Headlines
House Committee Extends Biodiesel Tax Credit; Cuts
Co-Processing Credit
During farm bill conference negotiations over the past several months, a provision in the tax package extending the $1/gal biodiesel tax credit by two years was removed in an apparent attempt to lower the bill's overall cost. Now a similar provision -- although providing for only a one-year extension -- has made its way onto an energy and tax extenders bill that the House Ways and Means Committee passed earlier today.
H.R. 6049, introduced by Committee Democrats and approved 25-12, provides nearly $20 billion in tax incentives for renewable energy, carbon capture and sequestration demonstration projects, energy efficiency and conservation.
Specifically on biofuels, the bill includes:
--A new $1.01 tax credit for the production of cellulosic biofuels (defined as a liquid fuel produced from any lignocellulosic or hemicellulosic matter and meets EPA registration requirements, expanded from previous, similar provisions only for cellulosic ethanol) through Dec. 31, 2015. The provision is similar to one included in the farm bill, however that tax credit is only through 2012.
Additionally, the tax credit in HR 6049 would only qualify for U.S. production and used as a fuel in the U.S.
--Expansion of property allowance to produce cellulosic ethanol. Under current law, taxpayers are allowed to write off 50% of the cost of facilities that produce cellulosic ethanol if the plants are in service before Jan. 1, 2013. "Consistent with other provisions in the bill that seek to be technology neutral, the bill would allow this write off to be available for the production of other cellulosic biofuels in addition to cellulosic ethanol," the Ways and Means Committee said in a summary document.
--One-year extension of the $1/gal biodiesel tax credit, the small biodiesel producer credit of 10cts/gal and the $1/gal production tax credit for diesel fuel created from biomass, all through Dec. 31, 2009. The provision would also eliminate "current-law disparity" by allowing agri-biodiesel (which currently receives 50cts/gal) to receive the same, full $1/gal tax credit as other biodiesel, and eliminates the requirement that renewable diesel must be produced using a thermal depolymerization process. "As a result, the credit will be available for any diesel fuel created from biomass without regard to the process used so long as the fuel is usable as home heating oil, as a fuel in vehicles or as aviation jet fuel," the summary document noted. However, the $1/gal biodiesel tax credit is limited to diesel fuel produced solely from biomass, so diesel fuel that is created by co-processing biomass with other feedstocks (e.g., petroleum) would only qualify for a 50cts/gal tax credit.
Additionally, the biodiesel tax credit would only qualify if the fuel is produced in the U.S. for consumption in the U.S.
--A 6ct/gal reduction in the ethanol tax credit, to 45cts/gal, for the year after which the U.S. produces at least 7.5 billion gallons of ethanol. This is the same provision that was included in the farm bill package.
--Extension and an increase of the alternative refueling stations tax credit. The bill increases the 30% alternative refueling property credit (capped at $30,000) to 50% (capped at $50,000), to businesses that install alternative fuel pumps. The credit is extended through 2010.
--An analysis conducted by the National Academy of Sciences of current scientific findings relating to the future production of biofuels and the domestic effects of a dramatic increase in the production of biofuels. An initial report is due six months after the bill's passage and a final report is due one year after passage.
Of the amendments considered during today's committee mark-up, only one dealt with biofuels. Rep. Pete Stark's (D-Calif.) amendment would have eliminated the ethanol tax credit, but it failed by a vote of 8-30.
The National Biodiesel Board (NBB) praised the committee's action to extend the biodiesel tax credit. "The biodiesel tax incentive is working, and the committee's decision to support biodiesel will help our industry improve America's energy independence by displacing foreign petroleum with clean- burning, domestically produced fuel," said NBB CEO Joe Jobe.
Mike McAdams, executive director of the Advanced Biofuels Coalition, has been a strong advocate for feedstock neutrality on biofuel-related provisions.
He said he was pleased with the direction the committee took, although was disappointed that the co-processing language for biodiesel "was not afforded the same level of support" as conventional biodiesel.
It was immediately unclear how both Tyson Foods and ConocoPhillips -- which in 2007 announced plans to produce renewable diesel from animal fat, a fuel chemically different from biodiesel that can be produced directly at refineries and shipped through pipelines -- felt about the co-processing tax reduction.
Earlier in 2007, the Internal Revenue Service ruled that refiner-based renewable diesel was eligible for the $1/gal biodiesel blenders' tax credit, so in essence, the language included in today's bill slashes the tax credit by half for those using co-processing.
Sources closely following the bill say the full House could vote on it next week and if successful, be voted on in the Senate next month.
Minnesota in Line for Bigger Biodiesel Mandate
It appears Minnesota is going to boost the required level of biodiesel blending in diesel fuel sold within the state as soon as next year. Word is the governor intends to sign a bill that contains a biodiesel boosting measure similar to the one he promoted last summer.
Minnesota state legislators passed a final version of SF 3683, an omnibus agricultural bill that incorporated a schedule for ratcheting up the percentage of biodiesel that must be blended with diesel fuel sold in the state. The schedule calls for biodiesel blending in the state to go from the current 2% up to at least 5% next year. Under language in the bill, minimum blending would then jump to a 10% mandate by 2012 and double to 20% by 2015.
The measure appears to recognize some of the cold-weather problems that have been blamed on biodiesel since the current 2% mandate was set in place in 2005.
The higher mandated levels will apply only April through October, with 5% being the requirement for the colder weather period from November through March.
Like implementation of Minnesota's current 2% regulation, the higher blending has trigger requirements for the law to come into force, including certification that there is enough biodiesel, from a minimum of 75% U.S. and Canadian feedstocks, available to fulfill the mandate. The measure also contains assurances for biodiesel quality, noting American Society for Testing Materials specifications and language allowing the governor to delay the requirement if economics dictate.
Minnesota already has the capacity to produce 63 million gal/yr of biodiesel, which would cover up to 6.5% biodiesel blending in the state, Lance Peterson, president of the Minnesota Soybean Growers Association, told OPIS late last year. The full 20% biodiesel mandate would equate into approximately 200 million gal/yr of the fuel, he added. "We can certainly reach ... [the 5% mandate] in the near term" with in-state production, but for the 20% target, Minnesota will likely have to import biodiesel from surrounding states, he said.
The measure has some wording in the "fine print" that could even boost biodiesel blending further. The language notes that the state's agriculture, commerce and pollution control commissioners can decide to implement higher 10% and 20% biodiesel blending year-round if ASTM or federal standards are in place to address the technical issues surrounding very cold winters.
Before the new blending requirements can come into force on a specified date, the commissioners must publish a notice in the State Register, as well as inform the legislature, at least 270 days in advance of the requirement.
Biodiesel producers have had it rough over the last year, even in Minnesota. One of the state's four existing plants, the 30-million gal/yr Soymor plant near Albert Lea, suspended operations in March due to high feedstock costs while many others were said to be operating at reduced rates.
Meantime, sources in the state believe Minnesota Gov. Tim Pawlenty (R) will sign the overall bill containing higher biodiesel blending into law, perhaps quickly. They added that the governor first proposed a very similar measure last summer that would have boosted biodiesel blending requirements in the state as soon as this year.
Nova Biosource Reaches 1 Million Gallon Mark at Biodiesel Plant
Nova Biosource Fuels' biodiesel plant in Seneca, Ill., hit the 1 million gallon production mark during the first 25 days of start-up, the Houston-based company announced this week.
The 60-million gal/yr Illinois biodiesel plant, which uses low free fatty acid animal fats and vegetable oils as its feedstock, has been operating since March 31. "We are pleased with the progress at the Seneca, Ill., refinery," said Nova chairman and CEO Kenneth Hern.
At the Seneca plant, Nova entered into a 10-year feedstock agreement for animal fats with Lipid Logistics and ConAgra has been tapped to purchase and sell the biodiesel, as well as manage the truck, rail and barge transportation logistics for the plant.
As explained by Nova, the biodiesel plant's layout incorporates three process trains, each rated at 20 million gal/yr. Train one has operated at nameplate capacity and to date, the plant has produced more than 1.25 million gallons. "[W]e expect to begin working on Train Two by the end of the month and Train Three will follow shortly thereafter," Hern said.
Nova has also provided technology and was the construction contractor for a 20-million gal/yr biodiesel plant in Deforest, Wis., while in 2006, the company designed and built a 10-million gal/yr biodiesel plant in Clinton, Iowa, for Clinton County Bio Energy LLC. In September 2007, Nova acquired the plant for approximately $8.1 million.
Meanwhile, Nova provided an update on the cleanup and repairs at the biodiesel plant it built for Scott Petroleum. The 20-million gal/yr biodiesel plant in Greenville, Miss., which began operations in December 2007, experienced a mechanical pump failure, causing damage to the plant. Repair work on the plant "is proceeding as planned," and operations should resume in mid- June, Nova said.
Obama: Possible Changes to Biofuel Support Should Problems Arise
The "food versus fuel" debate over how much of a role biofuels have played in the recent
run-up of food prices seeped its way into the Democratic presidential campaign over
the weekend.
Speaking on NBC's Meet the Press on Sunday, Democratic Presidential Contender
Barack Obama said he would be willing to alter federal support for biofuels should serious problems arise.
"[W]e've got a serious food problem around the world. ... And so there are a whole host
of reasons why we're seeing problems with food supply. There's no doubt that biofuels
may be contributing to it," said Obama, a longtime biofuels supporter. "[M]y top priority is making sure that people are able to get enough to eat. And if it turns out that we've got to make changes in our ethanol policy to help people get something to eat, then that's got to
be the step we take," he added.
Obama did not specify what changes may be made to U.S. support for ethanol. However,
the Illinois senator said he also supports the eventual transition to cellulosic biofuels, which don't use food crops as feedstocks.
Changes to ethanol support are already being seen. The latest version of the farm bill that conferees have agreed to contains a 5ct/gal reduction to the 51ct/gal ethanol tax incentive.
Meanwhile, Obama's opponent, Sen. Hillary Clinton (D-N.Y.), agreed that the U.S. needs to move towards biofuels "in a way that doesn't contribute to boosting the prices at the grocery store," she told ABC's This Week, also on Sunday.
Clinton also advocated the transition to cellulosic biofuels. "What we need to do is accelerate the research into farm waste and into other cellulosic plant materials," she said. "Because,
I think, instead of using the corn, let's figure out if we can use the corn cob. Let's figure out
if we can use the corn stalk. Let's figure out what other kind of food ... waste we can use,"
she added.
The "food versus fuel" debate has been brewing for some time and has received much attention in the general media in recent weeks. The possible tie between escalating food prices and the increased use of biofuels has even caused Texas Gov. Rick Perry (R) to seek a waiver from U.S. EPA from the expanded 36-billion gal/yr renewable fuels standard and Connecticut Gov. M. Jodi Rell (R) to seek a temporary nationwide waiver of the mandate.
Biofuel Supporters: Oil Prices are to Blame for Higher Food Costs
Despite what has been reported in the general media, it is the rising price of oil -- and not biofuel -- that is the major driver for worldwide increases in food prices, several biofuel supporters announced today during a Washington, D.C., press conference.
"Corn prices do have a marginal impact on the retail price of food, but only a small amount," said National Corn Growers Association CEO Rick Tolman, speaking at the press conference along with representatives from the Renewable Fuels Association (RFA) and the National Farmers Union (NFU), as well as former Secretary of Agriculture John Block.
The representatives cited statistics from several studies to back up their point, such as
an analysis done last year by economist John Urbanchuk, which found that a $1/gal increase in the price of gasoline has three times the impact on retail food prices as a $1/bu increase in corn prices.
"I find it ironic that efforts to reduce our dependence on oil are being blamed for increased food costs when, in fact, record high oil prices are playing a far greater role in increasing grocery prices than ethanol production," said NFU President Tom Buis.
Beyond higher crude prices, food prices have been driven up because of surging global demand for grain and meat, hedge fund speculation on commodity markets, droughts in Australia, a weak dollar and agriculture policies around the world that have limited the productivity of farmers, explained Block, who was Agriculture Secretary during President Ronald Reagan's first term.
Of the list of factors, "ethanol and biofuels are nowhere near the top," said RFA President Bob Dinneen. "The focus on the role of oil in driving up food prices has been woefully underreported," he said, noting that since the beginning of the year, oil prices have increased 30%. "One tool -- perhaps the only tool -- that is helping to reduce these [oil] costs is ethanol," he said. "We cannot afford to jettison the promise of biofuels because of the manufactured hysteria of the phony 'food versus fuel' debate," he added.
"The bottom line is that this is a clever marketing disinformation campaign ... by those with deep pockets," said Tolman.
Since last year, ethanol has been blamed for a run-up in the prices of tortillas, tequila
and other foods, but the rhetoric doesn't match up to the facts, Buis explained. For example, ethanol was blamed for the run-up in tortillas in Mexico, but those are made out of white corn, not the yellow corn that U.S. farmers grow, he said. Breweries blamed ethanol for having to raise the price of their beers, but the alcohol is made out of rice and barley, not corn, he said. Additionally, some U.S. stores have put a limit on how much rice consumers can purchase, blaming ethanol for the shortage, when in fact the stores are limiting specialty rice from Thailand and India, which are being restricted because those countries are limiting their exports, he added.
Capitol Hill Continues to React
Meanwhile, legislative action regarding ethanol's potential role in driving up food prices continued. U.S. Rep. Jeff Flake (R-Ariz.) introduced legislation yesterday (H.R. 5911) that would immediately repeal the renewable fuels standard (RFS), remove the 51ct/gal ethanol tax credit and lift the 54ct/gal ethanol import tariff. "This is a classic case of the law of unintended consequences," said Flake. "Congress surely did not intend to raise food prices by incentivizing ethanol, but that's precisely what's happened. A jump in food prices is the last thing our economy needs right now," he added.
H.R. 5911, which has four co-sponsors (two from California and the remaining two from Georgia), was referred to the Ways and Means and Energy and Commerce Committees.
According to Flake's spokesman, the congressman is currently "moving ahead with
stand alone legislation, but he may look for other vehicles to move all or portions of
this legislation."
Flake joins several other lawmakers who have spoken out against biofuels' role in the run-up in food prices. U.S. Sen. Kay Bailey Hutchison (R-Texas) has indicated she plans to soon introduce legislation that would freeze the RFS at current levels (approximately 9 billion gallons for this year) and Sen. James Inhofe (R-Okla.) said the RFS needs to be suspended.
"Like Senators Hutchison and Inhofe, Congressman Flake is a longtime opponent of efforts to replace fossil fuel with clean-burning, homegrown, cost-effective renewable fuel such as ethanol, and as such, his legislation is more of a PR gimmick than a meaningful contribution to our energy security problems," responded American Coalition for Ethanol Executive Vice President Brian Jennings. "If Congressman Flake's legislation were to pass, which is highly unlikely, it would have the effect of dramatically increasing pump prices, which are already at record highs, by reducing the amount of fuel ethanol available," he added.
Speaking at today's press conference, Dinneen said he didn't expect to see an erosion of public policy support for biofuels. "They [Congress] understand we have to do something to reduce our dependence on oil, and they also understand that if they take our legs out from underneath the [ethanol] industry today, the ability to build a cellulosic industry will be greatly undermined," he said.
Last week, Texas Gov. Rick Perry (R) submitted a waiver request to the U.S. Environmental Protection Agency (EPA) for a one-year reprieve from the RFS. Earlier this week, Flake wrote to President George W. Bush, asking him "to direct EPA Administrator Stephen Johnson to begin the process of waiving the [RFS] standard in whole and as quickly as possible."
The EPA has 90 days from receipt of the waiver request to make a decision. If granted, Dinneen said it wasn't clear whether refiners would halt using ethanol in Texas, or would continue blending the fuel for its octane value. "I do know it doesn't make any sense from
a policy standpoint and I would hope the administration and EPA denies the waiver
request," he added.
'Food vs. Fuel' Having Real-World Impact on Biofuel Policy
The "food vs. fuel" debate, until now largely an academic discourse, has
begun to take
root in the public policy arena, threatening to mire or perhaps
even choke off ethanol expansion plans.
Texas Gov. Rick Perry's (R) request last week for a 50% one-year waiver from
the federal Renewable Fuels Standard (RFS) is the latest sign of public dismay
over rapidly rising food and feedstock prices he says are tied to increased
biofuels mandates. Last August, Gov. Perry withdrew the state's 20ct/gal
biodiesel producer incentive, citing similar concerns.
Last week, a Virginia state lawmaker asked Gov. Tim Kaine (D) to press the
U.S. Environmental Protection Agency (EPA) for an RFS waiver. Gov. Kaine
declined to make the request but admitted that ethanol has played a role in
rising food prices.
The energy bill signed into law last December called for a five-fold
increase in the use of biofuels to 36 billion gal in 15 years. And the European
Union in considering its first biofuel mandate, calling for mandatory blending
of 10% of transport fuels by 2020.
It's uncertain how the growing debate will impact biofuel initiatives now
being debated in states such as California, Florida and Washington state.
Ethanol and biodiesel backers have hit back, suggesting that rising
transportation fuel and labor costs have more to do with the higher food prices
being paid by consumers than does the cost of corn and soybeans.
According to the Bureau of Labor Statistics, the average grocery bill has
gone up less
than $2 since 2005 despite the increase in corn prices, says
National Corn Growers Association CEO Rick Tolman. Farm inputs are just 19% of
the consumer's food dollar, he recently told the Society of Independent
Gasoline Marketers of America, whereas labor accounts for 38% of the cost of
food.
Tolman insists there'll be enough corn to meet traditional ethanol's 15-
billion gal piece of the new RFS by 2022. However, more and more of that crop
will end up in vehicles' fuel tanks. The Department of Agriculture expects
ethanol will use 25% of corn supplies this year, up from 20% last year and just
6% in 2000.
Expect more pushback from the biofuels community. Recently, Aventine CEO Ron
Miller warned that ethanol producers and suppliers need to do more to stay
ahead of the
food cost debate.
The debate has uncoupled biofuels producers from one of their traditional
allies: environmentalists. Green groups have raised the additional concern of
whether traditional, "first-generation" ethanol and biodiesel production emits
excessive greenhouse gases and are accelerating deforestation.
Ethanol-related food protests occurred last year in Mexico, Italy, Pakistan
and Indonesia, according to the Earth Policy Institute. Three people were
killed and 31 injured during a food price-related stampede in China. Recently,
the prime minister of Haiti was dismissed after food riots broke out on the
Caribbean island. The price of rice has gone from $318/metric ton last year to
$950/metric ton recently.
Last year, the International Food Policy Research Institute said "biofuel
production currently adversely affects the poor through price-level and price-
volatility effects," noting that in the past seven years, butter and milk
prices have tripled and poultry prices have almost doubled. The United Nations'
Food and Agriculture Organization predicted late last year that biofuel
production would increase food costs 10-15% if current mandates remain in place.
Even the loudest critics of biofuel policy can't lay all of the increase at
the feet of biofuels. Like nearly every other commodity, wheat, corn and rice
prices have risen with increased interest from investors, seeking a safe haven
from the weak U.S. dollar.
The ethanol community may feel frustration over what it perceives as a media
feeding frenzy over food vs. fuel issues that threatens to overrun science.
However, the refining community, perhaps still smarting from the demise of
MTBE
spurred by media reports of potential drinking water pollution, may be
feeling the irony
of tables turning.
Groups Call for Standards to Boost Biofuels Globalization
Differing policies and standards among the U.S., European Union and Brazil are potentially handicapping the ability for biofuels to freely circulate among the regions, said participants in a recent international conference.
Participants from the European Commission, European Committee for Standardization (CEN), the U.S. National Institute of Standards and Technology (NIST) and Brazil's Instituto Nacional de Metrologia, Normalização e Qualidade Industrial (INMETRO) found that the regions' differing and sometimes conflicting standards for characterizing the composition and properties of biofuels is hindering more efficient global biofuel markets.
To address the situation, a task force of experts from standards developing organizations (SDOs) compared specifications in existing standards used globally for pure bioethanol
and biodiesel.
Among their findings:
--More than half of the ethanol specifications the team reviewed are aligned, and all but one of the remaining specifications could be aligned in the short term.
--One third of the continents' respective biodiesel specifications are compatible, and many of the remaining differences could be handled by blending various types of biodiesel to create an end product that meets regional specifications for fuel quality and emissions.
Variances among the standards are a consequence of market developments, climatic conditions in each country and region and feedstock variances, the report concludes.
It also suggests that water content standards vary significantly among the three governments, primarily with regards to the ethanol concentration permitted in gasoline. The EU currently allows up to 5% ethanol and has the lowest limit of 0.24%, while the U.S. has the highest limit of 1.0% and Brazil has no maximum water content in its specifications.
The report also found that other variations in specifications are simply the result of different measurement procedures and methods. Therefore, NIST and INMETRO are collaborating to form joint measurement standards for ethanol and biodiesel to complement the efforts of
the SDOs.
Among their initiatives are creating certified reference materials for developing and testing ethanol and bio-diesel, and developing analytical measurement methods for source identification to determine whether a fuel comes from a renewable or nonrenewable source. This work is scheduled to be completed by the end of 2008.
The three governments are members of the International Biofuels Forum (IBF) launched in March 2007 to promote the sustained use and production of biofuels around the globe. They plan to engage other IBF governments in future work. The SDOs will also seek to involve their counterparts in the other IBF member countries -- including China, India and South Africa -- in the effort to make biofuels standards compatible worldwide.
The report concludes that further aligning existing standards and specifications where necessary from both a technical and trade perspective will help establish internationally compatible standards for biofuels that should facilitate trade, improve efficiency of biofuels production, and promote innovative energy resource development and economic security.
The full report can be downloaded at www.nist.gov.
World Energy Founder Speaks to Biodiesel Industry's Future
Part one of a series
Global biodiesel supplier and producer World Energy is celebrating its 10th anniversary this month. OPIS took the opportunity to speak with World Energy Founder, President and CEO Gene Gebolys to get his thoughts on the company's accomplishments, as well as his thoughts on the challenges that face the overall biodiesel industry.
OPIS: World Energy is celebrating its 10th anniversary. What has changed in the decade since your company began operations?
Gebolys: I actually started in the biodiesel industry in the summer of 1996 and the company started in April 1998. There was basically no industry at that time, so we -- and a very small industry around the world -- were making something out of nothing.
OPIS: How has the level of regulatory and legislative support changed since that time?
Gebolys: World Energy was founded right about the time that the first DOE modification was made to allow biodiesel used in technology for EPAct compliance in 1992. That was the very first reason that somebody would use biodiesel in a diesel engine. Before that, there was just no reason to do it, and support has come in various forms since. At the federal level, we had the Commodity Credit Corporation (CCC) program. I don't think we would have had a biodiesel industry without the CCC program. And then we have the $1/gal blenders' tax credit and various initiatives at the state level. The level of support has been spotty at times. Obviously, we're in a tricky time right now, with an uncertain future.
OPIS: What do you foresee in the next 10 years for the industry as a whole and for World Energy in specific?
Gebolys: We work in a fickle industry. There have been pretty significant swings in commodity prices, both on the energy side and the agriculture side. I expect a fair amount of volatility to characterize the market for most of the next 10 years. Obviously we're in an environment now that is very much exposed to international factors. We're increasingly exposed to many governments all over the world on many levels all day every day, and I would expect that there is going to be a greater awareness of how this industry plays in that international arena, but there's going to continue to be a lot of volatility. As such, the companies that are going to be strong over the next 10 years are going to be those that are best in dealing with an environment of constant change. We have been building our company for 10 years to be very, very adaptable and one that always keeps the customer at the center of our objectives. Everybody talks about being customer focused. In our case, that means you have to be reliable, scalable both up and down and you have to have consistent quality. In an environment of dramatic volatility, that is hard to do. I think if we can stick to our knitting, World Energy is built to do very well in such an environment, as least as we see it continuing to play out for the next decade.
OPIS: Do you expect to expand your biodiesel operations any time in the near future, whether that means expanded production at current facilities or new plants?
Gebolys: Right now, it's obvious there were way too many plants built. Many of those were built in the wrong places. In Iowa, for example, you have a situation where manufacturers would have to import soybean oil into Iowa to run all the plants that were built. There were way too many plants built in Iowa. The same could be said for the Southeastern part of Germany or Southeastern Asia. In an environment where a particular part of the supply chain is being oversupplied, the returns to that segment of the supply chain go flat or negative, and that's what we're seeing now.
Are we enthusiastic about jumping into supply in something that is already oversupplied? No. But over time, the strongest companies will be those that are balanced in the supply chain. We currently operate one biodiesel plant [in Florida]. Over time, I'm sure we will operate more than we currently do. There is going to be some return to manufacturing. There has to be in an industry that has had narrow returns to manufacturing for many years running. So yes, as there is some rationalization of the manufacturing side of the biodiesel industry, we will play a more active role in direct production. At this point, the economics aren't good.
OPIS: Does World Energy have any specific plans over the next year to build plants?
Gebolys: We certainly wouldn't build a plant, nor do I think it makes any sense for anybody else to. There's too much capital that has already been deployed. If you want to pay a dollar on a dollar for a plant, virtually anyone in America and most people in Europe will sell you their plant. If you can buy a plant for replacement value today or much better than today, why would you build one, when all you are doing is extending your technology risk out 18 months or however long it takes you long to get built?
OPIS: As you know, the current U.S. biodiesel industry is grappling with challenging economics, as a result of high feedstock and diesel prices. With those high feedstock prices, many U.S. producers have reduced output at their plants and are sending much of their product to Europe. What solutions do you see to help with the current climate? Do you see other companies following in your footsteps and perhaps upgrading the quality of its glycerin byproduct?
Gebolys: Let me take the second part of your question first. If you're going to be in this business, whether you like it or not, you're in the feedstock business, you're in the methanol business, you're in the glycerin business and you're in the biodiesel business. You can't be in one component without being in the others. There are essentially five boxes of value for you -- methanol, feedstock, production, trading/distribution and glycerin. If you're in one of those, you're in the others. And so you have to optimize your position in all of the boxes.
On the first part of your question, the current biodiesel production climate is rough. The disappointing thing for a lot of participants in this industry is to have a plant in which there are little to no returns on manufacturing. So if your only position in the industry is in the manufacturing part, I don't have any great words of wisdom, other than to say, "Where you're losing money, you should do less of it. Where you're making money, you should do more of it." If people are finding ways to make money in manufacturing, it's generally from a unique ability to work with the more difficult feedstocks. There's nothing much we can do, other than to press our political agenda to make sure we can get as much public support as possible. Beyond that, commodity prices are doing what they are doing and until they swing differently, there's not a whole lot to be done.
Part two of a series
Global biodiesel supplier and producer World Energy is celebrating its 10th
anniversary this month. OPIS took the opportunity to speak with World Energy
Founder, President and CEO Gene Gebolys to get his thoughts on the company's
accomplishments, as well as his thoughts on the challenges that face the
overall biodiesel industry.
Yesterday, Gebolys reviewed how the biodiesel industry has evolved in the
past decade and began to reveal some of his company's strategy for growth
during very tough times for the biodiesel industry.
OPIS: Do you see an opportunity for a shake-out in the industry, where
smaller, less profitable operations will either close down or be acquired by
larger, more profitable companies?
Gebolys: That is a certainty. Any industry that has had as much
dispersement of investment as has this industry, you have to see consolidation.
For example, if you look at the microbrew industry of 15 years ago, the vast
majority of those little breweries that went under, they didn't have sufficient
scale to participate efficiently in the supply chain of beer. The way this
industry gets product to the market is highly inefficient, so ultimately you
will have a biofuel industry that is dominated by a few players. Those players
will be very strong throughout the supply chain at sourcing feedstock,
distribution, manufacturing, glycerin refining and really efficiently capturing
value in each step of the supply chain.
OPIS: Do you hope that World Energy is one of those few players?
Gebolys: Yes. We have been at it for 10 years, trying to position ourselves
to do that. We don't fancy ourselves a takeover target. The fact that we have
been at this for 10 years means we have skinned our knees over the years. While
that hurt, there's an awful lot of learning that was acquired over that time as
well. I would think World Energy has as fair a shake as anybody to be an
important global player over the next 10 years.
OPIS: As you know, the biodiesel industry's $1/gal tax credit is due to
expire at the end of this year. What efforts are underway to get that extended
and for how long? And could the biodiesel industry operate without the tax
credit in the near future?
Gebolys: I'll answer that from my role as regulatory chair for the National
Biodiesel Board (NBB). There has been a full-court press going for quite some
time to extend the $1 per gallon biodiesel blenders' tax credit and the small
producer tax credit. That has been our number-one goal for many years now, so
we don't have a period where we have to muddle through without one in place. It
is absolutely essential to our industry that these incentives continue. As to
your question about what happens if the tax credit expires, we will have major
problems on our hands if that occurs. We'd be swinging without a net. With
agriculture prices where they are relative to energy prices, we don't have a
viable proposition to our customers without that $1 per gallon tax credit. If
we don't have the tax credit, we're going to try to hang in there as long as we
can until we do have it. But the American biodiesel industry is highly
dependent on it.
OPIS: Last year, NBB began a campaign against the ruling that renewable
diesel producers receive the same tax credit as conventional biodiesel
blenders. Has that issue been resolved?
Gebolys: It hasn't been resolved, but I think we're hopeful it will be. I
don't think we have an ax to grind with renewable diesel, with them going out
and raising their own issues with policymakers and doing their own work. I
think our concern is that they're piggybacking on our work and taking public
policy that was never intended to deal with them and hijacking it. If they want
to raise awareness on their own strength and weaknesses and pursue public
policy, we think that's certainly well within their rights, but to hijack ours
is not something that we think is appropriate.
Stakeholders Seek Tweaks to FTC Biodiesel Pump Label Proposal
Judging by the majority of comments the U.S. Federal Trade Commission (FTC) received last week on its proposed biodiesel labeling law, the agency has a cross-section of support for the initiative, but several tweaks need to be made, including limiting the definition of what fuel is labeled and changes to the explanation of fuel percentages.
As part of the 2007 energy bill, the FTC was required within six months of the bill's passage to formulate biodiesel pump labeling requirements. Under the energy bill, labeling would not be needed for pumps with no more than 5% biomass-based diesel or biodiesel blends that also meet ASTM D975 diesel specifications. Blends of 5%-20% would be labeled "contains biomass-based diesel or biodiesel in quantities between 5% and 20%." For blends with more than 20%, the label would say the fuel "contains more than 20% biomass-based diesel or biodiesel."
The FTC sought comment not only on the overall labeling requirements, but on a handful of questions, such as: Should the rule allow for a non-specific percentage designation for biodiesel blends over 5% and no more than 20%?; Should the rule require a specific designation for biodiesel blends over 20%?; and, is purple an appropriate background color for the biodiesel blend and biodiesel label?
The comment period ended April 7 and judging from the 12 comments received, the proposal has much support behind it, but changes are warranted. Many of those who submitted comments said the labels should treat biodiesel and biomass- based diesel separately, since they are two different fuels. "ADM [Archer Daniels Midland] feels adding the wording 'biomass-based diesel' to the pump label will only lead to confusion in the consumer marketplace," the agri- business company wrote in comments. "Biodiesel is an EPA-registered fuel that has a well known and accepted performance specification in ASTM D6751. Other biomass-based diesel components are currently being developed, but none of them are EPA-registered or are included in the warranty statements of the OEMs [original engine manufacturers]," the statement noted. Until biomass-based diesel is registered with EPA and gains OEM approval, "they should not be grouped with biodiesel," ADM added.
In its comments, the National Biodiesel Board (NBB) was in similar agreement, but was much more frank. "'BXX' is the currently approved designation for biodiesel and should be reserved for biodiesel blends. It describes a biodiesel blend and it should not be used to label 'biomass-based diesel'....Biomass-based diesel is not a fuel type, will never be approved as a fuel by EPA, nor will it ever receive an ASTM specification," NBB said. "Additionally, allowing biomass- based diesel to be labeled as 'BXX' could have a serious impact on engine performance, warranties and consumer acceptance," NBB added.
The Alliance of Automobile Manufacturers (AAM) also agreed that biomass-based diesel should not be included in the same label as biodiesel.
The other hot topic among the commenters was the fuel percentages required on the labels. In its comments, BP suggested blends of 5%-20% be labeled "'contains biomass-based diesel or biodiesel in quantities between 6%- 20%.' We feel this more closely aligns with the direction that the ASTM is taking in their specification development for biodiesel blends. Since most engine manufacturers are allowing up to 5% biodiesel in their warranties, no label should be required for 5% or less," BP added.
To ease the confusion on consumers, AAM and the American Petroleum Institute suggested listing just the maximum amount of fuel blends ("contains up to 20% biodiesel"), while nearly all of the comments submitted requested that for blends above 20%, the specific percentage be cited.
Meanwhile, the American Trucking Association suggested a "tiered labeling system" for blends in 5% increments, which would "strike the appropriate balance between a consumer's need to know and a retailers' obligation to label."
Several commenters also weighed in on FTC's plan to use purple as a background color for the label, asking that the agency coordinate its efforts with other affected parties. ADM explained that several states have already designed and are prepare to require their own labels, which use a blue background. "We support the efforts of these organizations that recommend the use of a blue background in the pump label," ADM said.
Similarly, NBB noted how at least one state association in Illinois "has spent hundreds of thousands of dollars developing logos, billboards, truck wraps and other infrastructure in anticipation of that state's labeling requirements, which go into effect this summer. We urge you to use a similar label at the federal level, to encourage consistent in the marketplace," NBB said. Therefore, the labeling requirements should be more general when referring to a specific color, NBB added.
Additionally, AAM recommended the inclusion of the text "consult manufacturer fuel recommends" on whatever label is implemented.
NBB Supports Ending 'Splash and Dash,' but Against Shadegg Language
The National Biodiesel Board (NBB) continues to "vehemently oppose
the 'splash and dash'" loophole that enables foreign product to essentially
receive the same $1/gal blending tax credit as domestically manufactured
biodiesel, but is opposed to at least one element in legislation on the topic
that Rep. John Shadegg (R-Ariz.) introduced late last week.
The "splash and dash" loophole allows B100 product to be sent to the U.S.,
blended with a small amount of diesel and then receive the same $1/gal blending
tax credit as U.S.-made biodiesel, before then being shipped off to European or
other markets.
Shadegg's bill, H.R. 5713, would close the loophole, but would also prevent
U.S.-produced biodiesel that is exported from receiving the $1/gal tax credit,
while allowing foreign-made biodiesel that is consumed in the U.S. to receive
the tax credit. "The congressman does not believe American taxpayer money
should be used to subsidize fuel costs in foreign countries," explained Shadegg
spokeswoman Abby Winter on Friday when asked about the bill's language on U.S.
exported biodiesel. "Furthermore, providing U.S. companies the tax credit for
fuel exports out of the U.S., while not providing it to foreign companies would
potentially violate World Trade Organization (WTO) regulations," she added.
NBB is opposed to the 'splash and dash' loophole and is glad to see Congress
addressing this issue, said NBB Vice President of Federal Affairs Manning
Feraci. "With that said, NBB believes that the tax incentive's current
structure is WTO consistent, and the biodiesel industry is concerned that H.R.
5713 changes current law upon which taxpayers have relied, harms efforts to
maintain the production infrastructure needed to meet the new renewable fuels
standard requirements and unduly restricts the ability of U.S. biodiesel
producers to compete with foreign biodiesel producers," he added.
A second biodiesel source reiterated his opposition to the bill. "Providing
tax incentives for U.S.-made products that are then imported is done every day,
in every business sector," said biodiesel consultant Tommy Foltz. "We even
export petroleum diesel, and you can't say the petroleum industry doesn't
receive incentives. Why should the biodiesel industry be held to a different
standard, he asked. "Further, exporting U.S.-produced biodiesel is not the
definition of 'splash and dash,' and it should not be part of this, or any
other bill," he added.
Sources familiar with this bill say they don't expect it to receive much
support and believe Shadegg was not being pushed by any biofuel interests to
introduce the legislation.
Little Feedback Received on Biodiesel Labeling Proposal
Commenters still have several more hours to weigh in on a proposed rulemaking that would require retail pumps with more than 5% biodiesel to be labeled, but there appears to be very little interest in this initiative, at least according to initial responses.
Under Section 205 of the Energy Independence and Security Act (EISA) of 2007 -- more commonly known as the 2007 energy bill -- the Federal Trade Commission (FTC)
was required, within six months of the bill's passage, to formulate biodiesel pump
labeling requirements.
Under the energy bill, labeling would not be needed for pumps with no more than 5% biomass-based diesel or biodiesel blends that also meet ASTM D975 diesel specifications. Blends of 5%-20% would be labeled "contains biomass-based diesel or biodiesel in quantities between 5% and 20%." For blends with more than 20%, the label would say the fuel "contains more than 20% biomass-based diesel or biodiesel."
The FTC began its comment period on March 4, ending at the close of business
today, April 7.
According to information on the FTC's website, it appears only one comment has been received so far -- which doesn't appear to really address the topic at hand. Jeff Cohan, who did not identify himself further, wrote in a March 11 notice to alert FTC officials to a book review in that week's New York Times, which described how auto manufacturers can use flexible fuel vehicles and conventional vehicles using biofuels to help meet fuel efficiency requirements. "Is this accurate, and is this what this proposal seeks to address," he
asked. "Thanks. I have no business interest in this information, it is just personal
curiosity," he added.
However, commenters traditionally wait until the last day and the last few hours to submit responses, so the FTC is not concerned, an official with agency told OPIS. Additionally, there are no current plans to extend the deadline time frame, the official added.
For more information, visit www.ftc.gov.
Congressman to Introduce Bill Closing 'Splash and Dash' Loophole
U.S. Rep. John Shadegg (R-Ariz.) is expected in the near future -- possibly later today -- to introduce legislation closing up the so-called "splash and dash" loophole that rankled U.S. biodiesel producers when it allowed foreign product to essentially receive the same $1/gal blending tax credit as domestically manufactured biodiesel.
The "loophole" allows B100 product to be sent to the U.S., blended with a small amount of diesel and then receive the same $1/gal blending tax credit as U.S.-made biodiesel, before then being shipped off to European or other markets.
"Everyday, millions of Americans are unknowingly subsidizing the fuel cost in foreign countries due to a loophole in the U.S. tax code. Please join me in correcting this error by supporting the Splash and Dash Correction Act," Shadegg wrote in a March 28 "Dear Colleague" letter making its way around Capitol Hill.
"The Splash and Dash Correction Act corrects this loophole by only allowing those fuel mixtures made for consumption in the United States to be eligible for the tax credit," Shadegg wrote in the letter.
A similar effort was included in the House-passed energy tax package (HR 5351), but that package is languishing in the Senate, where there aren't enough votes to stave off a veto threat from the White House.
A preview of the bill text was unavailable by presstime, but the language included in HR 5351 treated closing the loophole as a technical correction and would deny the tax credit retroactive to the enactment of the initial biodiesel tax credit, from October 2004, a biodiesel source familiar with the issue explained.
The National Biodiesel Board (NBB) is aware of the "splash and dash" issue and "is vehemently opposed" to the loophole, said NBB Vice President of Federal Affairs Manning Feraci. "As you can see, there is no energy or tax policy justification for this sort of transaction. Our industry has been working on an ongoing basis with both Congress and the administration to remedy this problem," he added.
However, it should be noted that many U.S. biodiesel producers, looking to overcome challenging market economics, use the provision to also send what is essentially a B99 blend at cheaper prices to European or other locations -- which has in turn irked European biodiesel producers.
Shadegg kept his interest in this issue under wraps, waiting until only yesterday to publicly announce his intention to introduce the bill. During the House Select Committee on Energy Independence and Global Warming's hearing on gasoline prices and integrated oil company profits, Shadegg took several minutes of his allotted time to ask the five oil company executives whether they were familiar with the "splash and dash" loophole.
In response, ExxonMobil Senior Vice President Stephen Simon made a broad comment about renewable energy not needing incentives, while Chevron Vice Chairman Peter Robertson was the most specific, saying he was aware of the loophole, but that his company was not taking advantage of the provision. "I think your characterization is right," he told Shadegg. "I hope that kind of loophole can be closed and it makes no sense to subsidize the foreign use of our [U.S.] biodiesel," Robertson added.
Also during the hearing, Shadegg said he expected Sen. Chuck Schumer (D-N.Y.) to introduce a companion bill in the Senate, but it's not clear when that would occur.
PetroSun to Begin Production April 1 of Algae-to-Biofuels Farm
Biofuels company PetroSun Inc. is on schedule for its initial algae-to-biofuels farm in Texas to begin production on April 1, the company announced
this morning.
Subsidiary PetroSun Biofuels will operate the 1,100-acre salt water open
pond system on the Texas Gulf Coast, near Harlingen. According to PetroSun, "[t]he company will extract the algal oil onsite and transport the raw product via
barge, rail or truck to company owned or joint ventured biodiesel refineries,"for the fuel's feedstock. "The residual algae biomass will be converted into
ethanol or other products," the company added.
The Texas algae farm will initially produce 4.4 million gal/yr of algal oil
and 110 million pounds/yr of biomass. The algae farm "will be expanded in the
future," the company noted, but no further specifics were provided.
PetroSun plans future farms and extraction plants in Alabama, Arizona,
Louisiana, Mexico, Brazil and Australia throughout this year, although no
further details on timing were provided.
PetroSun "plans to construct or acquire additional plants in the Gulf Coast
region that are reachable via barge up the Mississippi River and its
tributaries including the Red River," the company said today. "The previously
announced Bridgeport, Ala., refinery will receive algal oil feedstock from this
distribution program," the company added.
Meanwhile, last month, PetroSun inked a deal to acquire half the interest of
Fleet Biodiesel -- a company which is in the middle of buying an 82.5% stake in
Bridgeport, Ala.-based Eagle Biodiesel. Eagle Biodiesel assets include a
biodiesel plant, port access to the Tennessee River, a five-truck tanker fleet
and one retail biodiesel fuel station.
USDA Sees Less Soy Biodiesel, But No Letup in Feedstock Costs
U.S. biodiesel producers suffering under tight producer margins will make less and use less soybean oil going forward -- a half-year trend that government officials believe will not alleviate feedstock costs. In fact, government analysts reduced expectations for soybean stocks and upped soybean oil prices expectations for the current growing season.
Domestic soybean stocks at the end of the 2007-2008 season are expected to be 20 million bushels less than previously anticipated, to 140 million bushels, according the March World Agricultural Supply and Demand Estimate released yesterday by the U.S. Agriculture Department. But the agency also predicts an ongoing decline in the use of soy oil devoted to biodiesel production. "The U.S. Census Bureau has reported reduced biodiesel production from soybean oil for six consecutive months," noted the USDA, adding that there is also a declining share of total biodiesel production from soy due to higher prices of the feedstock.
While the USDA said it still anticipated a $10.00 to $10.80/bu range for soybean prices for the season, the same as it projected last month, it ratcheted up projections for soy oil prices. Soy oil is expected to range from 53cts to 57cts/pound, which is 5.5cts more than the agency predicted last month on both the low and high end of the range. At the midrange, that comes to a feedstock cost of around $4.125/gal for soy-based biodiesel. Soy oil cash prices in the Midwest, however, have recently topped 62cts/pound.
The latest Census Bureau report put domestic methyl ester use at a total 215 million pounds for January, which extended a six-month decline on such use that basically tracks soy devoted to biodiesel. That was down from the 223 million pounds of use reported in December, but despite the long decline still up about 28% over the same time last year when the bureau had it at 168 million pounds.
Meantime, the USDA said soy oil production gained over the last month because of a higher extraction rate. At the same time, soybean exports climbed 20 million bushels, to 1 billion bushels, in part due to more demand from China and fewer soybeans coming out of Brazil.
Internationally, world production of oilseeds was seen dipping slightly from previous projections, including lower soybean and rapeseed output. Soybean output dropped 200,000 tons, to an expected 219.8 million tons. World rapeseed output projected at 47.6 million tons was down 900,000 tons, according to the USDA.
The agency increased monthly projects for global corn supply in the 2007-2008 season, adding 3.9 million tons to last month's total but kept its expectations for the average farm price of corn unchanged, at $3.75 to $4.25/bushel.
FTC Issues Proposed Rulemaking on Biodiesel Pump Labels
Consumers have the next month to weigh in on a proposed rulemaking that would require retail pumps with more than 5% biodiesel to be labeled.
Under Section 205 of the Energy Independence and Security Act (EISA) of 2007- -more commonly known as the 2007 energy bill--the Federal Trade Commission (FTC) was required, within six months of the bill's passage, to formulate biodiesel pump labeling requirements.
Under the energy bill, labeling would not be needed for pumps with no more than 5% biomass-based diesel or biodiesel blends that also meet ASTM D975 diesel specifications. Blends of 5%-20% would be labeled "contains biomass- based diesel or biodiesel in quantities between 5% and 20%. For blends with more than 20%, the label would say the fuel "contains more than 20% biomass- based diesel or biodiesel."
"In response to this statutory directive, the Commission is proposing amendments to the Fuel Rating Rule (16 CFR Part 306) to incorporate these congressionally mandated labeling requirements," FTC said earlier this week in a notice of proposed rulemaking. "Although Section 205 of EISA furnishes precise, mandatory label language, the Act does leave the FTC with discretion to determine the specific size, layout and color of the required label, as well as to require any additional wording necessary to 'inform consumers of the percent of biomass-based diesel or biodiesel that is contained in the biomass- based diesel or biodiesel blend that is offered for sale,'" FTC noted.
"In one departure from existing requirements, we are proposing a purple background for all biodiesel fuel labels," FTC said. "The purple background is designed to allow retail consumers to distinguish biodiesel fuels easily from other fuels sold at retail pumps such as gasoline (yellow octane label) and E85 (orange label), and helps minimize the likelihood that consumers will use the wrong fuel in their vehicle," FTC added.
The FTC is seeking comment not only on the overall labeling requirements, but on a handful of questions, such as: What costs or burdens will the proposed requirements have and on whom?; What modifications should be made to increase their benefits to consumers?; Should the rule allow for a non-specific percentage designation for biodiesel blends over 5% and no more than 20%?; Should the rule require a specific designation for biodiesel blends over 20%?; and, is purple an appropriate background color for the biodiesel blend and biodiesel label?
All comments on the proposed rulemaking are due by April 7 and should be referred to as "Proposed Rule for Biodiesel Labeling, Matter No. R811005" when submitted to FTC. For more information, visit www.ftc.gov.
According to an FTC spokesman, there is no set timeframe for when the agency would implement the biodiesel labeling, since that would depend on what comments it receives.
World Energy Turns to Glycerin at Biodiesel Plant
U.S. biodiesel producers are still grappling with challenging economics brought on by high feedstock costs, but World Energy announced today it has found a way to boost profitability at its Florida biodiesel plant -- by upgrading the quality of its glycerin byproduct.
World Energy's Lakeland, Fla., biodiesel plant has been upgraded to produce kosher grade glycerin, the company announced. "Availability of kosher glycerin is limited," said World Energy Director of Commodities and Risk Management Jerry Petak, who will also oversee the company's glycerin operations. "This will help us meet the strong demand from our customers for this premium product," he added.
The move to kosher-grade glycerin "will allow the plant to run at a profit, even if it's not producing biodiesel," added World Energy spokesman John Kellogg, declining to quantify the financial benefits of such a move. Poor economics caused the 18-million gal/yr Lakeland biodiesel plant to halt production at the end of 2007, he noted, and a re-start isn't planned until those economics improve.
The upgrade at the Lakeland plant is a way to serve our customers in a tight kosher refined glycerin market, and keep the plant profitable at this time. When it is running, our Lakeland plant provides us with only a small portion of the biodiesel we supply," Kellogg added. World Energy is also a
biodiesel marketer, receiving the fuel through a number of offtake agreements.
World Energy has been refining glycerin at the Lakeland plant since the company acquired the facility in 2003, Kellogg noted. However, "[t]he amount we refined has varied because our customer demand has varied," he explained. "If customer demand and economics remain strong, we have the capacity to refine 10 to 12 million lbs. of kosher refined glycerin per year," he added.
The kosher certification is valid for one year, World Energy noted.
Glycerin is refined for use in high-end cosmetic products such as soaps, lotions and shampoos, World Energy explained.