RFS2 Provides Stability for Biodiesel’s Future

The expiration of the biodiesel tax credit at the beginning of 2010 has created a rocky year for some biodiesel plants running at minimal capacity or closing completely. However, industry experts and advocates are optimistic the situation will improve in 2011.

During the lame duck session in mid-December, President Obama signed the bill reinstating the Biodiesel Tax Incentive after the U.S. House of Representatives votes to approve H.R. 4853, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 by a 277 to 148 margin.

Ed Ulch, vice chair of the National Biodiesel Board (NBB) and soybean farmer from Solon, Iowa, says the tax extenders credit being reinstated shines a ray of hope on biodiesel’s future.

“Getting the tax credit extension will certainly help move the biodiesel industry forward at a faster rate and may save some producers that might otherwise fail,” Ulch says. “The tax credit was intended to jump start the biodiesel industry, which it did, but then there was no tax credit in 2010, leaving many biodiesel producers out to hang. It bothers me the government encouraged renewable fuel and baited the industry to advance, and then left them high and dry. I have spoken to many producers recently and only a few that are astute at feedstock purchasing are in operation, but not making much profit.”

Joe Jobe, CEO of NBB, shared Ulch’s frustration and says the lingering lapse of the tax credit was due to political dynamics that had nothing to do with the biodiesel industry.

“Biodiesel producers invested their lives and livelihoods based on the signals of support from Congress,” Jobe says. “Yet partisan politics overrode the real life concerns of small and medium-sized biodiesel business owners trying to meet a payroll and make us less reliant on foreign oil.  In the last 12 months, NBB has lost 90 members - people, and investment, and jobs that supported families.  As frustrating, unfortunate and disappointing as this year has been, there is good reason to fight on, and good reason to be positive about the longterm and immediate future of the U.S. biodiesel industry.”

That good reason is the Environmental Protection Agency’s (EPA) Renewal Fuel Standard (RFS2), provided for in the Energy Independence and Security Act of 2007 (EISA). The goal of RFS2 is to significantly reduce greenhouse gas (GHG) emissions from the use of renewable fuels, reduce imported petroleum and encourage the development and expansion of the nation’s renewable fuels sector. RFS2 will pick up more speed in 2011, which should create much more demand for biodiesel plants.

“2010 served as a transition to RFS2, with the rule implementing the program taking effect on July 1,” says Manning Feraci, vice president of federal affairs for NBB. “This year, the RFS2 program will move beyond the transition stage and provide more stability in the marketplace. Both biodiesel stakeholders and obligated parties will have a clear understanding of the fuel volumes that must be used in the marketplace.”

On Dec. 1, 2010, the EPA announced the final volume requirements of RFS2, which requires the use of 800 million gallons of biomass-based diesel in 2011. Through 2022, a minimum of one billion gallons must be used domestically. To qualify as a biomass-based diesel, the fuel must reduce GHG emissions by 50 percent compared to petroleum diesel.

RINs (Renewable Identification Number) are one of the biggest changes to the standard. A RIN is the basic currency for the program for credits, trading and use of obligated parties and renewable fuel exporters to demonstrate compliance, as well as track the volumes of renewable fuels.

Jon Scharingson, director of marketing for Renewable Energy Group, Inc., explained that RINs are essentially the tracking mechanism to monitor how many gallons of biodiesel petroleum companies are using each year.

“When we sell a gallon of biodiesel, whether it’s to Exxon Mobil or your local gas station, we assign a RIN to it,” Sharingson says. “It’s proof the petroleum companies use to document they are using the required amount of biodiesel.”

Another major change is RINs are specific to four separate categories of fuels, each with their own performance criteria and scheduled increases through 2022. The categories are: cellulosic biofuel, biomass-based diesel, advanced biofuel and renewable fuel.

“Biodiesel is the only commercial scale, domestically produced fuel that qualifies as an advanced biofuel and biomass-based diesel, and the U.S. biodiesel industry is well positioned to prove the fuel necessary to meet the volume requirements provided for under the RFS2 program,” Feraci says.

Sharingson says soybean growers should be excited over the final volume requirements since there was speculation it was going to be reduced.

Jobe agrees and says that though uncertainties have plagued the program during its first transition year, it’s on the right path to begin operating as intended and begin drawing demand into the markets.

“The U.S. biodiesel industry stands ready to successfully fill the relevant advanced biofuel requirements under the RFS2,” Jobe says. “There are 160 plants who have registered with the EPA under the RFS2 program, representing more than 1.8 billion gallons of production capacity.  With a record soybean crop for the second year in a row, there is almost enough raw material in existing inventories on hand today to fill the entire year’s worth 2011 biomass-based diesel volume requirements.”