Policy uncertainty puts biodiesel industry in limbo09/19/2019 | Biodiesel
By Bethany Baratta, ISA senior writer
Inaction on federal incentives and policies supportive of biodiesel production means plant closures, reduced demand for soybeans and thousands of jobs impacted nationwide.
It’s a tough time for the biodiesel industry, National Biodiesel Board CEO Donnell Rehagen expressed during his address to members at the annual regional meeting of the Iowa Biodiesel Board and the National Biodiesel Board this week in Des Moines.
The industry is still without an extension of the biodiesel tax credit, and proposed volumes under the Renewable Fuel Standard are adding another level of concern for farmers and biodiesel plant managers.
“It’s nerve-wracking,” said Ron Heck, a former Iowa Soybean Association (ISA) president from Perry.
Biodiesel tax credit
The federal biodiesel tax credit has been issued in previous years to provide a $1-per-gallon credit to producers which blend biodiesel with petroleum. But the tax credit expired 21 months ago, leaving biodiesel blenders, petroleum marketers and farmers in limbo.
“There are a lot of producers hanging on by a thread to keep their facilities open,” said Delbert Christensen, board member for the Renewable Energy Group (REG) and former ISA board member from Audubon. “Plants are reducing the amount of fuel they are producing to try to get along. However, we need this tax credit to get us whole again and get everything working as it should.”
Without the tax credit, the biodiesel industry faces an uncertain future, Rehagen said.
“Policy uncertainty is forcing biodiesel producers across the country to close or cut production,” Rehagen said.
Nationwide, 215 million gallons are offline, 6,400 jobs have been impacted and the demand for 140 million bushels of soybeans has vanished.
“Typically, Q1 purchases for 2020 feedstock contracts (like soybeans) would already have dried ink on them.” Rehagen said. “Due to this uncertainty, many plants have not even engaged in that conversation.”
There appears to be some momentum behind the extension of the biodiesel tax credit in the U.S. House of Representatives, Rehagen noted. Iowa Representative Abby Finkenauer introduced a bill in the House and has levied support from about 60 of her colleagues. The House must introduce the incentive for it to be taken up for a vote, Rehagen said.
Small refinery exemptions displace biodiesel
The Environmental Protection Agency’s (EPA) granting of 31 small refinery exemptions from the 2018 Renewable Fuel Standard obligations has demolished the demand for 2.45 billion gallons of biodiesel and has an estimated $7.7 billion impact to the economy, according to University of Illinois economist Scott Irwin.
By the EPA’s definition, one small refinery is equivalent to about 1 billion gallons of gasoline and diesel per year. The RFS obligations for that 1 billion gallons would have provided a market for 20 million to 30 million gallons of biodiesel and renewable diesel for the year. There are dozens of biodiesel producers in the country that produce less than 20 million gallons per year, Rehagen said.
“One small refinery exemption can close a biodiesel plant, and EPA granted 31 of those exemptions,” he said.
RFS rulemaking challenged
Rehagen said the National Biodiesel Board continues to challenge EPA’s July ruling for the 2020 Renewable Fuel Standards (RFS) and the 2021 Biomass-based Diesel Volume. EPA set the 2021 Biomass-based Diesel (BBD) volume at 2.43 billion gallons –the same volumes set for 2020. EPA proposed 2020 Advanced Biofuel volume at 5.04 billion gallons, a slim increase from the 4.92 billion gallons in 2019 due to a small increase in the Cellulosic volumes set in the proposal. The proposed volumes are similar to those finalized for 2019.
NBB joined other trade associations in petitioning EPA to reconsider its 2010 formula for setting renewable volume obligations (RVOs) to properly account for retroactive small refinery exemptions, he said.
EPA has not responded and has indicated in other rulemakings that it will not account for small refinery exemptions. The NBB and the group of trade associations is now moving forward with litigation on the issue in the D.C. Circuit.
Industry leaders have met with President Donald Trump on the issue, making a case for reconsidering the EPA’s formula.
“If this goes against us, it’s not going to be without their knowledge of what they’re doing,” Rehagen said. “The RFS is the No. 1 driver of our industry, and we’ve taken several opportunities to set things straight.”
“Biodiesel is a wonderful fuel and we’ve had wonderful success going from hardly any market a few years ago to several billion gallons now,” Heck said. “But we need to get these issues resolved so our biodiesel producers have some stability.”
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