Small Glimmer of Hope Emerges for a Struggling Biodiesel Industry

By Tina Caparella

A myriad of bad news has been circulating throughout the biodiesel industry as of late – expiration of tax credits, companies halting production or filing for bankruptcy. But as industry leaders gathered in Grapevine, TX, for the 2010 National Biodiesel Conference and Expo in early February, a bit of good news emerged – the Environmental Protection Agency (EPA) had finalized the long-awaited Renewable Fuel Standard (RFS) program known as RFS2.

“Glad to see you here…glad to see anybody here,” were National Biodiesel Board (NBB) Chief Executive Officer Joe Jobe’s opening remarks to one of the smallest crowds in five years on the first of three days of meetings. Following on the heels of a challenging 2008 that saw record high feedstock prices and plunging oil prices, 2009 was also a struggle for the biodiesel industry amid tightening credit markets and a fledging economy. The first few months of 2010 were proving even bleaker as Congress had not extended the one dollar per gallon blender’s tax credit on each gallon of biodiesel that expired December 31, 2009, causing many plants to cease production and lay off workers. But the RFS2 announcement just days before the start of the conference, along with other encouraging news from original equipment manufacturers (OEMs) and car rental companies at the conference (see “Biofuels Bulletin” on page 52), gave those attending some hope for biodiesel’s future.

“Besides potentially doubling our production levels for biodiesel this calendar year, the RFS2 establishes very conclusively under EPA guidelines and federal law that biodiesel is an advanced biofuel,” said Jobe. “The reality behind that is that biodiesel…from a diverse variety of feedstocks…is currently the only advanced biofuel commercially available nationwide.”

While the industry sorts out the complexities of the RFS2, work on getting Congress to extend the expired tax credit remains a priority as does long-term planning for a five-year production excise tax credit beginning in 2011. Meanwhile, several Texas biodiesel producers shared their outlook at the conference’s opening session, including Mark Farrer of Direct Fuels, who has experimented with many feedstocks and now uses tallow, which is readily available in this cattle state.

“Beef fat works really well for us,” Farrer claimed, including in passing the cold soak filtration test required by the ASTM D6751-09 standard. Green Earth Fuels of Houston, TX, is also using tallow as a feedstock. Texas has the largest biodiesel production capacity in the United States despite being an oil state, which actually aides in providing the infrastructure needed to transport the alternative fuel.

Making an encore appearance at the conference was Don Reynolds, an economic forecaster who two years ago was very pessimistic about the economy and the future. This time around he changed his tune.

“I am very positive about the future,” he declared. “I’m bullish on biodiesel because it’s important to our national security. Biodiesel is critical to cutting into our trade deficit by lowering our dependence on foreign oil.”

Reynolds reported that although the official national unemployment rate is 10 percent, the rate is actually closer to 17 percent due to individuals who have stopped looking for jobs. On the flip side, corporate earnings are up 35 percent with the new normal being higher inflation rates, higher interest rates, lower consumer spending, and a declining U.S. dollar. Reynolds said the United States is no longer the economic powerhouse it once was due to its federal and trade deficits, but he sees an economic recovery coming, perhaps two to three percent this year, and as much as five percent in the fourth quarter.

The second day’s general session opened with a video of U.S. Department of Agriculture (USDA) Secretary Tom Vilsak voicing his support for the extension of the biodiesel tax credit. NBB Chairman Ed Heglen told attendees that although 53 percent of voters support biodiesel, the industry still has a long road ahead in increasing public support for the alternative fuel. He added that diverse feedstock is a strength of biodiesel, and that updated research shows biodiesel has a 4.5-to-1 energy value.

Petroleum industry experts provided some insight into their involvement with biodiesel, from pipeline infrastructure to blending terminals. Kinder Morgan Pipeline Group is able to transport a five percent biodiesel blend (B5) diesel fuel through its pipelines, while other fuel companies see terminal level blending the way to meet the short-term needs of biodiesel. Several challenges faced by the petroleum industry are the substantial capital investment needed to meet the new RFS2 and the variations in biodiesel fuel. Although all meet the minimum ASTM standards, each producer puts its own “twist” on its biodiesel, causing fuel companies some anguish.

“From the pipeline perspective, we don’t want 54 specifications,” said Jim Lelio, Kinder Morgan, who added that petroleum companies need to be able to comingle different biodiesel products from different producers and currently can’t because of the wide variance in the fuel.

Educating on Government Issues, Quality, and Sustainability
Among the numerous breakout sessions during the conference, perhaps the most popular were those addressing EPA’s new RFS2. Larry Schafer, NBB senior advisor, moderated one session that showed this standard is a new program with new rules that now includes diesel fuel. For 2010, the standard requires 650 million gallons of biodiesel be blended with petroleum diesel used in motor vehicles, non-road applications, locomotives, and marine engines. Combined with the carryover of 500 million gallons of biodiesel for 2009, the RFS2 demands that 1.15 billion gallons of biodiesel be blended this year.

One of the contentions with last year’s proposed rule was EPA’s life cycle analysis of soy-based biodiesel. After thousands of comments stating EPA was using outdated, incorrect data, the life cycle analysis was corrected in the final rule, showing that biodiesel from soy oil reduces greenhouse gas (GHG) emissions by 57 percent compared to petroleum diesel, meeting the threshold of a 50 percent GHG reduction requirement in the standard. EPA determined that biodiesel produced from animal fats and waste oils reduce GHG emissions by 86 percent.

Adding to the confusion of the complexity of the standard is a start date of July 1, 2010, at which time biodiesel producers will be required to reregister with EPA. Until that time, rules under the first RFS will apply. The new RFS2 will require additional recordkeeping and tracking of biodiesel feedstocks and a third-party engineering review. For more information on EPA’s RFS2, see “Biofuels Bulletin” in this issue of Render.

Other federal policies were also addressed, including the USDA’s Bioenergy Program authorized under the 2008 farm bill that provides $300 million of mandatory funding over four years for bioenergy projects that include biodiesel, biogas, and non-corn ethanol. Manning Feraci, vice president of NBB Federal Affairs, covered the biodiesel tax incentive currently stalled in Congress. While the board supports a multiple year extension of the credit and changing it to a production excise tax credit, the immediate priority is to get the U.S. Senate to put in place a tax incentive for this year that is retroactive to January 1, 2010. The U.S. House of Representatives already approved a tax extender bill in December that preserved the biodiesel tax incentive for one year.

Federal programs aren’t the only drivers of biodiesel. State regulatory actions and mandates are also increasing the use of this alternative fuel and one breakout session addressed this issue. Shelby Neal, director of NBB State Government Affairs, said that in 2009, 86 biodiesel-related bills were signed into law in various states, with the majority focusing on production or usage. Arkansas increased its producer incentive fund from $2 million to $3 million per project; Illinois increased its state fleet requirement from a two percent biodiesel blend to a B5; and Oregon passed the country’s third low carbon fuel standard. Currently, three states – Minnesota, Washington, and Oregon – have biodiesel mandates in place that utilize 72 million gallons of biodiesel per year.

Eric Bowen, Tellurian Biodiesel and chairman of the California Biodiesel Alliance, highlighted trend-setting California, which has a history of designing its own fuel specifications. At present, all fuel sold in the state must meet “state” standards, not federal, and a new low carbon fuel standard due to take effect next year may mean trouble for biodiesel. Bowen said the California Air Resources Board (CARB) is working on biodiesel specifications with one of the agency’s concern being an increase in nitrogen oxide. CARB is considering requiring additives to biodiesel blends as low as five percent, even biodiesel produced from animal fats, which actually reduce nitrogen oxides. Up for debate is California’s approach to the indirect land use for biodiesel produced from soy oil that conflicts with EPA’s RFS2. NBB will address this matter with CARB in hopes of harmonizing the state’s data with federal standards.

In a session on biodiesel quality, Chuck Neece, Fumpa Biofuels and a member of the Minnesota Biodiesel Council, focused on the state’s biodiesel usage as the result of a mandate that began as a two percent blend requirement in 2005 and was increased to B5 in 2009. Minnesota will up the biodiesel blend to 10 percent during the summer months beginning in 2012 and 20 percent in 2015, while maintaining the B5 year round.

Neece said some isolated filter clogging issues occurred this winter, mostly in above ground storage tanks, leading the Minnesota Biodiesel Council and Minnesota Petroleum Marketers Association to request a temporary waiver of the B5 requirement in No. 1 diesel fuel (kerosene) in early January. The waiver is set to expire March 31, 2010. Overall, the state continues to be pleased with the environmental, energy security, and economic benefits that biodiesel has brought to Minnesota, and the vast majority of diesel fuel in the state has continued to include five percent biodiesel successfully, even in the frigid temperatures the state has experienced this winter.

In the same session, David Slade, Renewable Energy Group, focused on a multi-feedstock approach to biodiesel quality, highlighting the results of a study the company recently conducted and has made available at no cost. While highlighting the various biodiesel characteristics of conventional feedstocks, Slade concluded that blending feedstocks could offer economic and quality advantages while achieving optimum fuel specifications.

Another breakout session focused on a sustainable certification program being developed by the Roundtable on Sustainable Biofuels (RSB). While not currently a requirement of the industry, several groups such as RSB are encouraging feedstock producers and refiners, and biofuel producers and blenders to certify their companies are sustainable in various areas, such as reducing GHGs, protecting workers’ rights, ensuring local food security, and conserving and protecting soil, water, and air. The NBB Sustainable Task Force has adopted similar principles but has not moved forward yet on certification. While RSB hopes this type of program will bring value to biofuels and open up markets, others believe that at some point this type of certification will be driven by customers.

NBB wrapped up their conference with the annual presentation of the “Eye on Biodiesel Awards”:

• Impact – Terry Taylor, Sysco Corporation, who saw biodiesel as a greener alternative to fueling the company’s fleet of 9,000 diesel tractors and straight trucks, and 11,000 refrigerated trailers. The company began using biodiesel in 2005 and today uses about two million gallons annually in blends up to 20 percent (B20) wherever possible.

• Inspiration – Wayne Hettler, St. Johns Public Schools, St. Johns, MI, who, as a school bus fleet manager, convinced his district to switch to B20 in 2002, clocking more than three million miles since then. His enthusiasm for biodiesel has helped inspire other fleets to make the switch, and he has provided technical assistance to NBB.

• Industry Partnership – The American Oil Chemists’ Society (AOCS) and AOCS technical specialist Gina Clapper, both of which have provided opportunities for those in the biodiesel industry to share knowledge at international congresses on biodiesel, short courses, technical sessions, and in publications. Clapper has been instrumental in coordinating the development and approval of new biodiesel test methods, and has taken leadership roles within the International Organization for Standardization activities and the Biodiesel Expert Panel of the AOCS.

• Initiative – The Iowa Soybean Association, Minnesota Soybean Growers Association, and Nebraska Soybean Association, all of which led the way for the biodiesel industry in submitting comments to EPA on its RFS2. The three organizations alone generated more than one-third of the 8,000 comments biodiesel supporters submitted to the proposed rule.

• Influence – Ramiro Lopez, City of Irving, TX, who initiated B20 in the City of Dallas in 2002 and has since mentored other fleets in the area and nationwide on biodiesel.

Next year’s biodiesel conference is scheduled for February 6-9, 2011, in Phoenix, AZ.

April 2010 RENDER | back