he National Biodiesel Board (NBB) is skeptical that an Environmental Protection Agency (EPA) proposed supplemental rule released in mid-October will ensure that future biomass-based diesel volume obligations under the Renewable Fuel Standard (RFS) are fully met. The supplemental notice contains a never-before-discussed proposal to estimate small refinery exemptions (SRE) for 2020 with no assurance that the estimate will come close to actual future exemptions. Instead of recovering the actual gallons exempted from the RFS by EPA, it proposes to recover only those gallons previously recommended for exemption by the Department of Energy (DOE), including where DOE had recommended partial exemptions. The biodiesel industry does not believe the proposal meets President Donald Trump’s promise to American farmers and biodiesel producers announced in early October.
Kurt Kovarik, vice president of NBB federal affairs, remarked, “The notice that EPA issued is significantly different from the agreement that biofuel industry champions negotiated with President Trump just two weeks ago, which was to estimate future exempted RFS volumes based on the average of actual volumes exempted over the past three years. EPA is proposing a brand-new method for making the estimate—one that was never previously proposed or discussed and significantly undercounts past exemptions.”
Nancy Foster, president of the North American Renderers Association (NARA), added, “NARA strongly supports volume obligations under the RFS that the market believes will actually support production of biodiesel. Uncertainty created by EPA’s proposal, which is unlikely to account for actual lost SRE volumes, creates disincentives for biodiesel production, investment, and demand creation.”
Sixty different industry groups, including NARA, supporting biofuels and their feedstocks signed on to a letter to Trump in early November urging his administration to change the EPA proposal on how the agency will handle SREs moving forward. The letter expresses that the proposal had swapped out a critical component of the SRE remedy sought by the biofuels industry and farmers. “This one EPA modification converts a commitment to fully account for SREs into a bureaucratically uncertain path that recovers only one fraction of those gallons lost to SREs and could result in RFS backsliding in 2020. This lack of certainty sabotages efforts toward market recovery and will stop biorefineries from reopening,” the letter states.
At the same time, a group of Midwest elected officials, including at least seven United States senators, filed similar comments with EPA, urging the agency not to follow through with its proposed supplementary rulemaking. Iowa Senators Chuck Grassley and Joni Ernst, both Republicans, had stern words for EPA and agency Administrator Andrew Wheeler, but fell short of calling out Trump directly for RFS actions taken by his administration in recent months.
In his comments, Grassley highlighted a September 12, 2019, Oval Office meeting that included Trump, Vice President Mike Pence, Wheeler, Agriculture Secretary Sonny Perdue, six Midwest senators, Iowa Governor Kim Reynolds, and many staffers, where he was satisfied that SREs, if granted, would not reduce the 15 billion gallon conventional ethanol RFS mandate.
“Now, the way the rule was written and put out for public comment does not deliver on the same understanding I had leaving the Oval Office about what would be in the proposed rule,” Grassley commented. “At that meeting, we discussed a very specific proposal to consider the three-year rolling average of actual exemptions granted by EPA, including the specific numbers.” Grassley no longer feels confident the RFS will be met because EPA does not have a “good track record” of following DOE’s recommendations. Ernst said she left that meeting with the same understanding.
Two Sides of the Biofuels Coin
In early November, Representatives Abby Finkenauer (D-IA), Kendra Horn (D-OK), and 38 other Democratic members of the House of Representatives sent a letter to Speaker Nancy Pelosi (D-CA) and Ways and Means Committee Chairman Richard Neal (D-MA) urging them to make extension of the expired federal blender’s tax credit an urgent legislative priority before the end of the year. NBB thanked the representatives, especially the freshman members, and emphasized that renewing the tax credit before the end of the year is crucial to reviving biodiesel production, reopening shuttered facilities, and saving jobs.
The credit has been lapsed for 22 months, longer than ever before since its inception at the end of 2004, creating a crisis for the biodiesel industry. Several producers have stopped purchasing feedstocks, shut down plants, and furloughed workers in recent months. Darling Ingredients Chairman and Chief Executive Officer Randy Stuewe thinks a three-year extension of the credit is likely to be approved before the new year.
“We believe there is good momentum building around the blender’s tax credit, and we anticipate a positive decision by year end,” Stuewe said. “It is expected the $1 per gallon credit will be made retroactive for 2018 and will be extended to cover 2019 and 2020 production.” In a conference call with analysts to discuss the company’s third-quarter earnings, Stuewe noted that if the tax credit were to be extended, Darling’s Diamond Green Diesel joint venture with Valero stands to gain $78.7 million of earnings before interest, tax, depreciation, and amortization (EBITDA) for 2018 and year-to-date, $99.9 million for 2019. The soonest the company could receive a retroactive payment would be in early 2020, he remarked. Darling also reported that its plant expansion aimed at increasing renewable diesel capacity to 675 million gallons per year (mgpy) is progressing on schedule with expected completion in late 2021. Darling and Valero jointly own the 275 mgpy Norco, Louisiana, plant, the largest renewable diesel production facility in the United States.
Darling also plans to expand its relationship with Valero as it explores advanced engineering and development cost review for a potential renewable diesel plant co-located at Valero’s refinery in Port Arthur, Texas. If approved, construction at the 400 mgpy facility would begin in 2021 with expected operations commencing in 2024, resulting in 1.1 billion gallons of total annual production capacity at Diamond Green Diesel. The company has been aggressively seeking expansion of its renewable diesel production, with anticipated production in 2020 at full capacity and anticipated margins conservatively estimated around $1.40 per gallon.
On the flip side, biomass-based diesel producer Renewable Energy Group (REG) has reported a third-quarter net loss from continuing operations attributable to common stockholders of $13.8 million compared with net income of $24.8 million in the same period of 2018. This is the third consecutive quarter in 2019 that REG has posted net losses. The company estimates that if the currently lapsed tax credit is retroactively reinstated for 2019 and 2018 on the same terms as in 2017, REG’s adjusted EBITDA would increase by approximately $77 million and $70 million for business conducted in the third quarters of 2019 and 2018, respectively. Due to the prolonged lapse of the tax credit, REG has halted construction on a $30 million improvement project at its 60 mgpy biodiesel plant in Seneca, Illinois, adding that “the 22-month gap since the credit was last in effect and uncertainty about when it would be reinstated forced the postponement of further work on the project that involved nearly 100 contract workers.”
Meanwhile in California
In late October, the California Air Resources Board (CARB) reported that Low Carbon Fuel Standard (LCFS) credit and deficit generation both hit record highs in the second quarter (Q2) of 2019, with deficits slightly outpacing credits and drawing the credit bank tighter. LCFS credit generation increased by 11.5 percent to a record high 3.67 million metric tons generated in Q2, which was up 37.7 percent from the same period in 2018, to bring the 2019 first-half total to 6.96 million credits, up 35.4 percent from the first half of 2018. CARB also reported that 3.92 million deficits were generated in Q2, up 4.6 percent from the first quarter and 24.7 percent from Q2 2018, to push total deficit generation in first-half 2019 to 12.36 million, up 27.2 percent from the same period in 2018. In the first half of 2019, the total renewable diesel and biodiesel volume of 419.13 million gallons was about 22.6 percent of the blended diesel total of 1.86 billion gallons.
In an effort to bolster its presence on the West Coast, NBB has opened an office in Sacramento, California, to be led by long-time CARB division chief Floyd Vergara. He brings more than 32 years of experience at CARB, most recently as chief of the industrial strategies division and as assistant chief of the research division. Over the years, Vergara has overseen a number of CARB’s key climate and air quality programs, including the LCFS and cap-and-trade, among others. NBB’s new office will be co-located with the California Advanced Biofuels Alliance and will bolster the board’s presence in an area where climate programs are a substantial market driver for low carbon fuels like biodiesel and renewable diesel. Vergara will serve as director of state regulatory affairs for NBB. He received a bachelor’s degree in chemical engineering from the University of California, Berkeley; a juris doctorate from the University of the Pacific, McGeorge School of Law; and is licensed to practice in California as a professional engineer and lawyer.
Biodiesel Strong in Oregon and Hawaii
Oregon-based used cooking oil collector and biodiesel producer SeQuential recently increased its production capacity at its biodiesel plant in Salem, Oregon, by 50 percent, going from 8 mgpy to 12 mgpy. Acquired by Denver, Colorado-based Crimson Renewable Energy about a year ago, SeQuential employs 275 people and collects used cooking oil from 20,000 customers in Washington, Oregon, and California.
In Hawaii, Pacific Biodiesel Technologies began delivering biodiesel in early November under a contract with Pacific Current Subsidiary, Hamakua Energy LLC. The 5.5 mgpy biodiesel production facility on the Big Island of Hawaii will supply the Hamakua 60-megawatt combined-cycle power generation plant with daily truckloads of biodiesel. The electric plant is capable of providing 22 percent of the Big Island’s generating capacity. The deal helps the state achieve its goal of 100 percent renewable energy by 2045 under the Hawaii Clean Energy Initiative.
NBB Elects New Leaders
At its annual fall meeting in November, members of the National Biodiesel Board (NBB) elected representatives from the industry to serve on the governing board. Members voted to fill seven board member spots for two-year terms:
• Kent Engelbrecht, Archer Daniels Midland
• Chad Stone, Renewable Energy Group
• Ryan Pederson, North Dakota Soybean Council
• Harry Simpson, Crimson Renewable Energy
• Paul Soanes, RBF Port Neches LLC
• Dave Walton, Iowa Soybean Association
• Tim Ostrem, South Dakota Soybean Research and Promotion Council
The board also elected Stone as chairman, Mike Rath, Darling Ingredients Inc., as vice chairman; Rob Shaffer, American Soybean Association, as second vice chairman; Pederson as treasurer; and Troy Alberts, Ag Processing Inc., as secretary. Rath, Shaffer, and Alberts already serve on the 15-member board along with five others. NBB also recognized retiring Chairman Kent Engelbrecht for his three years of dedication and service to the national trade association. This three-year term is the maximum allowed by the association’s bylaws.