engine modifications needed, no refueling infrastructure changes needed, and by far, comparably less concerns or restrictions on usability or compatibility with modern vehicles on or off the road today.   The customers that use our fuel love it, and like the fact that we are recycling used cooking oil into a renewable fuel that is domestically produced here in the USA.  That, by itself, should be enough for biodiesel to stand on its own.

It may be wishful thinking, and maybe even a little naive, but I’d like to see biodiesel de-coupled from ethanol.  Ethanol is giving us a bad name (I still have people ask me if we make biodiesel out of corn…), and we really need to  be out in front of this problem and explaining the benefits of biodiesel instead of relying on Ethanol and the EPA to sort out our problems for us.


Senate Urges EPA to Set RFS Volumes

32 Senators Sent a Letter to EPA on Biodiesel Volumes: Sens. Heidi Heitkamp (D-ND), Roy Blunt (R-Mo.), Chuck Grassley (R-Iowa) and Patty Murray (D-Wash.) led a letter sent Monday urging EPA to quickly approve strong biodiesel volumes under the Renewable Fuel Standard (RFS) for 2014, 2015 and 2016.

Yes, you read that right.  The US EPA still hasn’t set the volume requirements for the Renewable Fuel Standard for last year.  Last year.

Pointing to an industry survey, lawmakers said that nearly 80 percent of U.S. biodiesel producers had scaled back production last year, and that about 60 percent quit production altogether.

Additionally, about 66 percent of biodiesel producers said they have already reduced or anticipate reducing their workforce.

The EPA has said it expects to set the standards for 2014 and 2015 some time this year.

The senators wrote that the EPA delays in implementing the RFS have created “tremendous uncertainty and hardship for the U.S. biodiesel industry and its thousands of employees. Plants have reduced production and some have been forced to shut down, resulting in layoffs and lost economic productivity … We urge you to get biodiesel back on schedule under the statutorily prescribed Renewable Volume Obligations (RVO) process and quickly issue volumes for 2014 at the actual 2014 production numbers. We also hope you move forward on the 2015 and 2016 biodiesel volumes in a timely manner.”

More Politics From Obama Administration for EPA and RFS

In order to boost the election chances of Rep. Bruce Braley (D-Iowa) in a race to replace retiring Sen. Tom Harkin (D-Iowa), the White House may increase the final 2014 Renewable Fuel Standard (RFS) targets and delay release of the rule until mid-to-late summer when it’s closer to midterm elections, according to an energy analyst.

“According to Real Clear Politics, Braley leads [Iowa Republican Senate nominee Joni] Ernst by 5.3 points, a gap that could get much closer now that the five- way Republican primary is over,” explained Kevin Book, managing director of Clearview Energy Partners, in a note to clients last evening.

EPA’s proposed 2014 rule, issued in November 2013, calls for nearly across-the- board cuts.

“We have suggested in the past that the White House could look to empower Braley’s chances and help Democrats retain the Senate by increasing biofuel targets under the 2014 RFS. If that were the case, EPA might miss its self- imposed June 20 deadline [for releasing the final 2014 rule] and opt for a mid- to late-summer release,” Book noted. “Such a move might have more of an impact closer to the mid-term elections,” he added.

The 2014 RFS proposal has still not been sent to the White House’s Office of Management and Budget (OMB) for review, with OPIS reporting earlier this week that some sources were skeptical EPA could meet its goal of releasing the final rule by summer.

“Even though OMB targets a 90-day turnaround, the White House has regularly beaten that timeline with previous RFS rulemakings,” Book continued. “Still, it seems unlikely at this point that EPA would hit the June 20 self-imposed deadline for releasing the 2014 RFS. If, as we have considered, the White House is looking to help Braley’s race by both releasing the RFS later in the year and increasing targets relative to the proposal, a release closer to or during the August Congressional recess could bode well for Braley. Braley could campaign at home arguing that his efforts resulted in increased targets for the largest biofuel producing state,” he noted.

In response, EPA spokeswoman Liz Purchia told OPIS that the agency is “working on it [the final 2014 RFS] and hopes to have it out as soon as possible.”

Meanwhile, in his note, Book outlined “at least three ways EPA could increase total ethanol requirements under the 2014 RFS: (1) increase gasoline consumption estimates; (2) increase E85 consumption estimates; and (3) change its methodology,” noting that based on higher gasoline consumption, EPA could increase the total ethanol requirement to 13.6 billion gal from 13.01 billion gal.

On the subject of Renewable Identification Numbers (RINs), Book explained that “[a]ssuming EPA sticks with its proposed methodology for both the final 2014 and 2015 RFS targets, we estimate that carryover RINs could help regulated entities address the ethanol ‘blendwall,’ [the point at which 10% ethanol blends are maxed] that is, use carryover RINs in lieu of actual biofuel blending. We would suggest a significant RIN bank should place downward price pressure on the D6 RIN, commonly referred to as the ethanol RIN,” he added.

On Wednesday, OPIS pegged 2014 D6 RINs around 43.5cts per RIN.

As OPIS reported earlier this week, another wrinkle of a possible delay in the
2014 RFS release involves the June 30, 2014 compliance deadline for the 2013 RFS. The agency may have to extend the 2013 RFS compliance deadline.

Meanwhile, a biofuels industry source disagreed with Book’s assessment on RINs.

“If EPA allows the June 30 compliance deadline to pass without a 2014 RVO rule in place, it will trigger RIN price spikes — just as it did last year. There will be a massive retirement of RINs, and everyone will hold on to whatever remainder they have,” the source warned.


EPA Proposing Lower Limits for RFS This Year

The U.S. biodiesel industry is the leading producer of EPA-designated advanced biofuel, and the first to break 1 billion gallons of annual production. With commercial-scale refineries across the country, the industry has exceeded RFS requirements in each year of the program including 2013 with an all-time record production estimated at 1.7 billion gallons. Biodiesel is a clear RFS success story and the industry is calling on the EPA to support a modest increase in the proposal that is consistent with actual, real-world production.

The EPA’s proposed rule for next year would set biodiesel volumes at 1.28 billion gallons while shrinking the overall advanced biofuel requirement to 2.2 billion gallons. Additionally, because excess biodiesel production in 2013 can be carried over for compliance into 2014, the 1.28 billion gallon proposal for 2014 could mean an effective market closer to 1 billion gallons—a dramatic reduction from current production levels.

EPA RFS2 Blunder


A YouTube video of EPA official Margo Oge testifying before a House panel in May reveals her providing radically incorrect information about the amount of corn and soybeans it takes to make biofuels.

The blunder occurred when Rep. Aaron Schock (R-IL) asked Ms. Oge, who is responsible for regulating all emissions within the United States, about the indirect land use issue. “It’s my understanding that the EPA’s Renewable Fuels Standard 2 methodology assumes that for every acre of soybean crop that is used to produce biofuel, an equal acre of ground is used in the Brazilian rainforest to replace that acreage, is that correct?” asked Schock.

“Obviously we know that it takes about 64 acres for a gallon of soy biodiesel,” she begins, and then corrects herself, even more incorrectly. “It’s actually the opposite. It takes 64 acres for corn ethanol and over 400 acres for a gallon of biodiesel.”

Actually, one acre of soybeans makes 64 gallons of biodiesel and one acre of corn makes over 400 gallons of ethanol. This may have been just a simple mistake – or maybe she really doesn’t know – but it is now possible that members of the U.S. House Small Business Committee believe that it takes a huge amount of corn and soybeans to produce biofuels because that is what she told them.

The YouTube video with commentary was posted anonymously by an account called “FreedomIs1st” and no one in the biofuels industry has taken credit for it – but it is very good and should be shared. In fact, it might be good for people in the industry to write to their congressional representatives, especially if they are on the House Small Business committee, to make sure they have the facts.