Biodiesel Industry Confident in its Future

By Tina Caparella

Optimism reigned at this year’s National Biodiesel Conference in Phoenix, AZ, the eighth such gathering since 2004. The Environmental Protection Agency’s (EPA’s) finalized Renewable Fuel Standard, referred to as RFS2, and the recently passed and retroactive federal tax credit for blenders were encouraging steps for an industry that has been struggling over the past 12 months.

“The past year was a testament to this industry at not giving up,” said Joe Jobe, chief executive officer, National Biodiesel Board (NBB), at the conference’s opening general session. “Thank you for fighting through this last year, staying with it, staying together, and not backing down.” He noted that all the elements are now in place for the biodiesel industry to have its largest production year ever, and that biodiesel is the only domestically-made advanced biofuel produced on a commercial scale in almost every state, a proclamation repeated quite often throughout the two-and-a-half-day conference.

Statistics provided by Jobe show 111 biodiesel plants are registered with EPA totaling 2.2 billion gallons of capacity. He pointed out that the RFS2 and the tax credit are complementary and 2011 will be the first year both programs will operate together, which should give the industry a boost in production.

Along with government incentives, Jobe remarked that the public needs to be better informed about the benefits of biodiesel so NBB is launching an advanced biofuel initiative, a comprehensive promotional campaign that will get the truth out about biodiesel.

“We need to define ourselves before others define us,” Jobe commented.

Following Jobe’s pep talk of optimism, a panel of petroleum industry representatives took to the stage to share their concerns, ideas, and confidence in biodiesel’s future. One discussion covered how to get more biodiesel into the pipeline. Currently biodiesel cannot travel through a pipeline that also transports jet fuel due to possible contamination issues. All on the panel agreed this was a challenge that needs to be addressed.

Blending terminals were also on the panel’s radar. John Kuzak, Morgan Stanley Capital Group, expects state mandates to help decide where blending terminals get built and to drive the market more than RFS2. Minnesota and Illinois currently have the largest biodiesel markets due to mandates, yet not much biodiesel above an 11 percent blend with petroleum diesel is being used due to lack of customer demand. The panel was optimistic in expecting a 100 percent increase in biodiesel usage this year over last.

Throughout the opening general session, video presentations introduced a myriad of biodiesel producers and users. One such segment featured AZ Biodiesel, a biodiesel producer that, after struggling to find a city that was receptive to them building a plant, was finally warmly welcomed in Gilbert, AZ. The company collects waste cooking oil in the surrounding area to produce biodiesel.

Another video showcased the city of Las Vegas, NV, and fleet manager Dan Hyde, who was instrumental in getting the city to use biodiesel in the bulk of its 1,400 diesel engines. He reported that maintenance costs went down because biodiesel burns cleaner.

The keynote speaker of the general session was Dr. Michael Shermer, founder of Skeptic magazine. The world-renowned debunker discussed how pseudo-science can easily affect public opinion, provided thought-inspiring questions on issues such as climate change, and encouraged the biodiesel industry to engage and debate its critics with points such as:

• biodiesel feedstocks are renewable whereas oil, coal, and gas are not;
• the European Union endorses/uses biodiesel and they are “super environmentally” conscious; and
• all energy sources have costs and a carbon footprint, but compare these costs/effects in the long run.

Shermer stated that oftentimes scientific papers published are not always the truth, and that “negative data is just as important as positive data.” He also said that Moore’s law, which states the number of transistors on a computer chip roughly doubles every two years, can basically be applied to everything, including the biodiesel industry. He praised the industry for its important role in energy and encouraged producers to “change the world.”

NBB Chairman Gary Haer, Renewable Energy Group (REG), opened the general session on the second day, repeating the messages that biodiesel is America’s advanced biofuel and the industry must expand its education and outreach. He noted that 70 percent of capacity is represented by BQ9000 accredited companies, and that last year, NBB added laboratories to its quality program that already covers producers and marketers, with three labs currently certified. Haer remarked that the industry can’t get complacent on fuel quality and availability of affordable feedstocks will be a challenge.

A panel discussion during the second general session targeted state activities that encourage biodiesel use, beginning with California’s low carbon fuel standard (LCFS) that went into effect January 1, 2011, where biodiesel will have to compete with other advanced biofuels.

“Success is not guaranteed, but there is a huge opportunity,” proclaimed California Biodiesel Alliance Chairman Eric Bowen, REG. He suggested the industry work on three key issues to ensure biodiesel’s success in California: infrastructure since there is currently no rack-blending of biodiesel in the state; underground storage tanks that the state requires be certified to safely hold biodiesel at blends of 20 percent and below; and working with the “nation” of California and its regulators to ensure the state’s definition of biodiesel is accurate.

Ed Hegland, Minnesota Soybean Research and Promotion Council, pointed out that Minnesota’s mandate provided some demand for biodiesel during 2010 when the federal tax credit expired, while Rebecca Richardson, MARC-IV, enlightened the crowd on Illinois’ two-tiered tax incentive program. The first part provides a 20 percent discount on sales tax on biodiesel blends of 10 percent or less, and the second provision eliminates all sales tax on each gallon of biodiesel used at an 11 percent blend or higher. She said the incentives have made biodiesel more competitive in Illinois and drives 50 million to 100 million gallons of consumption per year.

Pennsylvania has a two percent biodiesel blend mandate for on-road petroleum diesel and a three-year program that provides a 75 cent per gallon producer incentive. Ben Wooten, Keystone Biofuels, Inc., reported that biodiesel contributed $200 million to the state’s economy in 2010, and every member of the Pennsylvania Biodiesel Producers Group was critical in getting legislation passed. He encouraged everyone to get involved in state public policy.

Predictions from the panel showcased the group’s optimism. Bowen went “bold” in declaring California will lead the nation in biodiesel consumption and be a large importer and producer by 2015. Steve Levy, Sprague Biofuels, Inc., predicted that New York City will increase its mandate to five percent biodiesel in bioheat by 2015, and believes a LCFS for the northeast states will be in place in the next two to three years. But he made the boldest prediction of all when he stated that by 2025/2030, biodiesel will be more efficient and be used as a 20 percent or 50 percent blend in bioheat, and, at some point, at a 100 percent level.

The session wrapped up with Adam Gryglak, Ford Motor Company, announcing that Ford’s heavy duty diesel trucks for model year 2011 and beyond have been approved to use 20 percent biodiesel (B20) and will feature a B20 emblem.

State Mandates, Federal Programs, and Sustainability
Concurrent educational sessions focused on federal and state regulations, markets for biodiesel, and technical issues. Among the more popular legislative sessions were several on state mandates. Currently, eight U.S. states (Connecticut, Oregon, Louisiana, Massachusetts, Minnesota, New Mexico, Pennsylvania, and Washington) have mandates in place for biodiesel use, representing 141 million gallons of biodiesel, with four of those mandates having already been implemented (Oregon, Minnesota, Pennsylvania, and Washington). The other four are due to go into effect this year or later. About 18 states have consumption, or use, incentives, while nearly all states (48) have adopted ASTM D6751 standard for fuel quality that includes two percent biodiesel.

Arizona currently has no mandate and Mark Ellery, The Jet Companies, doesn’t anticipate one in the foreseeable future, but biodiesel has been authorized as a legal fuel. In January 2011, after four years in the making, very specific rules for biofuels went into effect under the Arizona Administrative Code (AAC). A new section R20-2-718 of the AAC Title 20, Chapter 2, Article 7, spells out specific requirements for production, transport, distribution, and sale of biofuels. Ellery divulged that a biodiesel facility accredited under BQ9000 can bypass many of the requirements in the new regulation.

New Mexico’s five percent biodiesel mandate was passed in 2007, went into effect July 1, 2010, for state agencies, political subdivisions of the state, and public schools, and is scheduled to go into effect for the general public on or after July 1, 2012.

Bowen returned to further highlight California activities, which, after China and the United States, is the third largest fuel market in the world. He said the state will regulate biodiesel on its own and does not accept EPA/National Renewable Energy Laboratory emissions impact data because California diesel fuel is different than diesel fuel used in the rest of the country. Bowen optimistically thinks there are exciting times ahead for biodiesel in California, but it will not happen without industry engagement and will take time.

As for bioheat, New York City has approved and will implement a two percent biodiesel blend in heating oil beginning October 1, 2012, creating a 20 million gallon market. Meanwhile, the northeast states are actively working on a LCFS, with an economic analysis due very soon.

Federal legislation and programs were addressed, beginning with NBB’s Manning Feraci providing eye-popping figures on the U.S. budget deficit, which stands at $1.5 trillion for 2011, nearly 10 percent of the gross domestic product. Federal debt levels will hit $14.3 trillion this spring, more than double the $6 trillion debt in 2009, and is projected to reach $18 trillion in 2021, 77 percent of the gross domestic product. He warned that the biodiesel tax credit will come under attack by Congress as it works to cut spending levels and reduce the federal deficit. However, NBB, which prefers a production excise tax credit over the current blender’s tax credit, will push for extending the credit for five years beyond 2011.

Tom Hence, Gordley and Associates, recapped the U.S. Department of Agriculture’s energy program, which has mandatory funding of $165 million available for fiscal year 2011 for biofuel producers. An interim final rule for contract payments totaling $80 million was due to be published in mid-February.

Canada was on the verge of announcing the implementation date of its national two percent biodiesel blend mandate while attendees gathered at the conference (the announcement came just days later…see “Biofuels Bulletin” on page 54). In the meantime, several provincial mandates have been approved and implemented, including Manitoba’s two percent blend, British Columbia’s three percent blend increasing to five percent in 2012, and Alberta’s two percent blend due to go into effect April 2011. The country’s financial incentive program, ecoEnergy, doesn’t expire until 2017, allowing some predictability within Canada’s biodiesel market. One point made by Gordon Quaiattini, Canadian Renewable Fuels Association, is that in Canada, biodiesel is the most researched and tested fuel.

“The reality of our fuel is it works in our [cold] Canadian climate,” he proclaimed. “We have gone out of our way to look our critics in the eye and prove, with facts, that Canada is capable of using biodiesel.” Quaiattini commented that 2011 existing capacity is 200 million liters, but once the federal mandate goes into effect, 600 million liters will be needed so Canada expects to import biodiesel.

“The market is going to be open, so be sure to look to Canada for your future strategy,” he told attendees.

Fuel sustainability was the focus of another educational session. NBB’s Shelby Neal said as with mandates, fuel sustainability regulations are moving at the state level, including passage of a LCFS in California and Oregon. Washington and the northeast states are actively considering such standards.

Stephen Kaffka, University of California, Davis, described LCFS as a performance standard that is only effective if others participate. Under California’s LCFS, the California Air Resources Board is predicting that three billion gallons of petroleum diesel will be displaced by biofuels, with 70 percent coming from advanced biofuels such as biodiesel. Kaffka pointed out that the state’s LCFS and the national RFS2 have not been reconciled so fuel producers in California aren’t sure how to meet both standards.

Other laws that will impact fuel in California include the Global Warming Solutions Act, or AB 32, and the Alternative and Renewable Fuel, Vehicle Technology, Clean Air, and Carbon Reduction Act, or AB 118. Both mandate developing sustainability standards, with one of the four program goals for AB 118 being to maximize waste feedstocks in the production of biofuels.

April 2011 RENDER | back