Eyes are on European Biofuels Market
BY JOE GERSHEN
Originally Published in Render magazine, February 2019
EU biodiesel producers hope these moves will result in greater market share for 2019 after surviving large imports of inexpensive Argentinian soy methyl ester and Indonesian palm methyl ester last year. These imports entered the market following the annulment in 2018 of EU anti-dumping duties after five years. The Commission plans to ratify its proposed anti-subsidy duties on Argentina’s biodiesel exporters by February at the latest, while duties against Indonesian producers will come later.
The EU imported 1.3 million metric tons of soy methyl ester from Argentina in the first nine months of 2018, up from just 30,000 metric tons during the same period in 2017. The imposition of anti-subsidy duties on Argentinian exporters would cut supply to the European market from around 1 million to 1.5 million metric tons in 2019. This will lead to rising demand for domestically produced European first generation biodiesel and that made from recycled oils, for which availability is already tightening globally as used cooking oil methyl ester (UCOME) consumption increases.
While EU biodiesel imports could decline once any duties are put in place, at least 14 EU member states will increase their biofuels blending mandates by the end of this year. Eleven of these double count waste-derived fuels, primarily met with UCOME and tallow methyl ester (TME).
Spain is in the process of introducing double counting of waste-derived biodiesel toward mandates, likely in the first quarter of 2019. The country’s dominant palm methyl ester producer, Musim Mas, is considering converting its 200,000 metric tons (60 million gallons) per year Cartagena plant to use waste oils and fats this year. Spain’s preparations to introduce double counting, likely up to 0.5 percent, will incentivize the use of UCO and other less plentiful rendered feedstocks. Spain produces around 105 million gallons per year (mgpy) of UCOME and TME combined. The recent restart of a plant at Linares, idled for at least three years, should add around 18 mg to 21 mgpy through 2019.
As demand for waste-derived biodiesel and feedstock grows, Europe’s UCOME and TME producers will find themselves competing with hydrotreated vegetable oil, a drop-in diesel substitute also known as renewable diesel, for domestic and imported feedstock supply in 2019. European renewable diesel production will rise in 2019 as Total and Eni plan to start their La Mede and Gela plants in the first quarter, representing a combined production capacity of 330 mgpy. La Mede has caused controversy because it has been authorized to use up to 90 mgpy of imported palm oil—nearly half the site’s required 195 mgpy of feedstock—due to sustainability concerns. The facility is able to use 45 mgpy of vegetable oil feedstock, only 15 million gallons of which is set to be rapeseed oil. The remaining 60 million gallons will come from animal fat, UCO, and residues, although there is concern whether there are enough of these feedstocks available. The majority of Gela’s feedstock will come from palm oil while Eni has pledged to use as much UCO as it can.
Asia-Pacific and North America also have growing demands for biodiesel and renewable diesel, which will ultimately tighten supply of biodiesel and feedstock imported into Europe. The EU imported around 65 million gallons of UCOME from China in January–September 2018, up 48 percent year over year, but volumes have varied significantly from month to month depending on freight costs and seasonal conditions. There is also a growing domestic Chinese biodiesel market that Europe needs to be concerned about.
Biofuels Tax Credits Still Unknown
The United States (US) House of Representatives passed a package of tax provisions just before Christmas, including an extension of the biodiesel tax credit, by a vote of 220–183. The Senate, however, failed to vote on the package prior to the stalemate on remaining government funding bills that led to the partial US government shutdown. A new Congress was sworn in on January 3, 2019, marking the start of a new session so any legislation will now have to be re-introduced. As of this writing, given the ongoing stand-off on government funding and the US-Mexico border wall, it seems unlikely there will be much movement on the biodiesel tax credit or any other tax issues anytime soon.
Industry Association Happenings
On February 28, 2019, the California Advanced Biofuels Alliance (CABA) will hold its eighth annual California Advanced Biofuels Conference in Sacramento, California. The event has grown in popularity and offers attendees an in-depth perspective of one of the most compelling low-carbon transportation fuels markets in the world. There will also be opportunities to learn about California’s newest legislation and regulations, and to connect with the industry’s leadership, including CABA’s new executive committee for the next two years: Tyson Keever, SeQuential and Crimson Renewable Energy LP, chair; Joe Gershen, Encore BioRenewables, vice chair; Ron Cardwell, ADM, secretary; and Eric Kayser, Imperial Western Products, treasurer.
National Biodiesel Board (NBB) members also recently voted in a new slate of officers with Kent Engelbrecht, ADM, returning as chairman; Chad Stone, Renewable Energy Group, as vice chairman; Ryan Pederson, North Dakota Soybean Council, as treasurer; and Ron Heck, Iowa Soybean Association, as secretary. In addition, eight new board members were elected for two-year terms and include Troy Alberts, Ag Environmental Products; Rob Shaffer; American Soybean Association; Mike Rath, Darling Ingredients Inc.; Jeff Lynn, Illinois Soybean Association; Tim Keaveney, Lake Erie Biofuels DBA Hero BX; Greg Anderson, Nebraska Soybean Board; Robert Morton, Newport Biodiesel LLC; and Tom Brooks, Western Dubuque Biodiesel, LLC. The board reflects the wide range of member companies in the biodiesel industry from feedstock operations to producers.
NBB has hired Kate Shenk as director of regulatory affairs and David W. Cobb as director of federal affairs. Both individuals will work in the board’s Washington, DC, office. Shenk previously worked for the Biotechnology Innovation Organization where she led a regulatory affairs committee and developed analyses and comments on regulatory policies. Cobb most recently served as federal affairs director for CHS Inc., a Fortune 100 company and the nation’s largest farmer-owned cooperative, where he advocated for the company’s legislative and regulatory policy priorities.
Washington State Policies on the Move
Washington Governor Jay Inslee (D) and key Democratic state lawmakers are proposing new climate policies for the 2019 legislative session that include legislation for a Low Carbon Fuel Standard (LCFS) targeting greenhouse gas (GHG) emissions from the transportation sector. Not coincidentally, Inslee has announced his intention to run for US president in 2020 on an aggressive environmental protection platform. With a LCFS, Washington State would become the final member of a West Coast alliance on bold climate policies. California, Oregon, and British Columbia already have successful LCFS programs in place to address GHG reduction in the transportation sector. It remains to be seen if Inslee can wrestle the carbon reduction leadership mantle away from his other West Coast partners and successfully use it to win the White House in less than two years.
Prior to the current GHG reduction policy targets, a Washington State tax bill failed to receive enough votes in the state legislature and voters rejected a carbon tax ballot initiative in last November’s election—the second such failed ballot attempt since 2016. The governor’s proposal would require a 10 percent reduction in the carbon intensity of transportation fuels by 2028 and 20 percent by 2035. The proposal is much more likely to pass now after the November election since Democrats increased their majorities in both chambers of the legislature—they now enjoy a seven-vote margin in the state Senate and a 16-vote margin in the House.
If Inslee is successful, he will have raised his profile and environmental policy credentials. Whether that will help him on the national stage is unclear, but it will certainly create a North American West Coast LCFS movement not easily ignored on the world stage.
New Biodiesel Plant Coming to Canada
Benefuel, a solid catalyst technology provider, plans to build a 40 million gallon per year biodiesel facility in British Columbia, Canada, in wake of the province’s recently publicized climate policy called “CleanBC” that includes an expanded LCFS. Benefuel claims its biodiesel refining process is one of the most capital efficient solutions for carbon reduction in liquid transportation fuels and will have a negative carbon intensity score. The company stated this project will reduce GHG emissions by over 550,000 metric tons per year, which is equal to roughly 10 percent of British Columbia’s 2030 target reduction for the transportation sector as detailed in the CleanBC report.
US Energy Programs Renewed, Hardship Waivers Continue
In late December, US President Donald Trump signed the 2018 farm bill into law after a nine-month effort. The $867 billion Agricultural Improvement Act of 2018, or H.R. 2, reauthorizes several energy programs, including the Biorefinery Assistance Program and the Bioenergy Program for Advanced Biofuels. The 2018 farm bill also authorizes $2 million a year for the Biodiesel Fuel Education Program from 2019–2023.
Also at the end of December, the US Environmental Protection Agency (EPA) released updated data on small refinery hardship waivers filed under the Renewable Fuel Standard (RFS). Seven new waiver petitions for the 2018 compliance year and one new petition for the 2017 compliance year were filed between November 10 and December 18, 2018. In total, 22 petitions seeking small refinery waivers for the 2018 compliance year have been filed. All are still pending.
Per regulation, EPA must account for small refinery hardship waivers when setting RFS annual renewable volume obligations (RVO), unless the waivers are approved after the agency publishes its final RVO rule (which has been happening). EPA must also only extend existing waivers, not grant new ones (which, again, has been happening).