The Environmental Protection Agency’s attempts to get its flagship renewable fuel program back on track is coming at a price for the biofuel industry it has sought to support.
In the nearly two years that the EPA has delayed finishing its goals for last year’s Renewable Fuel Standard, the biodiesel industry has been hit hard by the wavering policy, including a slew of bankruptcies and plant idlings that have shrunk the industry rather than grow it.
The Renewable Fuel Standard establishes annual targets that oil refiners must comply with by blending renewable fuels into the nation’s gasoline and diesel supplies. Those targets create a market for the renewable fuels that biofuel companies depend on to stay in business.
The EPA has not set final goals for this year or last year. Its proposal for 2014 was to slash the ethanol target by nearly 1 billion gallons and leave the biodiesel goal the same. The agency also slashed the “advanced biofuel” requirement under the program that biodiesel also qualifies for because of its low emissions.
That upset financing and reduced capital for the biofuel industry.
The biodiesel industry is “kind of in limbo right now…as this proposal has been so late,” said National Biodiesel Board spokesman Ben Evans. The board is the main trade group for the biodiesel industry.
The EPA in the last month has hinted at reversing the biodiesel decision, but industry officials are guarded.
Dozens of plants have been idled, filed for bankruptcy or have been bought by larger companies since the EPA proposed the last annual standard in 2014, he said.
Without a final fuel goal set for 2014, or 2015 for that matter, the “market is very soft,” he said. The smaller companies that don’t have the financial wherewithal to bear the last 18 months of policy instability are selling off to larger firms or going under, Evans said.
There is a “niche market out there without the policy,” but “there wouldn’t be much growth,” he said. Vehicle fleets that have made using cleaner burning fuels as part of a plan to reduce company-wide emissions and improve their environmental footprint would continue to buy it, he said. “There is demand out there” for that, “but the [standard] is really the backbone.”
The bulk of the renewable fuel blended into the U.S. fuel system is ethanol, which is derived from corn. Ethanol is now found in nearly all of the nation’s gasoline supply, comprising at least a 14-billion-gallon market. Biodiesel, derived from waste grease, fats and soybean oil, is much smaller, at about 2 billion gallons, with growing markets as a cheaper alternative to conventional heating fuel as well as a vehicle fuel.
A variety of large, medium and small companies, with the help of the fuel standard, managed to start up the industry in recent years. It was the beginning of an American small business success story, observers say. Biodiesel was beginning to show substantial growth when the EPA appeared to clip its wings. Critics of biodiesel say it is just an example of a broken policy that Congress needs to repeal.
Some GOP lawmakers as well as the industry argue that the EPA program amounts to a subsidy and that the market should dictate a fuel’s viability, not a government program.
“The only long-term solution is to scrap the failed program and let [market] drivers, not the federal government, choose which fuel to put in their vehicles,” said American Petroleum Institute spokesman Carlton Carroll.
The American Petroleum Institute and the American Fuel and Petrochemical Manufacturers, representing refiners, want the program dialed back or Congress to repeal it. They also argue that the fuel system has reached its limit, or the “blend wall,” and that increasing the amount of biofuel in the fuel system would harm vehicle engines.
Most of the refiners’ arguments target the ethanol part of the program. The biodiesel industry says it got caught in the crossfire.
Consolidation has become one of the only ways companies have been able to use to survive, Evans said. For example, San Diego-based New Leaf Biofuels was bought by Baker Commodities Inc., a large rendering and grease removal firm, in October.
Smaller firms such as New Leaf were thought to be the most vulnerable. However, larger companies this year showed they are not immune to the instability caused by EPA’s delays. Evans said it was a “surprise” to see a big plant like the Green Earth biodiesel plant in Texas file for bankruptcy earlier this year. Its facility in Houston is a “very large plant,” which many thought had the resources to survive as EPA attempted an RFS reboot, he said.
Even bigger companies, such as agribusiness giant Archer Daniels Midland, had to halt production from January to mid-March.
The EPA “left it flat in the first [2014] proposal … and they plan to improve it … but we don’t know,” Evans said. The 2014 proposal issued back in 2013, did not raise the target for biodiesel, but kept it at the previous year’s level, even though projections showed the industry would exceed the old target.
The EPA announced in recent weeks that it plans to propose biodiesel targets for 2014, 2015, 2016 and 2017 by June 1, at which point it will take industry comment, and then finalize the goals by Nov. 30, 2015.
Biodiesel producers are urging the administration to “get the program back on track” by setting the new 2014 proposed standard at 1.7 billion gallons, which was how much the industry produced that year, and increasing it by 300 million gallons each consecutive year, according to the biodiesel board. A group of Democratic senators joined the industry last week in pressing EPA.
