Cruel Summer

October 02, 2019

Print This Article Share it With Friends

by Ron Kotrba (Biodiesel Magazine) A series of unfortunate events this summer—all caused by U.S. government action or inaction—has led to a precarious situation in the biodiesel sector, but there may be a silver lining. -- ... The volume of SREs (small oil refinery exemptions) granted has exploded during the Trump administration, with 85 SREs approved to date for compliance years 2016-’18, equating to approximately 4.04 billion renewable identification numbers (RINs). In comparison, the EPA under President Obama approved only 23 SREs for compliance years 2013-’15, accounting for a combined 690 million RINs. Trump’s EPA approved 35 percent more SREs in one day—Aug. 9—than all the SREs approved by Obama’s agency. This from a president whose political base is rural America and who campaigned on upholding the RFS.

...

As that fateful August decision was announced, U.S. biodiesel producers entered the 20th month without the blenders tax credit—the longest lapse since the important incentive first went into effect in 2005. For five years, the tax credit was successful in helping grow the biodiesel industry before RFS2, the second installment of the RFS passed in 2007 that included advanced biofuels and biomass-based diesel whose implementation finally began July 1, 2010.

Unfortunately for biodiesel producers, the tax credit expired for the first time on Jan. 1, 2010, in what was to become the first of many expirations, with each lapse getting longer, and with each renewal becoming harder to secure. Retroactive repayments replaced forward-looking instruments to spur investment. It’s hard to say how many billions of gallons of domestic capacity this sector might have achieved, and how many greenhouse gas (GHG) emissions averted, if these two policies alone—the RFS and the blenders tax credit—were consistently applied together and implemented as the law intended. The closest, most recent example of this positive dynamic was 2016.

...

While 2016 was a good year, domestic producers were unable to fully realize this as imports from Indonesia and Argentina flooded the U.S., seizing approximately one-third of the market. In addition, renewable diesel imports from Singapore soared. As a result, the National Biodiesel Board Fair Trade Coalition initiated a long review process with the U.S. Department of Commerce and the U.S. International Trade Commission that it eventually won, establishing stiff countervailing duties (CVDs) against both nations in the antisubsidy trade case and equally severe antidumping duties in 2018. The measures halted imports of what the trade coalition effectively argued was unfairly traded biodiesel.

...

Amidst significant demand destruction that the agency had caused under the Trump administration’s relatively short tenure, the EPA proposed to stall the 2021 biomass-based diesel RVO at 2.43 billion gallons, the same as the RVO for 2020 set in late 2018. Under this scenario of rampant SREs being granted, a stalled RVO would be, in effect, a severe cut to the standard considering EPA has yet to account for its voluminous SREs granted hitherto. The U.S. ethanol and biodiesel industries had already been dealing with an inordinate number of SREs granted under the Trump administration, which were the subject of numerous lawsuits, complaints, calls for investigations and legislative action for quite some time. The questionable process in which the SREs are granted, the lack of estimations of SREs to be granted in RVO proposals, and the agency’s thumbing its proverbial nose at the idea of reallocating waived gallonage had all been taking its toll on biofuel producers. When it seemed like things couldn’t get any worse, and as soybean farmers endured a long and market-destroying trade war with China that eroded the U.S. soybean complex’s No. 1 relationship, on Aug. 9, the EPA approved its largest and most destructive set of SREs—31 in one fell swoop.

A week after the Aug. 9 SRE announcement, World Energy—one of the largest biodiesel producers in North America—announced it was halting production at three of its biodiesel plants in Georgia, Mississippi and Pennsylvania. “If anyone was still living with the delusion that this administration supported us, then this round of SREs was an unignorable wake-up call,” Gene Gebolys, founder and CEO of World Energy, tells Biodiesel Magazine. “The president made promises to uphold the RFS and then he made that decision to eviscerate it. We’ll get through this, but I am not sure the administration’s credibility will.”

...

Democrats regained control of the House, solidifying a more youthful, progressive contingent to the party whose No. 1 goal, ostensibly, is to act on climate change. A month after being sworn in, Rep. Alexandria Ocasio-Cortez, D-New York, introduced “The Green New Deal,” a framework to slash carbon emissions and avert what many Democrats label an “existential crisis.” The proposal has been characterized as ambitious and bold, and it could revolutionize the U.S. economy while upending the status quo in major sectors of power generation, transportation, construction and more. Republicans, who control the Senate, are not biting.

With the progressive, often urban Democrats in a political stalemate with the more rural, conservative Republicans, there should be overwhelming bipartisan support for the blenders tax credit. Yet it has remained lapsed for 20-plus months, despite both the House and Senate having introduced virtually identical legislation to reinstate the incentive. “It expired on the Trump administration’s watch when we had a Republican House and Senate,” says Finkenauer (Abby Finkenauer, D-IA), one of the freshmen class that makes up more than a fifth of the House. “I’ve made it my mission to reinstate it, and I’m working across the aisle for bipartisan and bicameral support.”

In April, Finkenauer introduced “The Biodiesel Tax Credit Extension Act,” a two-year extension retroactive to Jan. 1, 2018, through Dec. 31, 2019. “Grassley has a matching bill in the Senate,” she says. “It doesn’t matter what the party affiliation is, all should be supportive of this and I’m working really hard on getting this done.” She says the House ways and means committee is paying attention too, as they marked up a package that includes a three-year extension of the credit. “The time to act is now,” she says. “The uncertainty has a direct impact on the folks and communities in my district. Rural Iowa is being hit hard from the ongoing trade war with China and the SREs. With the low demand [for farm products] from the trade war, we need to get this done now.”

Congress grew accustomed to the normal process of dealing with tax extenders after the fact, according to Kurt Kovarik, NBB vice president of federal affairs.

...

It’s still unclear why, in a House controlled by Democrats strongly in favor of curbing climate change, a policy such as the blenders tax credit, which is proven to incentivize increased production and use of biodiesel—a fuel that reduces GHG emissions by up to nearly 90 percent compared to petroleum diesel—remains in limbo.

...

It’s a process of educating them. Many don’t know what biodiesel is. We are trying to convince them that there are achievable policies in the near-term they can act on to move the needle in the direction they want to go. The tax credit is very low-hanging fruit that’s right in front of them.”

On the other side of the aisle, Republicans who serve more rural, agriculture-oriented constituents should be rushing to reinstate the credit to provide relief to soybean farmers suffering from market destruction as the U.S. and China play tit for tat in a power struggle to shape the future of global trade. “I’ve been to Washington, D.C., seven times this year,” Rob Shaffer, chairman of the American Soybean Association’s transportation and infrastructure committee, tells Biodiesel Magazine. Shaffer is a farmer from El Paso, Illinois. “I would have been there eight times, but I was planting soybeans and burning B20 while putting my crop in. The expired tax credit is hurting a lot of folks. Between the trade war with China and no tax credit, the uncertainty is killing the industry.” In 2017, China was the top market for U.S. soybeans, accounting for $14 billion in sales, 61 percent of total exports and nearly one-third of total U.S. soybean production. “Now we’re sitting on 900 million bushels of soybeans,” Shaffer says. “It took 25 years to build this relationship, and it could take less than two years to destroy it.”

NBB CEO Donnell Rehagen says it’s not just biodiesel producers that benefit directly from the tax credit. “Downstream blenders and distributors get a piece of it,” he tells Biodiesel Magazine. “And because it’s been in place for such a long time, everyone expects it to come back. For nearly two years, biodiesel producers have been selling at prices that assumed the dollar in the equation. This is why we’re seeing plants closing and scaling back production—there’s not enough cash to keep that activity going.

...

A week after World Energy announced it was closing three plants, Kolmar Americas Inc. announced it was cutting production by half at its recently expanded 40 MMgy American GreenFuels plant in New Haven, Connecticut, starting in the fourth quarter.

...

Although progressive Democrats on the Hill are pushing for climate change policies, Republicans are reticent to move in this direction, particularly when the tone setter is a president who says climate change is a hoax propagated by the Chinese.

...

“We’ve got one priority,” Kovarik says. “Without achieving that one policy objective—without accounting for SREs going forward—then none of the other policies offered mean anything.” Rehagen says, “EPA can’t keep doing this. If it wants to grant SREs, that’s fine—but the volumes have to go back in. Otherwise there’s no process, no predictability and no certainty for us.”

Grassley told the White House that waived gallonage ought to be reinstated to make up for past mistakes. “But most important,” he says, “we need to be guaranteed the law will be followed. EPA cannot ignore what Congress implied.”

In a statement provided to Biodiesel Magazine by Sen. Amy Klobuchar, D-Minnesota, she says she, like others in Congress, has “fought to stop the misguided overuse of the small refinery waivers by the EPA, which … have resulted in the recent closure of … production facilities and the idling of others, directly affecting thousands of jobs. At a time when farmers and rural communities are struggling with low prices and ongoing trade disputes, the EPA should not be taking regulatory actions that reduce demand.”

While the industry awaits the pending deal from the Trump administration, many in Congress are acting to push for oversight or introduce legislation to prevent situations like the Aug. 9 SRE announcement from happening again. Finkenauer and others are asking for the Government Accountability Office to investigate EPA’s misuse of SREs. Legislation (H.R. 4385) introduced Sept. 18 by Rep. Rodney Davis, R-Illinois, would require EPA to account for SREs when formulating annual RVOs.

Meanwhile, biodiesel stakeholders have become frustrated with soybeans and biodiesel being marginalized in high-level discussions that revolve around corn and ethanol, despite the disproportionate impacts SREs have on the smaller biodiesel sector. READ MORE

Idled biodiesel producer holds hope for quick market turnaround (Biodiesel Magazine)

Biodiesel Producers Want Fairness (Biodiesel Magazine)

As billions flow to farmers, Trump administration faces internal concerns over unprecedented bailout (Washington Post)

TUESDAY TOPIC: Iowa farmers are caught in crossfire of Trump's trade war (Sioux City Journal)

Farmer confidence plunges as trade war expands (Fern's Ag Insider)

Congress returns amid farm dissatisfaction in farm country (Fence Post)

Trump trade war: Farmers are going to 'lose farms that they've had in their families for generations,' says Land O'Lakes CEO (MSN Money)

Farmers Sticking By Trump Even As Trade Wars Bite (NPR)

Republicans balk at 'outlandish' energy wish list (E&E News)

40 members of congress urge passage of biofuel tax extenders (Ethanol Producer Magazine)

Excerpt from Washington Post: Senior government officials, including some in the White House, privately expressed concern that the Trump administration’s nearly $30 billion bailout for farmers needed stronger legal backing, according to multiple people who participated in the planning.

The bailout was created by the Trump administration as a way to try to calm outrage from farmers who complained they were caught in the middle of the White House’s trade war with China. In an attempt to pacify farmers, the Agriculture Department created an expansive new program without precedent.

As part of the program, the USDA authorized $12 billion in bailout funds last year and another $16 billion this year, and Trump has said more money could be on the way.

But two Agriculture Department officials involved in the bailout program told The Washington Post they were worried the funding could surpass the original intent of the New Deal-era Commodity Credit Corporation, which is being used to distribute the money. The CCC, as it is known, had previously been used only to create substantially more limited programs.

...

As U.S. soybean exports have fallen, Brazil has stepped in and increased exports, worrying U.S. farmers that a global realignment has taken place that will be hard to reverse.

...

Close to three in 10 farmers feel the bailout payments will “not at all” make up for losses related to the tariff battle in 2019, according to an index calculated by Purdue University released this month. But about 70 percent said the bailout would either “completely or somewhat relieve” their concerns about the tariffs.

The bailout — criticized as disproportionately rewarding white and wealthy farmers, as well as some foreign-owned conglomerates — could face new scrutiny as the administration seeks to continue to rely on it. READ MORE