U.S. biodiesel producers gain from tax reinstatement


, RIN integrity programs

By Janet McGurty, special to the Digest

U.S. biodiesel makers were big winners in the last minute tax bill passed in Washington at year
end, regaining the $1 per gallon tax credit which expired December 2011 and extending it to
the end of 2013, helping an industry where many small producers closed or cut back sharply on
production from financial woes in part due to getting a lower price for their product than their
larger competitors.

Since 2009, biodiesel production capacity has remained relatively steady at around 2 billion gallons a day, but the number of plants have been shrinking as smaller plants, with
less financial resources have fallen by the wayside, overtaken by bigger and better-funded
operations.

“This will help the small producers who are operating on a shoe string or not producing. This
will help kick start them,” said Wayne Lee, head of Lee Enterprises Consulting Group, the 
largest alternative fuels consultancy and partner with Genscape, the Kentucky-based energy
data monitor in its Genscape RIN Integrity Network which verifies the validity of each RIN.

All renewable fuel is assigned a RIN, which stands for for Renewable
Identification Number and is a way to track compliance by obligated parties like refiners.
Larger producers of biodiesel like Cargill and Archer Daniels Midland get a higher price for their RINs than the producers with smaller balance sheets. For producers outside of the largest, integrated tier, RINs can fetch anywhere from 5 to 30 percent less than full market value.

The price of a biodiesel RINs fell about 20 cents last Wednesday after the news, traders said, on
 expectations of increased and restarted production.

Early Thursday, biodiesel RINs made in
2012 were priced about 45 cents per RIN, well below the $1.45 record reached in May. 
Idle capacity in the biodiesel is evident in the U.S. government data. 

According to U.S. Department of Energy data, there were 107 biodiesel plants with a capacity of 2.1 billion gallons per year which produced between 71 and 100 million gallons per month of biodiesel in the first 10 months of 2012. 

In 2009, there were 122 plants capable of producing 2 billion gallons, according to government data.

A Clean Air Act amendment mandates obligated parties like refiners and
service stations use 1.28 billion gallons of biodiesel in 2013. Each obligated party has a volume
requirement for the amount of biodiesel they must use. If they don’t use the actual biodiesel
they have to buy RINs.

CAVEAT EMPTOR

A RINs fraud last year turned costly for more than 20 companies who unwittingly bought
false RINs and were fined by the Environmental Protection Agency. Most ended up settling
with the EPA for a total of $3.75 million, on top of the paying for the RINs in the first place, 
as well as paying to replace the initial fraudulent RINs.
Obligated parties like BP and Citgo paid $350,000 in fines for the 4 million and 7 million RINs 
they had already paid for.

The Environmental Protection Agency is mulling two different plans to regulate the RINs market. Sources familiar with the agency’s thinking said the EPA has come up with two
levels of protection in the form of two quality assurance plans (QAP) to assist obligated parties 
to in avoiding the costs associated with fake RINs by providing verification.

All RINs covered under QAP B provides an obligated party affirmative defense, which means 
the obligated parties are not liable for any fines but are responsible for RIN replacement. QAP A includes the additional comfort of replacement of the fraudulent RIN.

“If I were an obligated party and didn’t have third party verification, I’m not buying,” said Lee.

There are several verification programs are in the works but Genscape’s RIN Integrity Network, 
backed by its multi-billion parent company, the Daily Mail & General Trust, is gaining
 momentum among all producers, including smaller producers, who expect higher prices for their product.

“There was never a small, biodiesel producer problem with RINs fraud. Unfortunately, a lot of
the smaller companies became the whipping boys and suffered,” said Myles Standish, head of
 Newport Biodiesel in Rhode Island, a user of the Genscape program.

Genscape has taken its known expertise in monitoring refineries, pipelines and storage facilities
and put it to work in monitoring biodiesel plants. The program is configured for each biodiesel 
manufacturing facility, which makes less work for the producer to gather data for the EPA. Standish said Genscape came in last April and began a thorough assessment of his plant,
which can make 2 million gallons a year. By November, the assessment was 
complete and any obligated party will know that a RIN bought from Newport Biodiesel will be 
as safe as one from an Archer Daniel Midland or Cargill.

“We haven’t seen to many trades since then but in the end buyers will know that small
 producers will be able to complete with the larger producers with stronger balance sheets,” said
 Standish. “I am looking forward to the day of commodity parity among biodiesel producers.”