Media Backgrounder on Biodiesel and the RFS

The EPA and the Trump Administration are Killing the Biodiesel Industry

More than just ethanol: Breaking down the acronyms behind the RFS and the implications for soybean farmers

By Katie James, Public Relations Manager

Iowa Soybean Association

With the recent onslaught of media attention towards the decisions made by the Environmental Protection Agency (EPA) and federal government regarding biofuels, one thing is certain: farmers are unhappy.

But the lesser-known and more critical fact is that the biodiesel industry is the biggest victim of this affront from the EPA. While ethanol remains the common topic of discussion, biodiesel producers, facility operators and soybean farmers are struggling under softening demand and lower prices.

At a time when international trade headwinds impact Iowa’s soybean growers’ pocketbooks, domestic markets are critical for survival.

Here’s what you need to know:

Alphabet of Acronyms

RFS: The Renewable Fuels Standard (RFS) was created by Congress in 2005 through the Energy Policy Act. The goal was to reduce greenhouse gas emissions and expand the nation’s renewable fuels sector while reducing reliance on imported oil. The EPA implements this program in consultation with the U.S. Department of Energy.

This national policy requires certain volumes of renewable fuel to replace or reduce the quantity of petroleum-based transportation fuel, heating oil or jet fuel. Volume standards vary by year, which leads us to one of the reasons the biodiesel industry and soybean farmers are unhappy with the recent decisions made by the EPA and the Trump Administration.

VOs (or RVOs): Volume Obligations (sometimes referred to as Renewable Volume Obligations) set the number of gallons of biofuels that should be available to consumers the following year. This number tells refiners how many gallons of biofuels they will need to add to the fuel mixture. After the EPA releases the RVO’s, a public comment period follows before issuing the final ruling.

The EPA announced the biomass-based diesel volume for 2020 and 2021 at 2.43 billion gallons – the same amount as before. Without increasing volume obligations, the industry, lawmakers and refiners get no signal for growth and remain stagnant. Considering the biodiesel industry is operating considerably below capacity, this flatline spurs the temporary or permanent shutdown of several biodiesel facilities around the country.

SREs (or Small Refinery Exemptions/Waivers): Small Refinery Exemptions, or Small Refinery Waivers, are granted by the EPA. According to their website: “Under EPA’s Renewable Fuel Standard (RFS) program, a small refinery may be granted a temporary exemption from its annual Renewable Volume Obligations (RVOs) if it can demonstrate that compliance with the RVOs would cause the refinery to suffer disproportionate economic hardship. EPA evaluates submissions to determine whether an exemption may be granted, based on information presented by the petitioning refinery and on the statutory and regulatory requirements for exemption.”

However, the problem with this is that the EPA has not simply granted these exemptions to small refineries under certain conditions. The EPA has granted an historic number of waivers to large oil refineries. These waivers make it impossible for biodiesel producers to sell their product at the volumes they were promised through the RVO’s.

In 2015, only seven waivers were granted of the 14 petitioned. This year, the EPA granted 31 of the 39 petitions. This momentum encourages more refineries to demand exemptions, falsely lowering the demand for biodiesel and perpetuating the cycle of flatlining RVO’s.

The National Biodiesel Board estimates the exemptions reduced demand for biodiesel by more than 300 million gallons. The state of Iowa produces more than 360 million gallons of biodiesel per year. The actions from EPA not only cancel out an entire year’s worth of our state’s production but supports the interests and pocketbooks of the petroleum industry.

Biodiesel –and therefore soybean demand destruction from these federal decisions is immediate, and should plants go bankrupt, permanent.

The Problem Goes Beyond the EPA

Furthering domestic issues for soybean demand, lawmakers have consistently failed to extend the biodiesel tax credit. Extension of this tax credit incentivizes fuel blenders to utilize more biodiesel. This tax credit expired nearly a year and a half ago, leaving the biodiesel industry in financial and market demand limbo.

Biodiesel plants and operators, just like farmers, cannot make long-term investments in infrastructure or their facilities without support from the government. Without a tax credit, input costs can be too high. Combined with the lackluster support from the EPA, there is no market certainty for producers. When biodiesel facilities shut down and local fuel providers have no incentive to offer biodiesel, soybean farmers can suffer a loss of up to $.90 per bushel at time when literally every penny counts in today’s downturned farm economy.

The Reality Behind the Bean

Misconceptions surround every aspect of agriculture – biofuels included. Farmers often get the blame for deforestation in an attempt to cash in on the biofuels market. What’s important to know about biodiesel – and soybean production in general – is that this fuel was engineered as a solution to byproduct waste.

For years, soybean oil was sitting on the sidelines with no use. Soybean farmers, in conjunction with researchers and industry experts, created this homegrown fuel out of sheer desire to not waste a potentially-valuable product from their soybeans. While soybeans are grown, processed and shipped all over the world for a variety of reasons, visionary farmers found a use for the leftover oil. Acres of land are not used for biodiesel production. Biodiesel creates a use for a once-forgotten bean byproduct. It is a homegrown, non-toxic, renewable fuel source nearly completely free of sulfur and aromatics.

Soybean growers, biodiesel facility operators and the 4,700 Iowa workers employed in the industry need government certainty to securely move forward.

The facts and statistics shared above were compiled from the Iowa Biodiesel Board, National Biodiesel Board, the EPA, and the Iowa Department of Energy. Not funded by the soybean checkoff.

The Iowa Soybean Association (www.iasoybeans.com) develops policies and programs that help Iowa’s more than 40,000 soybean farmers expand profit opportunities while promoting environmentally sensitive production using the soybean checkoff and other resources. The association was founded in 1964 and is governed by an elected volunteer board of 22 farmers. It strives to be honest and transparent, fact-based and data driven and committed to environmental stewardship, collaborations and partnerships.