Biomass-based Diesel Delivers but Challenges Ahead

By Doug Lenhart, Executive Director, Procurement and Logistics
Renewable Energy Group

For the United States (US) biomass-based diesel industry, 2016 proved to be a strong year. Producers continued to deliver high-quality, lower carbon intensity fuel across the country in high volumes. As the industry looks ahead in the new year, it faces many challenges but also opportunities for growth.

Blender’s Tax Credit versus Producer’s Tax Credit
The Biodiesel Mixture Excise Tax Credit, commonly referred to as the blender’s tax credit, lapsed at the end of 2016. This incentive provides $1 per gallon to parties that blend biodiesel and/or renewable diesel into the distillate pool. This credit also applies to nearly all qualifying gallons blended including those that were produced outside of the United States. The US biomass-based diesel industry supports a switch from a blender’s tax credit to a producer’s tax credit in 2017 and beyond.

Switching to a producer’s tax credit benefits American producers, feedstock providers, and consumers in a number of ways. First and foremost, US taxpayer dollars would stop going off-shore to subsidize foreign fuel imports. In 2015 alone, more than $600 million in US tax dollars went to imported biodiesel and renewable diesel. That amount increased in 2016. This money further incentivized foreign production that, for the most part, already enjoys subsidies from other countries, whether it is from Argentina’s differential export tax or companies that are partially owned by other governments. According to the Joint Committee on Taxation, reforming the tax incentive would save US taxpayers $90 million as imports would no longer qualify for the credit and domestic production grows.

According to the National Biodiesel Board, the change would also mobilize domestic production. Today, there are 3.1 billion gallons of installed capacity in the domestic biomass-based diesel industry that can fulfill growing volumes of this alternative fuel, strengthen energy security, and create new jobs in communities. With fewer imported gallons, the domestic industry could expand and better utilize existing infrastructure and capacity allowing higher volumes of domestically produced lower carbon intensity products to enter all US markets.

Renewable Fuel Standard
In November 2016, the Environmental Protection Agency (EPA) finalized the 2017 renewable volume obligations (RVO) for cellulosic, advanced, and total renewable fuel, as well as the biomass-based diesel minimum volumes for 2018. EPA increased the total advanced biofuel RVO above its proposed 4.0 billion gallons to 4.28 billion gallons, a 670-million-gallon increase over 2016. Biomass-based diesel supplied the vast majority of fuel used to meet the advanced biofuel RVO in 2016 and should continue to do so in the coming years.

EPA also confirmed the biomass-based diesel RVO of 2.1 billion gallons for 2018, which is 100 million gallons more than the final 2017 level and 200 million gallons above the 2016 minimum volume. In doing so, EPA stated they believe approximately 2.9 billion gallons of biodiesel and renewable diesel can be produced, distributed, and consumed in 2017.

Feedstock Availability
As domestic production increases, the demand for rendered fats and oils will continue. In the 2017-2018 final RVO from EPA, there was extensive discussion surrounding the perceived limited availability of qualifying feedstock for growing volumes of biodiesel and renewable diesel. While both the rendering and biodiesel/renewable diesel industries understand that this is not accurate, EPA and other concerned groups must be informed about industry advances and changes in technology that allow more from less. To successfully address this concern would allow for continued growth in volumes finalized by EPA.

February 2017 RENDER | back