Politics, Prices and Public Support

The biodiesel industry survived a tough 2008 and can look forward to a new year full of challenges and opportunities. Biodiesel Magazine spoke with industry representatives about the major issues facing biodiesel producers in 2009 and how they plan to address those concerns.
By Kris Bevill | November 13, 2008
Many biodiesel producers won't be sad to see 2008 come to an end. High feedstock costs, the fate of the biodiesel tax credit and a financial crisis that has rocked the world have taken a toll on the industry. Although it may be too early to tell what impact the nation's financial stability will have on the biodiesel industry, it is no doubt on the minds of everyone as they make business decisions.

National Biodiesel Board Executive Director Joe Jobe says economics is the biggest challenge for the biodiesel industry. This year, the biodiesel lobby was successful in convincing the U.S. Congress to extend biodiesel tax credits as part of the $700 billion economic bailout bill. That will help alleviate some economic issues, but there is more work to be done. "The bad news is we only got it extended for one year, so unfortunately that will be our No. 1 priority again next year," Jobe says.

John Hoffman, president of the American Soybean Association and a staunch ally of the biodiesel industry, says he believes the extension of biodiesel tax credits will allow industry members to plan their production and marketing schedules for the first half of 2009. Lower feedstock prices in late 2008 may also help producers lock in supplies at more manageable costs for part of the next year. "Prices are difficult to forecast whether you're a grower or a biodiesel producer," he says, but Hoffman is confident that the supply is there. As a fifth-generation soybean and corn farmer, Hoffman knows well the uncertainties when dealing with commodities but he's optimistic prices will be a little easier to stomach in 2009.

Joe Gershen, vice president of sales and marketing at Tellurian Biodiesel Inc., also ranks the economy as the most pressing issue facing the biodiesel industry. His company produces, markets and distributes ASTM-certified biodiesel throughout southern California and recently opened a storage/distribution terminal in Los Angeles. He mentions specifically the fact that economic issues will dictate the buying habits of fleet managers and individual consumers, which concerns him greatly.

Another economic factor to consider, is the drastic swing in oil prices, according to Brent Baker, founder and chief executive officer of New York's Tri-State Biodiesel. He believes the biodiesel industry needs to work on indexing prices to match the petroleum industry in order to be successful. "We need to start hedging against petroleum," he says. "Otherwise we will be in this feast or famine situation that will be predicated by the daily gyrations of the petroleum market." Tri-State has begun implementing that strategy with some of its customers and Baker says that while they make less money when markets are down, they make up for it when prices go up and, most importantly, they are able to retain customers who might otherwise seek out petroleum-based competition for a better price.

Exerting Influence
Convincing Congress to extend the biodiesel tax credits in 2008 was an amazing feat. Credit must be given to the NBB and the ASA for their work in achieving a do-or-die mission in what Jobe describes as an "excruciating year" to attempt to pass legislation. Both groups say they will continue to work to get tax extensions passed beyond 2009.

In the meantime, the industry must turn its attention overseas as the trade dispute between Europe and the United States comes to a head. According to Jobe, preliminary findings will be released in early 2009 from the European commission's investigation into complaints from the European Biodiesel Board that exports from the United States have destroyed their industry. The NBB will be prepared to deal with the outcome, and will continue to defend the United States against what it believes are unfair complaints against U.S. producers, Jobe says.

The renewable fuel standard (RFS) mandates that 2009 will be the first year that biomass-based diesel must be blended into the nation's fuel supply. At a mere 500 million gallons, it's not much, but there are major implementation issues. Jobe says the NBB will be involved in the RFS implementation process as much as possible-determining how renewable identification numbers (RINs) for the fuel should be counted and traded, and how the industry should meet the criteria requiring a 50 percent reduction in carbon emissions.

At press time, the presidential election had not yet been held and the question of who will take office in November weighs heavily on the minds of those in the industry. No matter who takes office, the NBB has a world-class governmental affairs team in place, ready to work on important issues in 2009, Jobe says. "We have been disproportionately effective in terms of the size of the industry and the results," he says, adding that the organization was "8-for-8 in '08"-accomplishing all eight of the goals it set out to achieve at the beginning of the year. For those who would ask for more, Jobe says any industry would be hard-pressed to find a government affairs team that has been more effective.

Feedstock and Food Versus Fuel and Sustainability
The industry won't soon forget the record-high oil prices in 2008 and the organized attack mounted by the Grocery Manufacturers Association against biofuels. And, as with other biofuels producers, the industry is also faced with calculating its carbon footprint, which will be heavily weighted by the type of feedstock that producers use. "Unless we have some serious feedstock breakthroughs, I think the industry will continue to struggle," Baker says. His business uses yellow grease, but he would like to see advancements made in other nonfood feedstock sources so the industry can continue to defend itself against the food-versus-fuel debate and sustainability arguments. His hope is that, by this time next year, the industry will be talking more about algae.

The NBB isn't about to let down its guard against those who blame biofuels for higher food prices. "The Grocery Manufacturers Association is not done with us," Jobe says, adding that the NBB is expecting continued attacks on biofuels and biofuels policies in 2009. Feedstock development has been deemed a priority by NBB members and "we've got a number of feedstock developments we'll be working on," he adds.

While new feedstocks are being developed, the ASA is advocating for new, improved biotech soybeans that will provide bigger yields, according to Hoffman. Genetically modified seeds can be a tough sell in Europe. The United States needs Europe's approval before it can export fuel or other products derived from those seeds to European markets, so the association will continue to work for regulatory approval overseas. "The bottom line is that yields will grow in 2009," Hoffman says. He points to the Bioenergy Program for Advanced
Biofuels, which was included in the 2008 Farm Bill, as an added incentive to continue research into yield improvement. The program allows for payments to be given to producers of advanced biofuels based on yearly increases in production. A total of $300 million has been allocated for the program over the next three years. "We just hope it will provide assistance to biodiesel producers to help mitigate some of the feedstock costs and maintain competitiveness with foreign biodiesel manufacturers," he says.

Continuing Education
Passage of the biodiesel tax credits extension may prove that the industry has bipartisan support in Congress, but that support is grounded in the lawmakers' constituents. "Public education is imperative so that customers, policy-makers and other stakeholders understand what is really at risk going forward, both environmentally and economically," Gershen says. "We [the public] are so concerned with the immediate cost of fuel at the pump that we might see folks go back to buying fossil energy. We cannot afford to do this." Gershen asserts that fossil fuel industries have been successful at cleaning up their images by coining terms such as "clean coal," "clean diesel" and "natural gas." The biodiesel industry needs to continue to educate the public on the differences between fossil fuel-derived products and biodiesel, he says.

Baker also thinks that education and public relations need to remain at the top of the list of priorities for the industry. "We got the tax credit because we had wide public support across the aisle," he says, adding that if public support wanes, political support will go right out the window, taking with it the mandates and subsidies that the industry relies on as it continues to mature.

Government education assistance can be found in the Biodiesel Fuel Education Program. Re-approved in the 2008 Farm Bill and extended until 2012, it allows $1 million annually to be dispersed among approved nonprofit organizations and institutions of higher learning for educational purposes.

Counting on Carbon
Jobe is convinced that carbon will be the No. 1 issue that everyone will have to deal with by this time next year. He believes that carbon is "the issue of our time," and predicts that by November 2009 the organization will be involved deeply in the development of a national carbon emissions reduction policy, including how carbon credits will be counted, verified and traded and how all of those things will apply to biodiesel. It's an issue not many biodiesel producers have had the luxury of thinking about yet, but Jobe believes that on a policy level, a carbon program will have a larger impact on the biodiesel industry than any other single issue. For now, "it's a bit like talking about quantum physics," he says. "It's all theoretical at this point." The NBB is taking the initiative though, and trying to anticipate how carbon markets might develop and how biodiesel producers can participate. The board is working with the Chicago Climate Exchange, North America's only legally binding carbon credit trading system to determine how biodiesel producers can generate credits and have several other carbon emission-based projects in the works.

As a California-based company, Gershen is watching intently as the state develops its low-carbon fuel standard. The program being developed in California could serve as a template for a national standard, and, so far, the program looks good for biodiesel. This will be an issue that develops more thoroughly in the next year and industry leaders are urging producers to pay close attention.

The NBB realizes that some individual states are ahead of the federal government on developing low-carbon fuel standards. In response, the NBB is ramping up its state regulatory programs and government affairs branches in order to ensure the industry is well-represented and can participate in state standards, Jobe says.

Baker, however, isn't sold on the carbon factor playing a major role in 2009, but he agrees that it will eventually be a major issue. He put it on his outlook for 2010.

Many issues related to the industry may seem like more than a single producer can bear, and many members may feel like there is nothing they as individuals can do to help. Not true. Gershen says producers, who don't have the ability to lobby legislators in Washington, D.C., have other avenues where they can advance their industry. "Work with distributors so they understand more about the product," he says. "Understand your feedstocks and how they will impact your finished product. Understand your market. Don't be greedy. And develop a relationship with your legislators and educate them, just like you would a customer. They need your input."

Baker says the producers left standing in 2009 are strong and will make the industry smarter and better next year.

Kris Bevill is a Biodiesel Magazine staff writer. Reach her at kbevill@bbiinternational.com or (701) 373-8044.
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