Biodiesel industry provides mixed reactions to RFS final rule

By Ron Kotrba | November 30, 2018

The U.S. EPA released its final rule for renewable volume obligations (RVO) under the Renewable Fuel Standard Nov. 30. The biomass-based diesel volumes for 2020 set by the agency are as proposed in June at 2.43 billion gallons, up from 2.1 billion in years 2018 and 2019, the latter having been set last November as the RVO for biomass-based diesel is released 13 months in advance while overall advanced, cellulosic and conventional biofuel RVOs are finalized a month before the compliance year. In 2017 the biomass-based diesel standard was 2 billion gallons, and in 2016 it was 1.9 billion.

The agency also issued its advanced biofuel RVO for 2019 at 4.92 billion ethanol-equivalent gallons, which is up 630 million gallons from 4.29 billion gallons set for 2018 and slightly higher than the 2019 proposal of 4.88 billion gallons put out this summer. One gallon of biodiesel is equivalent to 1.5 gallons of ethanol in the RFS program.

In addition to the 2020 biomass-based diesel and 2019 overall advanced biofuel RVOs, EPA also set the 2019 RVO for cellulosic ethanol at 418 million gallons, up from this year’s RVO of 288 million gallons. The agency is keeping conventional biofuels—corn ethanol—at 15 billion gallons, the statutory maximum under the RFS.

The total renewable fuel volume under the 2019 RFS program is just shy of 20 billion gallons at 19.92 billion.

After subtracting out the cellulosic volumes of 418 million gallons from the overall advanced biofuel RVO of 4.92 billion ethanol-equivalent gallons and correcting for biodiesel’s 1.5 multiplier, slightly more than 3 billion gallons of opportunity exists for biodiesel in the 2019 advanced biofuel category, even though the biomass-based diesel standard is only 2.1 billion gallons for 2019. However, with volumes of renewable diesel in the mix, given this fuel’s higher multiplier of 1.7, a more realistic opportunity for biomass-based diesel in the 2019 advanced biofuel category is figured to be somewhat less than 3 billion gallons.  

While several biodiesel producers and industry stakeholders told Biodiesel Magazine they were encouraged by and excited about the higher biomass-based diesel and advanced biofuel volumes in the rule, many of the associations that represent them criticized EPA for the restrained growth in the volumes and the agency’s decision not to address the looming issue of small refinery exemptions.

“Although we think the biomass-based diesel industry is capable of doing more, we are encouraged by these numbers,” Chris Peterson, president of Hero BX, told Biodiesel Magazine. “After the uncertainty and mixed messages coming from regulatory bodies over the past couple years, Hero BX is excited to see some clarity injected into our industry with the new RVO levels along with the proposed blender’s credit language that was also released this week. That clarity and stability will go a long way to further investment and development in the biomass-based diesel space. Pat Black has been bullish on the industry all along and we stand ready to bring the full force of the production capabilities of our four owned facilities, along with our tolling partner plant (Iowa Renewable Energy) to do our part to ensure the market is adequately supplied and the new RVO levels are met in 2019.”

Rahul Bobbili, president and chief technology officer of process technology provider Renewable Process Solutions, said the new, higher RVOs are great news overall. “Maintaining the proposed EPA targets for biodiesel will bring more producers onboard,” he told Biodiesel Magazine. Bobbili added that the pressure is on technology companies such as RPS to bring new solutions to the table to efficiently produce advanced biofuels in order to meet growing future demand. “We are excited and looking forward to a renewable future,” he said.

“The past few RFS numbers released have been disappointing at best,” Bio Joe Renwick, co-owner of Green Energy Biofuel, told Biodiesel Magazine. “Finally we have some numbers to be excited about. After the biofuel industry has outperformed RFS volumes year after year, I’m excited to see the bar being set higher. This will spur investment and industry confidence at a time when it’s needed most. It also makes me really happy to be the new owner of a 50 MMgy multifeedstock production plant, helping ‘making fuel baby!’ 2019—bring it on!”

Raj Mosali, president of Jatro Renewables, told Biodiesel Magazine, “I would say it is good news, but it would have been better news to farmers and everyone alike if they were able to increase the [biomass-based diesel] numbers for 2019 especially. It would have tempered the impact of the [Chinese] tariffs [on U.S. soybeans], considering how badly farmers got hit by them.”

Gene Gebolys, president and CEO of World Energy, one of North America’s largest biomass-based diesel producers, said, “EPA’s RVO volumes should accurately reflect the industry’s ability and willingness to produce greater volumes. The biomass-based diesel industry continues to invest in expanding capacity and increasing efficiencies at existing plants as well as building new ones to meet and exceed the needs of the program as set by EPA. We have worked directly with EPA to help them better understand the volume requirements of the biomass-based diesel sector. The increase to 2.43 billion gallons 13 months from now is much needed, and we think it creates a functional beginning to greater increases under the upcoming reset provisions.”

In October, the Trump administration released a summary of its Fall 2018 Unified Agenda of Regulatory and Deregulatory Actions, which included information on an RFS reset scheduled to be proposed in January 2019. Information published by the Office of Management and Budget states that “under the statutory provisions of governing the [RFS] program, EPA is required to modify, or reset, the applicable volume targets specified in the statute for future years if waivers of those volumes in past years met certain specified thresholds. Those thresholds have been met or are expected to be met in the near future. As a result, EPA is proposing a rulemaking that will propose modifying the applicable volume targets for cellulosic biofuel, advanced biofuel, and total renewable fuel for the years 2020-2022.” The rule is also expected to include proposed biomass-based diesel RVOs for 2021 and 2022. “Since the timetable for this rulemaking overlaps that for annual standard-setting rulemakings, this rulemaking will also include the applicable percentage standards for 2020,” the OMB states on its website. “Finally, this rulemaking includes several regulatory amendments designed to provide clarity and increase opportunities for renewable fuel production.” The rule is scheduled to be proposed in January and finalized by December 2019. 

Gebolys continued, saying, “We appreciate EPA timely finalizing these expected volumes and, as stated by EPA, we look forward to working towards a process of analyzing small refiner exemptions so they do not decimate annual biofuel volumes.” It is estimated that EPA’s granting of “small refinery” exemptions to RFS obligations in 2016 and 2017 have eroded biodiesel demand by 300 million gallons.

Although several biodiesel producers and industry stakeholders expressed encouragement about the new numbers, the National Biodiesel Board criticized the EPA’s final rule, stating the agency “sets the advanced biofuel and biomass-based diesel volumes lower than what [it] acknowledges will be produced,” and that “the rule leaves open a backdoor to retroactively reduce required volumes through hardship exemptions.”

NBB CEO Donnell Rehagen said, “EPA recognizes that the biodiesel and renewable diesel industry is producing fuel well above the annual volumes. The industry regularly fills 90 percent of the annual advanced biofuel requirement. Nevertheless, the agency continues to use its maximum waiver authority to set advanced biofuel requirements below attainable levels.” In a press release, NBB stated that EPA used its cellulosic waiver authority to make the maximum possible reductions to the advanced biofuel and overall renewable fuel categories. “The method is inconsistent with the RFS program’s purpose, which is to drive growth in production and use of advanced biofuels such as biodiesel,” Rehagen said. NBB had urged the agency to increase the 2020 biomass-based diesel standard to 2.8 billion gallons. 

NBB also noted that, in the final rule, EPA states that it has not received small refinery exemption petitions for 2019 and therefore estimates zero gallons of exempted fuel in its RVO formula. “The agency has estimated zero gallons every year since 2015, even though it retroactively exempted more than 24.5 billion gallons of fuel between 2015 and 2017,” the association stated. “The agency’s own data shows that the retroactive small refinery exemptions reduced demand for biodiesel by more than 300 million gallons in 2018.”  

Kurt Kovarik, NBB vice president of federal affairs, said, “EPA’s RFS rule fails to address the uncertainty associated with the unprecedented flood of small refiner hardship exemptions. Moreover, the agency still has not addressed the court order in the [Americans for Clean Energy v. EPA] case, which remanded the agency’s improper waiver of the 2016 volumes. The rule that EPA has finalized for 2019 and 2020 is meaningless without solutions to these issues.”

The Iowa Renewable Fuels Association also pointed out that the rule failed to address demand destruction caused small refinery exemptions and its lack of addressing a court order to restore 500 million gallons of conventional biofuels that were cut from the RFS program in 2016.

“On paper, this looks like a solid rule that drives the biofuels industry forward,” said Monte Shaw, IRFA executive director. “But in reality, small refinery exemptions erode any potential market growth. Without reallocation of small refinery exemptions, the numbers released today may look good on the outside, but … they are hollow on the inside. This rule could have and should have addressed small refinery exemption reallocation and the 500-million-gallon court-ordered remand, but it did not. We are left hoping that Acting Administrator Andrew Wheeler will take a more judicious approach to exemptions. If not, President Trump’s pledge to protect the RFS and American farmers will be hollowed out from inside his own administration.”

Grant Kimberley, executive director of the Iowa Biodiesel Board, also expressed disappointment with the final rule’s lack of addressing the small refinery exemptions. “This undermines the policy, potentially canceling out any growth, and harms the domestic biodiesel industry,” Kimberley said. 

Gebolys commended Wheeler’s leadership in getting the rule out on time and moving EPA toward administering the RFS with greater transparency. “That’s an encouraging start and a stark departure from the agency’s actions under previous management,” he said. “The RFS is the law of land and EPA’s straightforward mission is to administer the law faithfully, openly and fairly. Obligated parties have had more than a decade to come into compliance with the RFS but some still seek to achieve windfall profits by pursuing secret RFS waivers through the EPA. When EPA becomes a willing accomplice to these schemes, as it did last year in record numbers, they destroy clean energy jobs while rewarding law avoiders at the expense of law abiders. That must now stop. Until EPA makes crystal clear that they will no longer be in the business of handing out backroom waivers worth billions of dollars to some of the most profitable companies on the planet, the volumes in this final rule will not be final. We’ll be watching EPA very closely on this score to see if they are getting administration of this law straightened up or whether they’ll be adding to the mess left behind by the last tenant.”

 

 
 
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