RFS and RINs on Radar at U.S. Biodiesel Conference

By Tina Caparella

Amidst celebration for reaching a record-breaking production milestone of just over one billion gallons in 2011, the biodiesel industry was quick to ensure a few bad apples don’t spoil the successes of many as National Biodiesel Board (NBB) leaders welcomed over 1,100 attendees to its annual biodiesel conference held in early February in Orlando, FL. Among the pressing issues addressed were the Environmental Protection Agency’s (EPA’s) Renewable Fuel Standard, known as RFS2, and the fraudulent use of renewable identification numbers (RINs).

Joe Jobe, chief executive officer of NBB, announced the board is establishing a RIN task force to try to prevent future fraud and commended the EPA and U.S. Secret Service for their quick enforcement of the law on two fraud cases. However, petroleum producers revealed they are facing challenges with the RFS2 as the “obligated” party. During a general session panel discussion, Charles Drevna, American Fuel and Petrochemical Manufacturers Association, let it be known that the RIN fraud cases were especially burdensome to the petroleum industry.

“We were forced to buy them [RINs], then fined by EPA, and then had to rebuy RINs,” Drevna commented. “The RFS is not working as intended, or maybe it is and we don’t know it.” He went on to explain that 10 percent of the petroleum industry’s market has been mandated away by the RFS2 (increasing to 22 percent by 2020), and that the industry thinks biodiesel consumption should be consumer driven.

“We’re an energy-rich country,” Drevna stated. “Should biodiesel be part of the mix? You betcha! Should the tax credit be reinstated? That’s up for debate as is the RFS.”

Other panel members shared a more positive experience with biodiesel, including John Maniscalco, New York Oil Heating Association. Biodiesel will be required in all heating oil in New York City beginning October 2013 starting with a two percent blend, which will call for 15 million gallons of biodiesel. The law mandates up to a 12 percent blend, creating an 80 million gallon demand, and Maniscalco said the oil heat industry wants to get there as soon as possible. While the mandate is feedstock neutral, he admitted it favors soybean oil.

The debate continued, with Michael Ferrante, Massachusetts Oilheat Council, stating that by embracing a mandate, industry is able to work with consumers and regulators and get the needed push for consumption. Jobe noted that mandates “build partnerships between community and environmental groups.” But there was no convincing Drevna as he continued to make his case for the concerns petroleum manufacturers have with the RFS2. The session concluded with an agreement to disagree on the standard and a commitment to work together on its future.

The celebratory atmosphere continued into the second day as NBB Chairman Gary Haer announced that 80 percent of the biodiesel produced in 2011 came from producers certified under the board’s BQ 9000 program, and shared the success of the NBB’s advanced biofuel initiative that included educational ads on national television and in print. He also declared that schemes to circumvent the RFS2 and RIN systems will not be tolerated.

An NBB consultant from the early days who has seen her career propel took the stage and told the biodiesel industry to “remember who you are and where you came from.” Krysta Harden, chief of staff for U.S. Department of Agriculture Secretary Tom Vilsak, encouraged biodiesel producers “way back when” to broaden feedstock usage so the industry could grow and not just be “soydiesel.” She mentioned that as important as RFS2 is, the industry almost didn’t have the first RFS, sharing a story of how she almost wasn’t allowed into a crucial meeting due to a security clearance oversight.

“It’s fun to look back, just don’t stare,” Harden remarked.

NBB’s newest staffer, Anne Steckel, vice president of Federal Affairs, noted that while 2011 was a tremendous year for the biodiesel industry, which reaped the rewards of federal policy already in place, like every energy industry before it, biodiesel is highly dependent on federal policy and its history is still being written. NBB has a Washington team of four staff members and numerous government contractors working on the industry’s behalf.

Focusing on diesel technology, Steve Howell, MARC-IV Consulting and NBB technical director, reported that 60 percent of original equipment manufacturers (OEMs), including the three major U.S. automakers, now approve the use of biodiesel in their engines. The Diesel Technology Forum (DTF) was created 11 years ago to combat the “dirty diesel” problem, primarily in California, and today, diesel technology is the cleanest it’s ever been. DTF’s Tom Fulks revealed that California and Texas have the highest number of registered diesel vehicles in the country – California is number one in cars, Texas tops the list for trucks – indicating potential markets for biodiesel. He said the future is quite bright for diesel technology, but nitrogen oxide emissions must be paid close attention to, especially in California.

The most important factor for biodiesel producers is fuel quality that meets ASTM International specifications, insisted Jim Michon, Ford Motor Company.

“And when we say B20 [20 percent biodiesel], we mean it,” he reminded attendees. “The technology has been designed for that blend so we discourage higher blends.”

Roger Gault, Truck and Engine Manufacturers Association, agreed that fuel quality is of utmost importance since it can impact daily operations.

“There is nothing worse than a vehicle breaking down due to poor fuel quality,” he stated. Glenn Ellis, Hino Trucks, noted that OEMs need to promote the advances in clean diesel technology and the use of biodiesel in that technology.

To showcase one advancement in diesel technology, Paul Teutul Sr., the founder of New York’s custom motorcycle shop Orange County Choppers, rumbled into the conference’s expo hall astride his newest “American chopper,” fueled by domestically produced biodiesel. CIMA Green, a New Jersey-based physical energy commodity trading company, partnered with Teutul and Orange County Choppers to create a high performance motorcycle with the capability to run on a blend of 20 percent biodiesel and 80 percent petroleum diesel. The motorcycle was featured on an episode of the hit Discovery Channel show American Chopper in March, followed by appearances at a number of other events throughout the year to showcase the power and performance of biodiesel in this custom-built bike with production-scale aspirations.

Federal and State Focus
The array of conference sessions ranged from technical and markets, to petroleum and regulations, which was perhaps among the most popular with attendees. Brad Todd, On Message, Inc., and Maria Cardona, Dewey Square Group, two political strategists, squared off as each examined the outlook in Washington, DC. Both agreed that the Tea Party has had an impact on the Republican and Democrat parties, perhaps more so on Democrats coming out of the 2010 election. With polls showing Congress’ approval rating at just 11 percent, each discussed what could potentially happen, or not, in this election year, with the top issues among voters being the economy and jobs. Cardona pointed out that President Barack Obama is a “huge” supporter of renewable fuels/alternative energy.

In a different session focusing on federal tax policy and the biodiesel tax incentive, Tim Urban, Washington Council Ernst and Young, pointed out that the payroll tax cut, unemployment insurance, and tax extenders are what’s on the near horizon in Congress. Currently, the top discussions on Capitol Hill are jobs and the economy; climate change is no longer a policy driver.

Urban revealed the national deficit is $3.1 trillion under current “law,” with most laws having expired or will be expiring this year. Under current “policies,” which extend from 2013 to 2022, the national deficit is projected to reach $11 trillion, explaining why Congress members may not be as receptive to extending the biodiesel tax credit, or any other tax credits, as they have been in the past. He warned the industry that Congress members want to see biodiesel eventually stand on its own without tax incentives.

Mark Palmer, Van Ness Feldman, and Ben Evans, NBB, have been working on two pieces of legislation, Senate Bill 1277 and House of Representatives Bill 2238, since June 2011 that will extend the biodiesel tax credit for three years and change it from a blender’s credit to a producer’s credit. NBB is focusing on educating legislators about the jobs the biodiesel industry creates in hopes of getting the tax credits extended, but Evans reminded the industry that it’s important for biodiesel producers to follow-up with their legislators since they prefer to hear from constituents. He also encouraged attendees to contact their representatives about the 2013 RFS2 volume that has not yet been set.

Switching to state policies, Steve Levy, Sprague Operating Resources, said that starting July 1, 2012, New York will be the first state to move to a 15 parts per million (ppm) heating oil, down from 2,000 ppm, to reduce overall emissions.

“It’s pretty big,” Levy stated, adding that he believes there will be a bioheat mandate in New York sometime this year.

Scott Hedderich, Renewable Energy Group, focused on the Midwest where 2011 was a good year for the biodiesel industry. The most successful piece of legislation was passed in Illinois extending the state’s biodiesel tax incentive (see “Biofuels Bulletin” in the February 2012 Render). However, Minnesota’s governor has had to delay for one year increasing the state’s biodiesel mandate from five percent to 10 percent in the summer months (April-October) due to lack of infrastructure in Southwest Minnesota and guidance on blending biodiesel with No. 1 diesel. The state’s biodiesel industry will also have to address exemptions for railroad, surface mining, and timber set to expire this year.

Chris Herbert, Good Company Associates, for once had good news from Texas, which now exempts biodiesel from the diesel fuel tax and has more favorable blending regulations than before. He added that coupled with the RFS2, Texas could now be a large market for biodiesel.

Eric Brown, California Biodiesel Alliance, addressed this challenging state. In December 2011, a U.S. District Court ruled that California’s low carbon fuel standard (LCFS) violates the U.S. Commerce Clause because it discriminates against out of state corn ethanol. A preliminary injunction has stopped the California Air Resources Board (CARB) from enforcing the LCFS, but the board has appealed. Bowen said the appeal process could take up to two years and has already impacted infrastructure investment, but he believes CARB will eventually be victorious and the LCFS will go forward.

“If we can get the California market right, there is a huge opportunity for alternative fuels, up to two billion gallons,” Bowen declared. NBB’s Shelby Neal added his prediction of California being a billion gallon market by 2022. A bit of good news is that the state’s water board has finally determined there is no risk storing biodiesel in underground storage tanks and is working on regulations due out later this year.

Rebecca Richardson, MARC-IV Consulting, stated that one of NBB’s goals for 2012 is to increase adoption of ASTM Standard D6751 from 48 states to 49, with New Jersey and Alaska being the holdouts. NBB is also aiming to increase proactive testing in more than the 20 states that currently test.

NBB will celebrate its twentieth year in 2013 and its tenth conference in Las Vegas, NV, February 4-7, 2013.

April 2012 RENDER | back