Biodiesel Update: Policymakers To Consider Important Choices on RFS, Biodiesel Blenders Tax Credit in Coming Weeks

In the coming weeks, policymakers on Capitol Hill and in the Obama Administration have important decisions to make regarding the future of biodiesel in the United States. As Congress considers whether to extend the biodiesel tax credit and who in the supply chain should be able to claim that credit (blenders or producers), officials at the Environmental Protection Agency (EPA) are expected to release by Nov. 30 annual biodiesel volume obligations for 2014-2017 under the Renewable Fuel Standard.

Biodiesel Tax Credit

In July the Senate Finance Committee proposed extending the biodiesel blenders credit retroactively through 2015, and beginning in 2016 converting it to a producers credit. NATSO opposes converting it to a producers credit and is actively encouraging lawmakers to pass a clean extension of the blenders credit through 2016. You can help with this effort by urging your elected representatives to extend the biodiesel tax credit in its traditional form as a blender credit, rather than converting it to a producers credit. 

Converting the credit to a producers credit would significantly diminish the supply of the product in the United States, making biodiesel less attractive for blenders, retailers, and consumers.  It would also inject a variety of complexities into blending economics and discourage many current blenders from continuing to buy, blend, and sell biodiesel.  

Although there is much uncertainty surrounding the 2016 credit, it is likely that the 2015 credit will be retroactively extended at the blender level. In light of this, many producers are offering B99, "blending" it with 1 percent diesel fuel to claim the credit for themselves.  

NATSO members who buy biodiesel are encouraged to negotiate the $1.00/gallon credit into their purchase agreements as the year comes to an end. Producers that do not sell the B99 product will not be able to claim the $1.00/gallon credit; this provides buyers with substantial negotiating leverage over producers as the year draws to a close.

Annual RFS Volume Mandates

EPA is expected to finalize the annual volume mandates under the RFS for cellulosic, biomass-based diesel, advanced, and total renewable fuels by Nov. 30. Earlier this year, EPA proposed volume obligations for 2014-2016, including biomass-based diesel obligations for 2017. Its action later this month will finalize that proposal. EPA's final rule is currently being reviewed by the Office of Management and Budget, which is typically the final stage before a rule is published.

The below chart reflects EPA's proposed numbers (all volumes are ethanol-equivalent, except for biomass-based diesel which is actual). NATSO filed comments with EPA on this proposal earlier this year urging the agency to, among other things, remain cognizant of the policy and economic factors that influence the biodiesel market and demand for that product. This would include whether the biodiesel tax credit is converted to a producer credit and the decrease in demand that would result from that policy shift. Those comments are available here.