Reinstatement of Tax Credit Huge Win for Biofuels 2020-04-18T19:52:13+00:00

Reinstatement of Tax Credit Huge Win for Biofuels

BY JOE GERSHEN

Originally Published in Render magazine, February 2020

December 20, 2019, was a historic day for the United States (US) biomass-based diesel industry. After two years of uncertainty and tremendous political maneuvering, Congress passed and President Donald Trump signed into law a new $1.4 trillion budget deal that included a five-year extension of the $1-per-gallon blender’s tax credit for biodiesel and renewable diesel. Since the credit had lapsed at the end of 2017, the extension covers 2018 and 2019 retroactively and 2020, 2021, and 2022 going forward. The 50-cent per gallon alternative fuel mixture excise tax credit was also made retroactive for 2018 and 2019, but only extended through the end of 2020.

​Since the blender’s tax credit first went into effect in 2005, it has regularly lapsed practically every other year and subsequently reinstated, one year retroactive and one year forward. This haphazard implementation has led to ongoing uncertainty in the biofuels investment and business community and created an overall far less effective incentive. With December’s unprecedented extension, there should be plenty of time for producers and investors to plan and execute projects that will help the industry grow.

​Also unprecedented was, during the last two years the credit had lapsed, the Trump administration’s Environmental Protection Agency (EPA) approved an unusually large amount of small refinery exemptions under the Renewable Fuel Standard (RFS), destroying billions of gallons of demand for American-made biodiesel.

​​As pleased as the industry was with the blender’s tax credit extension, the industry was not as fortunate when EPA recently released its final rule for the 2020 renewable fuel and 2021 biomass-based diesel volumes under the RFS. EPA kept renewable volume obligations flat and only slightly increased advanced biofuel obligations, and then only for cellulosic, not biomass-based diesel (i.e., biodiesel and renewable diesel). While effectively staunching any market growth potential for biomass-based diesel, EPA simultaneously gave no assurances that future small refinery exemptions would be properly accounted for. It also finalized its contentious proposal to account for future small refinery exemptions using US Department of Energy (DOE) recommendations rather than a three-year average of actual gallons waived.

​Last October, Trump, EPA, and the US Department of Agriculture (USDA) jointly pledged to account for small refinery exemptions in the RFS annual rule and ensure that the biomass-based diesel volume is met. Shortly after, EPA proposed action that would significantly underestimate future exemptions and fall short of ensuring that renewable volume obligations are met, undercutting the initial pledge. The National Biodiesel Board (NBB) encouraged EPA to use the best possible estimate of future small refinery exemptions, specifically a three-year average of the total gallons EPA previously exempted; however, EPA’s proposal uses an average of past exemptions recommended by DOE rather than an average of actual volumes waived. Because EPA has ignored DOE’s recommendations in each of the past three years, that methodology would only account for about half of the annual impact of recent small refinery exemptions.

​​NBB also pointed out that EPA did not propose to address small refinery exemptions prior to 2020. Over four billion gallons of demand for biofuels has been lost due to retroactive small refinery exemptions for compliance years 2015 through 2018. This impact has been particularly significant for biomass-based diesel producers because the renewable identification numbers for these fuels can be used to satisfy multiple obligations under the RFS. Despite having the means to do so, EPA has not addressed this substantial loss of renewable fuel demand in its supplemental notice.

​In response, US Senator Chuck Grassley (R-IA) said, “Once again, EPA is playing games and not helping President Trump with farmers. I will hold EPA’s feet to the fire to make certain they abide by DOE’s recommendations and ensure integrity in the RFS. Whether that happens is up to Administrator [Andrew] Wheeler—and the president’s support among farmers is in his hands.”

Monies to Support Advanced Biofuels
For fiscal years 2019 and 2020, USDA is providing up to $7 million to eligible advanced biofuel producers for the production of advanced biofuels manufactured from renewable biomass (excluding corn kernel starch) in a biorefinery located in a US state. The agency’s Rural Business Cooperative Service is accepting applications from eligible advanced biofuel producers under the Bioenergy Program for Advanced Biofuels to support and ensure an expanding production of advanced biofuels. Applications must be submitted to the USDA Rural Development State Officer for the state where the producer is located by February 18, 2020.

Renewable Diesel Coming to New Mexico
HollyFrontier plans to construct a new renewable diesel unit at its Artesia, New Mexico, refinery that will have a production capacity of approximately 125 million gallons a year. This investment will allow the company to meet the demand for low-carbon fuels while covering the cost of its annual renewable identification number obligations under the RFS. The facility, along with corresponding rail infrastructure and storage tanks, is estimated to cost $350 million and is expected to be completed in the first quarter of 2022.

​This construction comes as no surprise considering New Mexico’s move toward decarbonization and climate-friendly laws, including passage in 2019 of aggressive legislation mandating that the state’s publicly regulated utilities obtain their electricity from carbon-free sources, like solar and wind, by 2045.

New York Winters no Problem for Biodiesel
​New York City’s municipal fleet, the largest in the country, currently requires all city vehicles and equipment to use a 20 percent blend of biodiesel with petroleum diesel (B20) from April through November, and five percent biodiesel from December through March. More than 150 types of vehicles and equipment—garbage trucks, mowers, beach-cleaning equipment, tractors, light towers, and generators—used more than 400,000 gallons of biodiesel during the winters of 2017 and 2018 without any cold weather issues. Because the city has experienced virtually no fuel-related problems in its 11,000 vehicles according to Keith Kerman, deputy commissioner for the Department of Citywide Administrative Services, it has begun using B20 in some of its equipment year-round.

New Bus Fleets to Run on Biodiesel
The US Federal Transit Administration awarded the City of Longview, Washington, $1.56 million to purchase new diesel buses that will run on biodiesel blends to replace older vehicles that have exceeded their useful life. The new buses will be operated by RiverCities Transit and will improve access, mobility, and transit service for area residents.

​In Louisiana, $7.24 million was awarded to the New Orleans Regional Transit Authority (RTA) to purchase diesel buses expected to run on biodiesel blends to replace those purchased after Hurricane Katrina destroyed the authority’s fleet in 2005. Those buses have also reached the end of their life, and new ones will allow RTA to enhance safety, improve service, and reduce vehicle breakdowns.

Midwest Clean Fuels Policy Goals
The Great Plains Institute (GPI) has published a report detailing how a Midwest regional clean fuels policy should be designed to benefit the area’s biofuel producers while also achieving greenhouse gas (GHG) emissions reductions. The 24-page white paper was the result of a 20-month process and involved collaboration between a wide range of producers, marketers, nonprofit and research organizations, scientists and engineers, and agriculture and industry stakeholders coming together for a Midwestern Clean Fuels Policy Initiative facilitated by GPI.

“A comprehensive clean fuels policy is critical to solving the region’s most significant emissions challenge,” said Brendan Jordan, vice president of transportation and fuels at GPI. “This portfolio approach brings together a number of solutions from cleaner electricity to charge electric vehicles to bolstering the region’s rich agricultural resources while simultaneously lowering the carbon intensity of biofuels. Clean fuels represent a huge opportunity for the region to create an environmentally and economically sustainable future.”

The report made several recommendations for what a well-designed clean fuels
policy must include:

• It should first take a market-based approach and remain fuel and technology neutral in assessing carbon intensity, relying on a portfolio of clean fuels.

• It should have robust and consistent lifecycle assessments for all fuel types and consider regional factors in the Midwest.

• It should build on existing state policies rather than replace them.

• It should reinforce and complement existing efforts by the agricultural sector to adopt practices that improve soil health and water quality and capture carbon.

• It should recognize state autonomy in policymaking, but seek to create a uniform regional approach where possible.

​The report was supported by modeling for achieving average carbon intensity reductions for all transportation fuels of either 10, 15, or 20 percent by 2030 and finds that all those scenarios are achievable mostly with clean fuel production resources available in the region.

REG, Phillips Pull Plug on Washington Plant
​Phillips 66 and Renewable Energy Group Inc. (REG) are discontinuing their joint effort to construct a large-scale renewable diesel plant in Ferndale, Washington, due to permitting delays and uncertainties. Originally announced in fall 2018, the 250-million-gallon-per-year project would have resulted in the largest renewable diesel refinery on the West Coast.

“While we believe the Ferndale Refinery is a strategic fit for this renewable diesel project, permitting uncertainties were leading to delays and higher costs,” said Robert Herman, Phillips 66 executive vice president of refining. “Phillips 66 continues to progress its portfolio of renewable diesel projects and evaluate new opportunities to provide consumers with renewable fuels that comply with low-carbon fuel standards.”

Both companies expressed appreciation to Washington state, Whatcom County, local officials, and other stakeholders for their advice and support during the process.