Continued biodiesel growth jeopardized by EPA's 2014 RFS proposal

By Ron Kotrba | November 15, 2013

The U.S. biodiesel industry has grown significantly this year, but if the U.S. EPA’s final 2014 renewable fuel standard (RFS) volume obligation for biomass-based diesel looks anything like its proposal released Nov. 15, significant setbacks could be faced and thousands of jobs lost. Like the leaked draft in October suggested, EPA proposes keeping the biomass-based diesel standard at 1.28 billion gallons next year, the same volume set for 2013, which the biodiesel industry will far surpass as production is forecasted to hit 1.7 billion gallons by end of December. The proposal is particularly challenging because excess biodiesel production in 2013 can be carried over for compliance into 2014. As a result, the 1.28 billion gallon proposal could mean an effective market closer to 1 billion gallons—a dramatic reduction from current production.

The agency proposes advanced biofuel volumes at 2.2 billion ethanol-equivalent gallons, down from 2013’s RVO of 2.75 billion and down significantly from the 2014 statutory requirement of 3.75 billion gallons. Total renewable fuel volume is proposed at 15.21 billion gallons, as the early leaked draft suggested, while the statutory requirement under the Clean Air Act is 18.15 billion gallons. Cellulosic biofuel renewable volume obligation (RVO) is proposed at a mere 17 million ethanol-equivalent gallons. Corn ethanol’s RVO is ostensibly being proposed at 13 billion gallons, down from this year’s volume by 800 million gallons, and down by 1.4 billion gallons from the statutory requirement of 14.4 billion gallons for next year. 

The proposal discusses a variety of approaches for setting the 2014 standards, and includes a number of production and consumption ranges for key categories of biofuel covered by the RFS program. The proposal seeks comment on a range of total renewable fuel volumes for 2014 and proposes a level within that range of 15.21 billion gallons. Specifically, EPA is seeking comment on the following proposed volumes:

Category

Proposed Volume

Range

Cellulosic biofuel

17 mill gal

8-30 million gallons

Biomass-based diesel

1.28 bill gal

1.28 billion gallons

Advanced biofuel

2.20 bill gal

2.0-2.51 billion gallons

Renewable fuel

15.21 bill gal

15.00-15.52 billion gallons

All volumes are ethanol-equivalent, except for biomass-based diesel which is actual

Despite EPA stating the administration fully supports biofuels, the agency points to falling gasoline demand and the E10 blend-wall as factors in its suppressing biofuel growth. “If gasoline demand continues to decline, as currently forecast, continuing growth in the use of ethanol will require greater use of higher ethanol blends such as E15 and E85,” the agency stated. “The Obama administration has taken a number of steps to allow or encourage the use of these higher ethanol blends. In 2010, EPA approved E15 for use in vehicles newer than model year 2001 and developed labeling rules to enable retailers to market E15. In addition, since 2011, USDA has made funding available through the Rural Energy for America Program to support deployment of ‘flex-fuel’ pumps that can dispense a range of ethanol blends.”

“It’s not just the absurdity of lowering the 2014 numbers below the 2013 level, with the new waiver framework, in essence, the administration would be ceding power to the petroleum industry to dictate the level of each year’s RVO based on the amount of infrastructure the petroleum industry was willing to install,” said Monte Shaw, Iowa Renewable Fuels Association executive director. “That is the exact opposite of how the RFS was intended to work. The RFS is supposed to be a tool for market access, not market restriction.”

In the proposed rule, the administration adopts the position that a lack of retail distribution equipment this year equates to a renewable fuel “supply shortage” next year. This “infrastructure” waiver was specifically rejected by Congress during the adoption of the RFS and, if allowed to stand, would effectively repeal the RFS as a factor in U.S. energy policy. IRFA says the circular logic of this proposal creates a downward death spiral for the RFS as the RFS could not be increased unless Big Oil had already begun to offer higher ethanol blends. “With no pressure to move forward, Big Oil would be expected to continue hiding behind its century of subsidies and federal petroleum mandate to prevent consumer choice for higher blends,” the IRFA stated.

Biodiesel producers and industry stakeholders are wondering, however, why these factors are cause for the agency to stymie successful growth in the biodiesel sector.

“It makes no sense that when everyone’s been working so hard to meet the numbers, that they’re going to strike a deadly blow to the industry,” said “Bio” Joe Renwick, founder of Winnsboro, S.C.-based Midlands Biofuels, a small producer scaled at 200,000 gallons a year. “It’ll make it that much harder to stay in business. We’re already faced with not having the blenders credit next year. And this proposal is very disheartening for the industry—and for me as a biodiesel business owner.”

“This proposal, if it becomes final, would create a shrinking market, eliminate thousands of jobs and likely cause biodiesel plants to close across the country,” said Anne Steckel, vice president of federal affairs for the National Biodiesel Board. “It also sends a terrible signal to investors and entrepreneurs that jeopardizes the future development of biodiesel and other advanced biofuels in the United States.”

“Friday's news regarding the RVO for biodiesel is simply devastating,” said Jennifer Case, CEO of San Diego-based New Leaf Biofuel, a 6 MMgy biodiesel plant. “Our industry was already bracing for yet another expiration of our tax credit, and the elimination of nearly 500 million gallons of biodiesel demand for next year has sent RIN values in to a tailspin. As everyone is aware, the biodiesel industry is still in its infancy, and does not yet have the wherewithal to compete on an equal playing field with petroleum. As a result of this news, and the corresponding expiration of the tax incentive, I suspect that plants across the country will be idled and many jobs will be lost. This is especially true for small producers who lack the economies of scale and cash reserves that may allow some of the bigger players to ride out this uncertain period of time. Over the next 60 days, I encourage all stakeholders to get in contact with their representatives in the Senate and the House and let them know that the proposed rule is a disaster for biodiesel.”

Amanda Cunningham of Veros Energy, a biodiesel producer in Moundville, Ala., is among those in the industry whose job is at risk under the proposal. Cunningham and her husband both work at the company, supporting a family of six children.

“If biodiesel volumes are decreased, it has a hard, hard trickle down impact,” Cunningham said. “We would surely have layoffs; layoffs reduce production; reduced production drops the bottom line; and at that point the plant might as well shut down.”

A recent study commissioned by NBB showed that with a 2014 RVO stalled at 1.28 billion gallons, 8,000 biodiesel-supported jobs would be lost. The study, commissioned by NBB and conducted by LMC International, a global economic research firm, looked at three production scenarios for 2014. First, under status quo production of 1.7 billion gallons, supported employment would remain at 62,200 jobs with supported wages of $2.6 billion and total economic impact of nearly $16.8 billion. If production were to fall back to 1.28 billion gallons, the volume proposed by EPA, the number of supported jobs would drop to 54,500, with supported wages falling below $2.3 billion and total economic impact reduced to $12.2 billion. A third analysis looks at a high-volume scenario, consistent with recent months’ volumes averaging roughly 170 million gallons, or an annualized rate of 2 billion gallons. It found that the number of supported jobs would rise to 66,600, supporting wages of nearly $2.8 billion and total economic impact of more than $20 billion.

Daniel J. Oh, the president and CEO of Renewable Energy Group Inc., the nation’s largest biodiesel producer with more than a quarter of a billion gallons of operating biodiesel capacity, said, “We are disappointed by the proposed numbers that are not consistent with the goals of the EPA, the White House, nor Congress when it created RFS2. Nevertheless, REG’s lower cost multifeedstock business model, network of biorefineries and terminals, and strong position within the industry should allow us to continue to succeed as the markets inevitably adjust to reach a new equilibrium. The proposed numbers do not reflect the positive results the biodiesel industry has provided in terms of record production levels of advanced biofuels, job creation, rural economic development, energy and food security, and environmental benefits. We will continue to advocate with our industry partners for logical increases in the biomass-based diesel and overall advanced biofuel RVOs through the public comment period. Without such increases in the RVO, our nation will be deprived of present and obvious benefits.”

Steckel added, “This Administration has for years supported strong renewable fuels policies and encouraged investment in this industry. The private sector has responded to these policies by meeting or exceeding the advanced biofuels requirements in every year of the RFS. The administration should be celebrating that success and continuing the momentum, not retreating.”

Danny Murphy, a soybean, corn and wheat farmer from Canton, Miss., and president of the American Soybean Association, said, “The level set forth in the proposal is unnecessarily low and will stifle the growth and job creation potential demonstrated by the biodiesel industry over the past several years. Biodiesel, including biodiesel produced from soybean oil, is the most prevalent advanced biofuel currently produced in the United States. … As we move forward, ASA will be working with industry stakeholders as well as with EPA during the public comment period to demonstrate to the agency the merit and benefits of setting the biomass-based diesel RVO at a level in the final rule that is not below the amount produced in 2013.”

The IRFA called the proposal a complete capitulation to Big Oil. “Today’s RFS announcement represents the biggest policy reversal of the entire Obama administration,” Shaw said. “The EPA proposal turns the RFS on its head, runs counter to the law and is a complete capitulation to Big Oil. The Obama administration needs to conduct a thorough soul-searching and decide whether they are serious about cleaner fuels, consumer choice, and cutting petroleum dependence, or whether they truly want to adopt the Big Oil status quo. There is still time to restore Congressional intent and common sense before the rule is finalized.”

Atul Deshmane, president of Whole Energy, a West Coast biodiesel distributor, said RFS legislation was originally written by oil lobbyists as part of a side deal with the energy task force that then-vice-president Dick Cheney was aligned with, so years later, after U.S. oil production began ramping up, it’s no surprise Big Oil now wants to unravel the program. “People have to realize that when a gallon of biodiesel is made in the U.S., 90 percent of the money generated stays within U.S. borders,” Deshmane said. “But when a gallon of oil is produced in the U.S., it’s the exact opposite—90 percent of that money exits the U.S.”

He said under the RFS program, producers are beholden to Big Oil because of the RIN system, credits that petroleum companies purchase, so since a decreased RFS would hurt the biodiesel industry badly in the short term, Deshmane said in the long run it is important for the biodiesel sector to look for ways to reduce its dependence on Big Oil.  

Ramon Benavides, president of Global Renewable Strategies and Consulting LLC, said the represented volumes are certainly challenging for the industries. “However, actual production numbers will provide evidence that demonstrates the advanced category is growing and not stagnant,” Benavides said. “I am confident the EPA’s approach to this proposal, which allows opportunities for all to participate and comment, will consider data that  is evidentiary based  and to adjust the program accordingly—after all, facts are facts. The U.S. biomass-based diesel and the advanced renewable fuels categories are growing to meet the demand as supported by the recorded and concurrent evidence at the Energy Information Administration, National Biodiesel Board, Advanced Biofuels Association and EPA. Thus, it is my opinion the trade associations and renewable fuel producers will present factual data so that each category will achieve the desired results. The domestic renewable fuel producers will continue to rise to the occasion with a strong American spirits and provide empirical evidence that the planned objectives of the Energy Independence and Security Act are exceeded in some areas and warrant review in others. In either case, the program is responding and growth is occurring. Albeit, in some instances, painfully slow due to a variety of external factors. Remember, a silent voice is an unrecorded event that cannot spark change. This proposal and request for comment allows your voice to be heard so that it can be an instrument for change.”

The 60-day comment period will open up once the proposal is published in the Federal Register. Biodiesel stakeholders are expected to submit comments en masse urging the EPA to boost the biomass-based diesel RVO to at least 1.7 billion gallons, this year’s anticipated production volume.

 
 
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