US Government Continues To Undermine Biofuels 2020-01-27T01:35:59+00:00

US Government Continues To Undermine Biofuels

BY JOE GERSHEN

Originally Published in Render magazine, August 2019

The United States (US) Department of Commerce (DOC) issued a preliminary decision in early July that would nearly eliminate countervailing duties on biodiesel imports from Argentina. DOC has been conducting a “changed circumstances” review of existing duties, finding recent changes to Argentina’s export tax regime have eliminated government subsidies to the country’s biodiesel producers. If DOC’s preliminary decision is finalized, countervailing duty rates on Argentine biodiesel entering the United States would fall from an average of 72 percent to about 10 percent. DOC proposed no change to antidumping duty rates that currently average 75 percent.

The National Biodiesel Board’s (NBB’s) Fair Trade Coalition criticized the preliminary decision. In a statement, NBB’s vice president of federal affairs Kurt Kovarik said, “This appears to be an unprecedented and unjustified accommodation to Argentinian producers that threatens to harm US biodiesel producers and soybean farmers. Throughout this review, NBB has made the case that Argentina continues to massively subsidize its domestic biodiesel producers. Commerce’s proposal to eliminate trade protections for US biodiesel producers and soybean farmers is difficult to understand at a time when the [President Donald] Trump administration is asking them to bear huge economic costs from trade disruptions.”

DOC imposed final countervailing duty rates in 2018 ranging from 71.45 percent to 72.28 percent and antidumping duty rates varying from 60.44 percent to 86.41 percent. The higher rates were set to level the playing field for US producers to compete with producers that receive government subsidies in Argentina and Indonesia. Biodiesel imports from Argentina and Indonesia grew by 464 percent from 2014 to 2016, according to NBB, erasing 18.3 percentage points of market share from US producers. In 2016, imports of biodiesel from Argentina and Indonesia were valued at an estimated $1.2 billion and $268 million, respectively, according to DOC. In Argentina’s request for a review in late 2018, government officials said they had “decreased significantly the export tax on soybeans and other commodities in the soybean value chain, and imposed a new biodiesel export tax,” that warranted a review by US officials.

At about the same time, the US Environmental Protection Agency (EPA) proposed a minimal increase in US biofuel usage under the Renewable Fuel Standard (RFS), reflecting modest growth in production of next-generation cellulosic biofuels. Biodiesel producers immediately criticized the decision.

EPA’s proposed RFS renewable volume obligations (RVOs) would require usage of 20.04 billion gallons of biofuels, including ethanol and biodiesel, in 2020, up from 19.92 billion gallons this year. The increase is due to an expected growth in production of 122 million gallons in cellulosic biofuels. The RVOs for 2020 include 5.04 billion gallons of advanced biofuels, which includes cellulosic ethanol as well as biomass-based diesel, and 15 billion gallons of conventional corn ethanol.

EPA is also proposing to maintain the biodiesel RVO at 2.43 billion gallons in 2021, the same as finalized for 2020. EPA sets the biomass-based diesel RVO a year ahead of the mandates for other biofuels. Biomass-based diesel includes biodiesel (typically made from rendered fats, oils, and greases or virgin vegetable oils such as soybean and canola oil) and renewable diesel (which is chemically similar to petroleum diesel and produced from the same fats and oils).

In its proposed rule, EPA defended its decision not to increase the advanced biofuel requirements for anything other than cellulosic ethanol, citing existing tariffs on imports of biodiesel from Argentina and Indonesia and the fact that the $1-a-gallon tax credit for biodiesel has lapsed. The agency also stated that holding the biomass-based diesel mandates steady though 2021 would ensure a market for other advanced biofuels, which include imported sugarcane ethanol that qualifies as an advanced biofuel because it is produced with lower greenhouse gas emissions than conventional ethanol. Kovarik commented that the proposal sends a “chilling signal” to biodiesel and renewable diesel producers, and that the agency failed to consider the industry’s ability to increase production.

“EPA’s proposed rule would turn the RFS program on its head,” he noted. “It is likely to reduce America’s use of cleaner, lower-carbon biodiesel and renewable diesel for transportation over the next several years, encouraging more petroleum use.” Groups representing ethanol producers blasted EPA for failing to propose increased ethanol blending requirements to account for volumes that had been reduced in the past because of the small refinery exemptions.

​“It is a complete misnomer to call these blending volumes ‘obligations’ when EPA’s small refinery bailouts have essentially transformed the RFS into a voluntary program for nearly one-third of the nation’s oil refineries,” said Geoff Cooper, president and chief executive officer (CEO) of the Renewable Fuels Association.

​Emily Skor, CEO of Growth Energy, remarked, “It’s unconscionable that EPA continues to undermine the president’s commitment to a strong rural America. The 2020 RVOs are a drop in the bucket compared to the demand lost due to a flood of refinery exemptions. Unless EPA restores demand destroyed through secret handouts to oil giants like Exxon and Chevron, these targets offer nothing but another year of lost opportunity and rural hardship.”

EPA has yet to make a determination regarding 38 small refinery exemptions for the 2018 compliance year. Cooper went on to say that the RVO proposal undermines Trump’s pledge to farmers and renewable fuel producers that his administration would enforce the statutory RFS volumes. EPA also declined to require any additional biofuel usage to address a court challenge of the 2016 RVOs. The case had been remanded back to the agency by the US Court of Appeals District of Columbia Circuit for further consideration. “In light of the fact that we can no longer incent additional renewable fuel generation in 2016, and the significant burden on obligated parties of imposing an additional standard, we are proposing to retain the original 2016 total renewable fuel standard,” the agency commented in its proposed RVO rule.

In early July, NBB launched a television ad campaign highlighting the economic damage to biodiesel and renewable diesel producers from EPA’s small refinery exemptions. The ads ran for a week in Washington, DC, and in Des Moines, Iowa, pronouncing that “the president’s EPA is hurting farmers and eliminating jobs by giving special favors to big oil companies.” Regarding these ads, Kovarik added, “Just last month, President Trump vowed that his administration would defend America’s farmers. Yet his EPA is preparing another flood of RFS exemptions that will harm farmers.”

The National Renderers Association, NBB, and biofuels industry contend that the small refinery exemptions destroy demand for hundreds of millions of gallons of biodiesel and renewable diesel, which means a loss of jobs and a loss of value for agriculture. University of Illinois Professor Scott Irwin estimates the demand destruction could reach 2.45 billion gallons over the next several years, causing a $7.7 billion economic loss for the biodiesel and renewable diesel industry.

In an example of cause-and-effect, after three years in operation, Flint Hills Resources is shuttering its Duonix biodiesel plant in Beatrice, Nebraska. The facility, originally built for $50 million in 2008 and later purchased by Flint Hills at auction in 2011 for $5 million, was retrofitted at a cost of $100 million and specialized in processing corn oil and used cooking oil into biodiesel. The company cited low soybean prices and government intervention in the marketplace, including the expired federal blender’s tax credit, which continues to create business uncertainty, as reasons for the shutdown. On July 24, Renewable Energy Group announced it will close its New Boston, Texas, biorefinery due to challenging business conditions and prolonged federal policy uncertainty, most notably surrounding the long-lapsed federal biodiesel tax credit. The company acquired the 15-million-gallon-per-year biodiesel plant near Texarkana, Texas, in October 2012 and began producing biodiesel several months later. The facility is capable of running both high and low free fatty acid feedstocks and has truck and rail access.

Meanwhile, Seara, the processed foods unit of Brazil’s JBS SA, will invest $47.5 million to build a new biodiesel plant entering service by 2021. JBS said the new facility in the country’s Santa Catarina state will double the company’s current biodiesel production capacity to roughly 160 million gallons per year using pork and poultry fat as feedstock to produce the fuel.

The challenging US biofuels market is not limited to biodiesel producers. Ethanol production margins have moved into negative territory as well, signaling worsening conditions for the liquid biofuels market.

Major Grease Theft Ring Busted
​A federal grand jury in Raleigh, North Carolina, has returned a superseding indictment charging 21 individuals with conspiracy to commit interstate transportation of stolen goods (used cooking oil) and money laundering. Additionally, 10 of the indicted were charged with immigration crimes. Fourteen of the 21 individuals are from outside the United States, including 12 from Mexico, with five from North Carolina, one from New York, and one from Virginia. Six defendants were fugitives as of press time.

According to the indictment, used cooking oil—historically viewed as a waste product outside of the rendering industry—has become a much more valuable commodity over the past decade, resulting in increased thefts. The rendering industry estimates an annual loss of approximately $45–75 million dollars from the theft of used cooking oil.

Court records state the objective of the conspiracy was to profit from the illicit trade in large quantities of used cooking oil stolen in North Carolina, Virginia, and Tennessee, and then transported to New Jersey for sale and distribution. In particular, the indictment alleges that members of the conspiracy repeatedly traveled to restaurants in North Carolina, Virginia, and Tennessee in box trucks equipped with containers designed to store and transport liquids, pumps, hoses, and burglary tools for the purpose of stealing large quantities of used cooking oil. Additionally, members of the conspiracy transported the stolen used cooking oil in the box trucks to a warehouse in Durham, North Carolina, for consolidation and storage. Thereafter, a tanker trailer was used to transport the stolen used cooking oil to Virginia and elsewhere.

“Used cooking oil has become a sought-after commodity by biodiesel companies, and restaurants use the sale of this oil as another source of revenue,” said John Eisert, acting special agent in charge of Homeland Security investigations in Charlotte, North Carolina. “This team of co-conspirators had an elaborate scheme to steal thousands of gallons of cooking oil for their own profit in violation of several US laws.”

​If convicted of conspiracy to commit interstate transportation of stolen goods and money laundering, the defendants each face a maximum of 25 years in prison, a $500,000 fine, and a term of supervised release.

California Biodiesel Plant Suffers Major Fire
​A fire occurred at the Biodico Westside biodiesel production facility in Five Points, California, on the night of July 5, 2019. According to company founder and president Russ Teall, no one was injured, but the plant, with a 10 million gallon per year capacity using used cooking oil feedstock, appears to be a total loss. The cause of the fire is under investigation and has not yet been determined.

California Producer Sentenced for Violating Regulations
​American Biodiesel Inc. was sentenced in July for violations of the Clean Water Act. Registered in California’s San Joaquin County as Community Fuels, American Biodiesel manufactures ​biodiesel on property leased from the Port of Stockton.

According to court documents, the company admitted to allowing the discharge of industrial wastewater into the City of Stockton sewer system in violation of local permitting rules and the federal Clean Water Act. Community Fuels also conceded to tampering with monitoring devices and methods designed to detect such violations. Specifically, employees interfered with pH recordings and flow meters for the purpose of underreporting acid and pollutant levels and volumes that would have exceeded the figures allowed under the city’s regulations.

A US district judge imposed a three-year term of probation on American Biodiesel that includes various reporting and monitoring conditions, fined the company $401,000, and ordered restitution to the Port of Stockton and the City of Stockton in the amount of $256,206. The judge further ordered the company to develop and implement an effective compliance and ethics program, which will be submitted to the court for review.

The indictment in the case also charged Christopher Young, 41, of El Dorado Hills, California, with conspiracy, 12 counts of tampering with monitoring equipment, two counts of unlawful discharge of industrial wastewater, one count of false statements, and one count of witness tampering. Young was the director of operations at the Stockton plant. The same indictment charged his brother, Jeremiah Young, 38, of El Dorado, California, with conspiracy, eight counts of tampering with monitoring equipment, and two counts of unlawful discharge of industrial wastewater. Jeremiah Young was assistant operator for Community Fuels from 2014 to 2016. The Youngs’ cases remain pending before the court.