Federal Policies Destroying US Biofuels Demand 2020-01-27T01:36:35+00:00

Federal Policies Destroying US Biofuels Demand

BY JOE GERSHEN

Originally Published in Render magazine, October 2019

As this column anticipated in the August issue of Render, the United States (US) Environmental Protection Agency (EPA) granted 31 out of 38 retroactive small refinery exemptions (SREs) for 2018 under the Renewable Fuel Standard (RFS). In an effort to clarify what this means for Render readers, the RFS requires US transportation fuel to contain a minimum volume of renewable fuel. In order to meet that requirement, refiners and importers are obligated to blend a percentage of that transportation fuel with renewables, known as the renewable volume obligation (RVO). When SREs are granted by EPA, those volumes do not get re-allocated, they simply disappear. Logic might dictate that the overall demand would stay the same and the volume reduced from those 31 refineries would somehow be “re-assigned” or “shared” over all the rest, but that does not happen. Those gallons, along with the bio-refineries that produce them and the American jobs and communities they support, simply disappear.

​Moreover, because the exemptions are retroactive, the 31 refineries are given back any credits—known as renewable identification numbers (RINs)—they may have submitted for their 2018 RVOs. The credits are then sold very cheaply to other refiners, who can then use them to reduce their need to blend renewable fuels during 2019. That undercuts the blending of even more renewable fuel under the RFS program, which, of course, reduces the purchase of rendered fats and recycled oils for biodiesel and renewable diesel production.

Predictably, President Donald Trump’s administration has been scrambling to stem the tide of rising anger in farm-belt states after its decision to allow these SREs. The backlash has been especially strong in Iowa, an early voting state that helped elect Trump to the White House in 2016 and is critically important to his re-election in 2020. The administration, however, has struggled to develop an initiative that would satisfy biofuel producers while appeasing another key constituency: oil refiners.

Iowa Governor Kim Reynolds and other Midwest state governors have been in direct contact with the president to talk about unrest in farm country and the impact EPA’s hardship waivers are having on the ethanol and biodiesel industries and the communities they support. Reynolds was recently appointed Trump’s Iowa reelection campaign co-chair and believes she has top level access to the president. She also thinks he did not fully understand the ramifications of EPA’s decisions, as reported in Bloomberg.

As this issue of Render was going to press, Reuters reported that Trump has tentatively approved a plan to increase the amount of biofuels that petroleum refiners will be required to blend each year under the RFS in an effort to compensate for the recent SREs the oil industry has received, according to two sources familiar with the matter. Under this plan, EPA will calculate a three-year rolling average of total biofuel gallons exempted from RFS mandates under its SRE program and add that figure to its annual biofuel blending quotas each year, the sources said. That figure would be 1.35 billion gallons for 2020 per a Reuters calculation. This plan would be in addition to a tentative agreement to boost next year’s blending volumes by 1 billion gallons, including 500 million gallons for conventional biofuels like corn-based ethanol and 500 million gallons for advanced biofuels like biodiesel, the sources said.

​In 2016, a US court ruled that President Barack Obama’s administration illegally lowered the mandate by 500 million gallons, and part of the current proposed addition would satisfy the court decision. If the Trump administration follows through on the plan, next year’s total blending mandate would be about 22.4 billion gallons, up from just over 20 billion in EPA’s current proposal, per Reuters estimates.

It is important to note that this plan had not been finalized as of press time and the petroleum industry still needs to weigh in. EPA has until the end of November to finalize its 2020 (2021 for biomass-based diesel) biofuel volumes mandates.

The president and several administration officials have held a series of meetings with biofuel companies as well as petroleum industry executives and key farm state lawmakers, including Republican Senators Chuck Grassley and Joni Ernst, both from Iowa. More than 300 million gallons of biodiesel have been waived under SREs since 2016, sending shock waves across an industry that lost the federal blenders tax credit of $1 per gallon and works with an RFS that consistently underestimates biodiesel’s growth potential.

In a related story, the National Biodiesel Board (NBB) expressed frustration with a court decision declining to review EPA’s refusal to properly account for its flood of retroactive SREs. The US Court of Appeals for the DC Circuit dismissed NBB’s petition on the 2018 RFS rule on technical grounds. NBB challenged EPA’s decision to continue ignoring SREs granted after the annual rule is established, even though the agency quietly ramped up granting these exemptions as it took comments on the rule. The court dismissed NBB’s petition on the grounds that the biofuels industry did not comment on the topic and provide EPA sufficient opportunity to address those comments. It also declined to examine EPA’s flood of SREs, but left room for future challenges on the issue. The biofuels industry is frustrated because EPA requested comment on its practice of ignoring retroactive SREs, did not give notice of its intent to unleash a flood of the exemptions, and then faulted the industry for not commenting specifically on that.

​On September 9, NBB and 33 of its members (including the North American Renderers Association) sent a letter to Trump asking that he rescue small biodiesel producers harmed by his administration’s SREs. The letter indicates more than 200 million gallons of US biodiesel production capacity (close to 10 percent) has been idled as a result of policy instability. The letter highlights additional policy headwinds that are harming the biodiesel industry, including the US Department of Commerce’s recent proposal to reduce trade protections against heavily subsidized biodiesel imports.

​More US biodiesel production facilities have been taken off-line since Render last published. In August, World Energy ceased production and furloughed employees at its Rome, Georgia; Natchez, Mississippi; and Harrisburg, Pennsylvania, biodiesel plants. American GreenFuels is cutting production by 50 percent at its 40 million gallon per year plant in Connecticut, the largest facility on the east coast. American GreenFuels already closed its Texas facility back in February, and Renewable Energy Group has shuttered its 15 million gallon per year biorefinery in Boston, Texas. According to NBB Director of Public Affairs and Federal Communications Paul Winters, 10 more plants across the country have stopped buying feedstock and are about to shut down.

As is becoming commonplace, one of the only bright spots in the news is coming from California where the state has finally cleared the way for storing biodiesel blends of up to 20 percent (B20) in underground storage tanks (USTs), removing the last major barrier to adoption of this popular biodiesel blend in the state. Through an effort lasting more than 10 years, the California Advanced Biofuels Alliance, several member companies, and NBB provided the state water board with data necessary to demonstrate B20 compatibility in USTs. This is a huge win for biodiesel advocacy in California.

Following this good news story comes word that the Trump administration intends to revoke California’s long-standing authority to set stricter auto emissions standards for cars and light trucks. This threatens to set off a huge legal battle between California and the federal government, creating uncertainty in the automobile sector. EPA declined to comment on the matter, but administrator Andrew Wheeler made his intentions clear in a September 17 speech to the National Automobile Dealers Association, saying, “We embrace federalism and the role of the states, but federalism does not mean that one state can dictate standards for the nation.”

Thirteen states and the District of Columbia, representing almost 35 percent of the national auto market, already follow California’s standards and have vowed to continue even if they diverge from the federal government’s, as have several major automakers. California leaders said they will fight any challenge to their autonomy all the way to the Supreme Court.

In July, California forged an agreement with four companies—Ford, Honda, Volkswagen, and BMW of North America—in which all pledged to produce vehicle fleets averaging nearly 50 miles per gallon by model year 2026.

​Trump’s move is likely to be unpopular nationwide, with Americans widely supportive of stricter fuel efficiency standards. A Washington Post-Kaiser Family Foundation poll released in September found 66 percent of Americans oppose Trump’s plan to freeze fuel efficiency standards rather than enforce the Obama administration’s targets for 2025. A nearly identical 67 percent majority say they support state governments setting fuel efficiency targets stricter than the federal government’s. Among Californians, the survey found 68 percent oppose Trump’s relaxation of mileage standards, while 61 percent support California’s stricter standards.

Renewable Diesel Producers Forging Ahead
​Darling Ingredients and Valero Energy are addressing the growing demand for renewable diesel in global, low carbon markets by initiating an advanced engineering and development cost review for a new plant in Port Arthur, Texas. The proposed facility under review would be designed to produce 400 million gallons of renewable diesel annually as well as 40 million gallons of renewable naphtha. The new plant would be owned and operated by Diamond Green Diesel Holdings LLC (DGD), the 50/50 joint venture between Darling Ingredients and Valero.

The proposed Port Arthur plant, the first renewable diesel facility in Texas, would be in a location to leverage Valero’s existing refinery and optimize logistics management. The production from this new plant would increase DGD’s annual renewable diesel production to approximately 1.1 billion gallons with nearly 100 million gallons of renewable naphtha production. The final investment decision on the project is expected in 2021, subject to further engineering, obtaining necessary permits, and approval by the boards of Darling and Valero. If the decision is made to move forward, new plant construction could begin in 2021, with expected operations commencing in 2024.

DGD’s future total annual capacity of 1.1 billion gallons of renewable diesel and nearly 100 million gallons of renewable naphtha includes production from its Norco, Louisiana, refinery, which is currently being expanded to produce 675 million gallons of renewable diesel and 60 million gallons of naphtha. The Louisiana expansion is targeted for completion at the end of 2021.

In early September, the Port of Columbia County Commissioners approved a long-term ground lease with Next Renewable Fuels for a 90-acre industrial site at Port Westward, Oregon, for an advanced renewable diesel production facility. Next will invest more than $1 billion to build an advanced biofuels facility that will convert organic feedstock (used cooking oil, animal fats, seed oil, and soy oil) into renewable diesel. The facility could ultimately produce over 750 million gallons per year when at full capacity.

Specifics of the ground lease include an initial 30-year term with options to renew out to 80 years, annual post-construction rent payments to the port in excess of $1.2 million, and use of an existing dock at Port Westward generating an additional $3.6 million per year in fees paid to the port. The planned Next production facility is projected to create more than 200 full-time jobs, generate more than $12 million a year in local property tax revenue, and employ 800 workers during construction. While the new site is in an enterprise zone, Next has committed to not accepting any tax breaks.

Colorado Examining LCFS
​In what may be a developing trend in the American West, the state of Colorado is considering establishing a low carbon fuel standard (LCFS) to help meet its new emissions reduction goals. According to a document issued by the Colorado Energy Office, the state is seeking quotes from independent contractors to conduct an LCFS feasibility study, to include life cycle assessments and clean fuels policy evaluations of similar programs in California, Oregon, and British Columbia.

​Earlier this year, Colorado adopted legislative targets for greenhouse gas emissions reductions essentially aimed at the Paris climate agreement goals—50 percent reduction by 2030 and 90 percent by 2050. In an interview with Argus Media, Will Toor, executive director of the Colorado Energy Office, said the state is “in the process right now of quantifying how far existing policies are going to get us toward those goals and identifying what other things will be necessary.”

EU Imposes Duties on Indonesian Biodiesel
​The European Commission has imposed countervailing duties of 8 to 18 percent on imports of subsidized Indonesian biodiesel in an effort to help European Union (EU) biodiesel producers compete on a level playing field. Following an investigation, the Commission found that Indonesian biodiesel producers currently benefit from grants, tax benefits, and access to feedstock at below market prices, which could potentially cause economic damage for EU producers.

The new import duties will be imposed on a provisional basis, with the investigation set to continue with a possibility of imposing definitive measures by the end of 2019. While most Indonesian biodiesel is produced from palm oil feedstock, the investigation will focus on the possible subsidization of production regardless of the raw material used, the Commission noted.