From West Coast Carbon Policies to Federal Taxes
BY JOE GERSHEN
Originally Published in Render magazine, June 2019
Washington State’s recent passage of clean energy policies for electricity, supported by Governor Jay Inslee (who is also now a 2020 presidential candidate), is a major step toward joining its West Coast neighbors California, Oregon, and British Columbia in Canada, all of which are developing or already have in place their own unique clean fuels programs. Washington’s LCFS initiative, however, failed to move forward in the state Senate after passing in the House, so there is still some progress to be made there. Transportation is the number one source of air and climate pollution in Washington’s Puget Sound region at over 13 million metric tons of GHG emissions each year. The Puget Sound Clean Air Agency has set a target of reducing climate pollution by 50 percent below 1990 levels by 2030 and is considering adopting a regional clean fuels standard to help meet that target. A clean fuels standard will reduce GHG emissions from transportation fuels using a flexible market-based approach that supports innovation.
Some of the most aggressive and effective carbon reduction climate policies in the world are becoming clear and increasing in strength, effectively flanking the United States (US) to the west and north. There have even been discussions around implementation of an LCFS program in key Midwest biofuels states like Minnesota and Iowa. It may be just a matter of time before more US states, and even Mexico, join the club.
In a related story, Washington State’s Department of Transportation (DOT) released its Sustainability Action Plan on April 22 (Earth Day) that includes a plan to boost biodiesel blending for the state’s ferry system to 10 percent from the current level of 5 percent. The system, which is the largest consumer of petroleum diesel in the state, operates 23 ferries that use 18 million gallons of diesel annually. This doubling of biodiesel content is clearly placing a strategic focus on reducing the carbon intensity of DOT operations.
Biofuel Imports Continue to Fall
The US Energy Information Administration reported that imports of biomass-based diesel, which includes biodiesel and renewable diesel, totaled 22,000 barrels per day in 2018, down 42 percent from 2017, and 64 percent lower than the all-time high set in 2016. Although increasing Renewable Fuel Standard (RFS) targets have driven biomass-based diesel demand in recent years, imports have fallen sharply, largely because of US Department of Commerce import duties imposed on biodiesel volumes sourced from Argentina and Indonesia, countries that made up 60 percent of total US imports of biomass-based diesel in 2016.
RFS Mandates not Considering Fuel Waivers
According to a report by Reuters, the US Environmental Protection Agency (EPA) has proposed increasing the volume of biofuels that refiners are required to blend into their fuel annually to 20.04 billion gallons in 2020, up from 19.92 billion gallons in 2019. The proposed mandate, now under review by other government agencies before being finalized, includes 15 billion gallons of conventional biofuels like ethanol, unchanged from 2019. It also includes 5.04 billion gallons of advanced biofuels, such as biodiesel and renewable diesel, up from 4.92 billion gallons in 2019. The proposed biodiesel mandate is 2.43 billion gallons for 2021, unchanged from 2020. EPA sets biodiesel mandates one year in advance. The agency also set mandates for cellulosic fuel at 540 million gallons and non-cellulosic at 4.5 billion.
As part of the RFS, EPA sets the biofuel blending requirements for the petroleum refining industry. The RFS is a 14-year-old regulation that is aimed at reducing US dependence on oil and helping farmers by creating a market for ethanol, biodiesel, and other biofuels that use vegetable oils and other fats as feedstocks; however, petroleum refiners say compliance is too costly. Under the RFS, refineries must blend certain volumes of biofuels into gasoline and diesel fuel or purchase credits from those that do. Small refineries of 75,000 barrels-per-day or less can be exempt from biofuel blending if they can prove that complying would cause financial hardship, and President Donald Trump’s administration has made extensive use of such exemptions the last two years. This has saved refiners money but upset the powerful ag lobby, which argues the practice has eroded biofuel demand.
EPA currently does not reveal the names of companies that apply for or receive the waivers, arguing the information is confidential. The agriculture industry wants that changed because it believes profitable companies are securing waivers, and this is hurting farmers and American biofuels producers. In late April, EPA suspended its plan to publish the names of refineries receiving RFS exemptions after the White House and petroleum industry pushed back. The plan to publish company names was originally announced on April 12, before the White House had time to review it and without informing refiners who fear that publicly receiving waivers would be bad for their image. Changing the plan, however, runs the risk of frustrating the agriculture community that has been calling for more transparency in the notoriously opaque small refinery exemption program.
How Sustainable is Fuel Produced Across the Ocean?
The California city of Oakland, Neste, fuel distributor Western States Oil, and local used cooking oil collectors have teamed up to gather fryer oil from restaurants and other businesses in the Oakland metropolitan area, send it to Neste’s renewable diesel plant in Singapore, and convert it to biofuel that will then be shipped back to California to be used by the City of Oakland’s fleet. The theory is that making second-use feedstocks more valuable and supporting jobs that collect and treat it helps support the local economy in the city while the cleaner-burning renewable diesel improves the lives of its residents by reducing GHG emissions from the city’s fleet. The roughly 17,000 mile round trip those molecules must make, however, to get from Oakland to Singapore and back again impacts the sustainability and carbon intensity of the fuel produced, especially considering the numerous biodiesel production facilities in California capable of converting that feedstock to fuel within a few hundred miles.
Industry Hinging on Expired Tax Credit
As 2019 rolls on, the biodiesel industry continues to grapple with a lapsed federal blender’s tax credit. It has been almost 17 months of uncertainty around the $1 per gallon credit that producers of biodiesel have priced into their product with no assurance it will actually be reinstated. Producers are therefore being forced to bet on the government to do the right thing.
This energy policy, originally enacted by President George W. Bush’s administration, has helped level the playing field with petroleum fuels and encouraged American-made renewable energy. The current Congress and Trump administration, however, have not focused on reinstating the policy since the end of 2017—the longest time span without an active credit in place. When factoring in the small refiner exemptions being allowed by EPA (which is also undermining RFS renewable identification number values) along with the trade tariffs and weather impacting farmers across the heartland, this triple whammy is threatening the very existence of the biodiesel industry, the 60,000 good-paying “green-collar” American jobs it supports by paying more than $2.5 billion in annual wages, and its $11 billion economic impact. The simple fact is that without this credit reinstated, American biofuels plants will close and American jobs will be lost.
If ever there was a worthwhile program and a time to reinstate it, this is the program and now is the time.