The Bioeconomy Christmas: Uncle Sam puts $12B+ for biomass-based diesel, action on biointermediates, cellulosics, and small refinery waivers into the stocking this year

December 19, 2019 |

This week, Congressional leaders announced a five-year extension of the biomass-based diesel tax credit as part of a year-end tax extenders package.

As Christmas gifts go, the importance and value of this to the biomass-based diesel universe cannot be overemphasized.

No phase down

Unexpectedly, the five year extension of the blenders credits comes without a phase down of the credit value — it stands at the full $1.00 per gallon through the end of 2022.

The deal size

Renewable Energy Group in its Q3 financial results had emphasized that the credit was worth $237 million for 2018 and $213 million for first 9 months of 2019 to the company, Over five years, using a 2018-19 average production volumes, the renewal would be worth $1.242 billion over five years. The value to producers such as World Energy and Neste would also of immense importance to their respective expansion plans, though the value to each of those companies would be less.

Overall, the value to the US biomass-based diesel blenders would be approximately $12 billion. Enough to propel the industry to new and important investments in capital and technology to further decarbonize the US energy supply and provide more domestic energy production. Not to mention the impact for growers and waste feedstock owners across the US and their employees.

Not quite quite done

This is a budget deal and is subject to Congressional passage and White House approval, both of which are swiftly expected.

The background

After midnight on December 16th, an agreement was reached between U.S. Senate and House leadership following negotiations led by Senator Chuck Grassley to extend the tax credit retroactively for 2018 and 2019 and through 2022. The credit has been expired since December 2017.

More tax credits in the bill

The bill also included a 3-year extension of four key credits — that is to say, retroactively for 2018 and 2019 and through the end of 2020. The four credits are:

– Second generation biofuel producer credit (a/k/a the cellulosic ethanol credit)

– Alternative fuel mixture credit

– Alternative fuel refueling property credit

– Second generation biofuel plant property depreciation allowance

Huge progress on Biointermediates

The Advanced Biofuels Association has been leading a coalition on this issue. ABFA reports: “Biointermediates: The agreement includes the Senate’s language recommending EPA finalize a rule permitting the use of biointermediates as soon as possible and review renewable fuel pathways to ensure biointermediate and coprocessing methods qualify.”

The deal says, in full:

Biointermediates.—The Committee is aware that the Agency included provisions on the production, transfer, and use of biointermediates in its proposed rulemaking ‘‘Renewables Enhancement and Growth Support’’ [REGS rule].

The Committee notes that some stakeholders believe a multi-facility approach to biointermediates, allowing biofuel feedstocks to be produced, partially processed, or both at one or more locations and refined at another location, enhances feedstock and product flexibility, addressing the need for continued growth in the production of second generation biofuels.

Further, the Committee notes that the Agency receives renewable fuel pathway petitions that, despite meeting all of the other requirements under the regulations, are deemed ineligible due to the use of biointermediates as feedstock.

The Committee recommends the Agency finalize a rule permitting the production, transfer, and use of biointermediates in renewable fuel production, as soon as practicable, consistent with the biointermediates provisions included in the REGS rule, the record of the public hearing held on December 16, 2016, and public comments received in the docket associated with the proposed rule.

Further, the Committee recommends that the Administrator, consistent with the pathway provisions in the REGS rule addressing coprocessing, review the renewable fuel pathways so as to ensure the inclusion of biointermediates, including those coprocessed with petroleum to produce cellulosic gasoline, diesel, jet fuel, and heating oil, and revise the definition of cellulosic diesel to permit renewable fuel that is coprocessed with petroleum to qualify.

The Committee encourages the Agency to allow the use of either of the two methods for determining the renewable content of co-processed fuels currently found at 40 CFR 80.1426(f)(4). The Committee directs the Agency to provide a report on these efforts, including the number of renewable fuel pathway petitions approved during the fiscal year that use biointermediates and coprocessing.

Squashing down on small refinery waivers

Industry has been up in arms over an epidemic of small refinery waivers approved in the past 2 years by EPA. The budget deal may clamp down on the practice. In th original Senate committee report, it was stated:

Small Refinery Relief.—The Committee continues the directive contained in Senate Report 114–281 related to small refinery relief. The Agency is reminded that, regardless of the Department of Energy’s recommendation, additional relief may be granted if the Agency believes it is warranted.

The provision was stricken in the final budget deal.

Reaction from Stakeholders

“Passage of the biodiesel tax credit is much-needed good news in rural America,” said Iowa Renewable Fuels Association Executive Director Monte Shaw. “We thank Senator Grassley for working into the wee hours of the morning to ensure this crucial policy finally moves forward. This credit has long been a priority for the Senator, and as Chairman of the Senate Finance Committee he has shepherded it through to spark the growth of next generation biofuels.

“For nearly two years biodiesel producers have operated with great uncertainty. The absence of the tax credit harmed the financial viability of the biodiesel industry and threatened its future. Today’s bill provides a multi-year path forward for this young industry – boosting biodiesel production, securing jobs in rural communities, and enhancing greenhouse gas reductions.”

While Senator Grassley has fought for the past two years to reinstate the tax credit, part of the challenge to passage was making the credit a priority for House leadership.

“We thank Congresswomen Abby Finkenauer and Cindy Axne for working diligently among their colleagues in the House to build support for the credit and impressing upon their leadership just how important the biodiesel credit is to rural America,” Shaw said. “Iowans remain united behind a growing role for biofuels and today’s news provides a boost for Iowa’s economy heading into a new year.”

Kurt Kovarik, NBB’s Vice President of Federal Affairs, stated, “Today’s announced deal provides the policy certainty that the biodiesel industry has been seeking to support investments and continued growth of production. NBB and its members are grateful that Congressional leaders are providing a positive signal before the year’s end “On behalf of NBB members, I’d like to thank Senator Chuck Grassley and Representative Abby Finkenauer as well as many other senators and representatives from both sides of the aisle for their strong and consistent championship of our industry. I’d also like to thank the producers, soybean farmers, heating oil distributors, blenders, and others who have worked tirelessly to advocate for extension of the biodiesel tax credit. We will continue to work with our champions to get this legislation across the finish line before the end of the year.”

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