¡Viva La Cucaracha! 2017-07-04T01:38:10+00:00

¡Viva La Cucaracha!

BY JOE GERSHEN

Originally Published in The Jacobsen on March 27, 2017
California Biodiesel Industry Commentary

One of the main topics of conversation at the recent California Biodiesel Alliance (CBA) annual conference a few weeks ago was the pending appeals court ruling in the Poet v CARB case. There was much speculation about which way it would go, whether it would impact the program, and how it might affect credit prices. Not to mention its existential threat to our industry.

With last week’s tentative ruling we’re beginning to learn more. Low Carbon Fuel Standard (LCFS) credit values have been gradually falling for about a month and dropped another 8% or so last week after the news hit the street on Monday.

The tentative ruling essentially said that CARB had inadequately addressed its obligations to deal with increased NOx emissions that result from biodiesel usage. These obligations came out of a prior case also brought by Poet.

It’s important to point out that the Alternative Diesel Fuel (ADF) regulation is what did come out of that first case, and from the biodiesel industry’s perspective that was pretty draconian, effectively limiting biodiesel blends to 5% in the summer and 10% in the winter. It did allow for a variety of mitigation strategies, which are being aggressively pursued by the industry, but apparently that was not good enough for the folks at Poet. I smell more politics than policy, but that’s above my pay grade.

What’s interesting is the reaction of the market. Clearly there is uncertainty until there is a final ruling, which is why values have been falling. But anything short of a complete unwinding of the LCFS, which is more than extremely unlikely to anyone who knows the trends in California, would mean that demand for credits would continue to ratchet up.

A preliminary review of the tentative ruling would indicate that the most likely scenario would be that biodiesel would be severed from the LCFS program resulting in about 20% fewer credits entering the system. Economics 101 would tell us that a market with increasing demand yet reduced supply would result in higher values, which is inconsistent with the falling values we’re experiencing. Seems like a buying opportunity!

The real question is, will the biodiesel predicament be permanent and how would that affect the program’s overall health? We won’t know exactly what the predicament actually is until the final ruling, which the court has 90 days to produce. That could put us towards the end of Q2. I’m certainly not an attorney but I would assume the appeals process is not over.

I’ve been in the biodiesel industry for over 16 years and have seen all manner of boogie men during that time. Granted, the NOx boogie man has been the most chronic and persistent. But I have also learned that our industry is scrappy and a bit like a cockroach (apologies to all my fellow roaches). You just can’t kill us.

The really good news is that it seems that we are on the verge of solving this NOx problem once and for all. I predict we will see an effective B20 mandate in California before too long. We won’t all get there but our industry certainly will.
We must!
¡Viva La Cucaracha!