US biodiesel production likely to continue declining on lapsed tax credit

Author: Lucas Hall

2019/11/21

HOUSTON (ICIS)--US biodiesel production is likely to decline further if the lapsed $1/gal tax credit is not reinstated as part of the government's spending budget for the next fiscal year.

Without any certainty that the federal $1/gal tax credit will be reinstated, US biodiesel producers face extreme financial pressure to maintain operations.

The situation has grown more dire now that producers have exceeded the 2019 mandate as of late October/early November, with fully integrated producers heard to be operating at 50-60% across their plants, said one source.

The situation will grow in severity as the Environmental Protection Agency's (EPA) statutory 30 November deadline for finalizing its 2020 Renewable Fuel Standard (RFS) production targets approaches.

Although the EPA is expected to increase the 2020 statutory biodiesel fuel volumes to account for the volumes lost as part of the small refinery exemptions (SRE) granted this year, biofuels players argue the increased RVOs are not enough.

Without the tax credit, the biodiesel sector argues the proposed increase in biodiesel volumes from 2.1b gallons to 2.43b gallons--the volume the EPA is expected maintain through 2021--is not enough to sustain the market unless the government retroactively reinstates the tax credit for the past two years and reallocates the volumes lost from the small refinery exemptions (SREs) granted for 2018.

The situation came to a head toward the end of the summer after the EPA granted 31 small refinery biofuel waivers for 2018, prompting outcry from the biofuels sector, including ethanol and biodiesel.

Under the RFS, the waivers grant temporary exemptions to refiners and blenders if they can demonstrate that compliance with the renewable volume obligations (RVO) would cause the refinery to suffer disproportionate economic hardship.

At least 10 biodiesel plants have officially closed or slowed production, with 7 more heard to have followed suit since the start of the year.

The 10 plants that have officially closed or slowed production represent approximately 10% of the total US nameplate capacity of 2.553b gallons, according to the US Energy Information Administration's first annual biodiesel production capacity report released earlier this year.

In the meantime, further plant closures should be expected through the winter low season pending a decision regarding the tax credit.

Biodiesel, which is derived from vegetable oils or animal fats, is used as fuel in diesel engines.

Focus article by Lucas Hall