The EIA recently reported that U.S. biodiesel and renewable diesel imports increased by 61% in 2015. The primary incentives for U.S. diesel fuel Blenders and Marketers to increase imports of biodiesel or renewable diesel are complying with the latest EPA Renewable Fuel Standards (RFS2) and possibly taking advantage of recently renewed biodiesel tax credits. Another factor that has contributed to increased biodiesel imports has been the EPA’s recent approval of Argentina biodiesel production. Based on actual ‘full-lifecycle’ carbon emissions do these increased U.S. biodiesel imports actually reduce World carbon emissions to required RFS2 levels and do so cost-effectively?
U.S. Biodiesel Supply-and-Demand – Under the RFS2 regulations ‘biomass based diesel’ or biodiesel has the largest impact on displacing petroleum diesel carbon emissions. The EIA reports that of the total 538 Million gallons (Mgal.) of biodiesel + renewable diesel imports in 2015, 334 Mgal. came from biodiesel. And, 184 Mgal. (55%) of total biodiesel imports came from Argentina. Argentina biodiesel production was recently approved by the EPA, which qualifies these imports for RFS2 compliance certificates; Renewable Identification Numbers (RIN’s).
To qualify as a biodiesel under the RFS2 regulation requires that the ‘full-lifecycle’ carbon emissions of the biodiesel’s ‘biomass production-thru-vehicle consumption’ must be at least 50% less than the displaced petroleum diesel. Recent EPA analysis shows that soybean and animal fat biomass based diesels can consistently comply with the RFS2’s <50% full lifecycle carbon emissions requirement. However, the U.S. Biodiesel Industry strongly questions the benefits of the EPA’s recently ‘streamlined review process-approval’ that qualifies large volumes of Argentina biodiesel imports for RFS2 RIN’s.
Besides effectively giving Argentina Producers a simplified pathway to qualifying for RFS2 RIN’s compared to U.S. domestic Producers, this action and the increased imports have effectively displaced large volumes of available U.S. domestic biodiesel production capacity. Refer to Figure 1.
U.S. domestic biodiesel production peaked in 2013 and declined by over 7% or almost 100 Mgal. per year in 2015. Even though the EPA recently increased RFS2 biodiesel targets by 450 Mgal. 2013-15, U.S. Biodiesel Producers have become increasingly disadvantaged, economically. Increasing the RFS2 biodiesel required blending level should have helped facilitate increased U.S. domestic biodiesel production. Instead, due to a combination of substantially delaying recent years’ RFS2 standards and approving increased biodiesel imports from countries like Argentina, has significantly disadvantaged many U.S. Biodiesel Producers. These situations contributed to significantly reduced U.S. Biodiesel Facility production rates and revenues. As a result, some U.S. domestic biodiesel Production Facilities went into bankruptcy recently; for example: Keystone Biofuels.
These EPA actions and results are inconsistent with the purpose of the original RFS regulation, which was designed and passed with strong bipartisan Federal Government support, to grow the U.S. Biofuels Industries and reduce U.S. reliance on energy imports and carbon emissions.
Argentina Biodiesel, Petroleum Consumption and Carbon Emissions – Approving a streamlined/easier process for certifying Argentina biodiesel imports has economically disadvantaged domestic U.S. Biodiesel Producers. The question possibly not addressed by the EPA: “Do increased Argentina biodiesel imports actually reduce full lifecycle and total World carbon emissions by at least the required 50% per unit volume of the petroleum diesel displaced?” Accurately determining the full lifecycle of a given source of biodiesel is very complex including details such as ‘land-use change’. Rather than getting bogged down into the details and complexities of more accurately determining the ‘full-lifecycle’ carbon emissions of Argentina production-imports as strongly questioned by the National Biodiesel Board, let’s review some other details and data the EPA has possibly overlooked. Refer to Figure 2.
Argentina’s total carbon emissions have increased by 1/3rd or about 50 million metric tons per year (MMT/yr.) over the past decade. About 2/3rds of these increased carbon emissions came from increased petroleum fuels consumption. While Argentina’s production of biodiesel has grown quite significantly in recent years, only a smaller percentage (25% +/-) appears to have been consumed ‘domestically’; i.e. the majority of domestic biodiesel production has been exported to the U.S. and EU.
Why would Argentina choose to export most of its biodiesel production rather than domestically consuming this lower carbon fuel to directionally reduce their Country’s total carbon emission increases? The answer to this question is most likely: taking advantage of favorable U.S. market-regulatory economics and putting a much lower priority on Argentina’s growing carbon footprint. Even though U.S. Companies can qualify for fairly generous biodiesel blending tax credits (up to $1.00/gal.), apparently Argentina biodiesel imports are much cheaper than equivalent U.S. domestic production. In general, U.S. biodiesel production often has higher costs (labor, feedstocks, regulatory compliance, etc.) compared to the Argentina Producer’s imports.
Another advantageous or fairly generous economic factor that makes Argentina biodiesels exports to the U.S. economically attractive is the added value (profit margin) of RFS2 RIN markets. Recent data shows that biodiesel RIN’s have average market values of about $0.80/gal. This RIN value adds about 25% to the market price of average U.S. biodiesel supplies (Re. Table 2, B99/B100 prices for example). Not very well advertised by the EPA is that $0.80/gal. RIN’s are equivalent to carbon credit values of about $150 per metric ton (MT) for reduced carbon emissions; <50% full-lifecycle basis. This cost is over 10-times the market value of current California carbon credits. Pretty pricey yes, but still required under RFS2 renewable fuels requirements.
Another major factor that the EPA has apparently overlooked is the fact that even though Argentina’s biodiesel production has grown significantly in recent years, so has its domestic consumption of petroleum fuels. According to the EPA, despite the added Argentina-U.S. continent-to-continent marine transport petroleum oil fuels carbon emissions (+2%-3%) Argentina biodiesel imports still qualify for RFS2/RIN’s (i.e. full-lifecycle carbon emissions <50% than petroleum diesel). This somewhat narrowly focused analysis ignores that fact that Argentina domestic petroleum consumption and associated carbon emissions have increased very significantly in recent years. For example, Figure 3 that illustrates a major Argentina petroleum diesel imports supplier.
Figure 3 shows that Argentina imports 4-times as much petroleum diesel from the U.S. then it exports biodiesel to the U.S. If there were no significant changes to total U.S. domestic biodiesel production levels or Argentina’s total consumption of petroleum oil, Argentina’s biodiesel production-exports to the U.S. could have resulted in significant full-lifecycle and World carbon emission reductions. However, since the EPA’s recent actions have effectively reduced U.S. total domestic biodiesel production by 100 Mgal./yr., the net impact of Argentina’s biodiesel exports’ to the U.S. diesel full-lifecycle carbon emissions has directionally eliminated about half of the claimed RFS2 reduced carbon compliance benefits.
In other words had Argentina imports not reduced U.S. biodiesel production the 100 Mgal./yr. full-lifecycle carbon emissions would have been reduced by 50%. or about 500,000 MT/yr. But, since the Argentina imports reduced U.S. biodiesel production by 100 Mgal./yr., this effectively reduced the full-lifecycle carbon emission by only half (<50% down-to <25%) RFS2 required levels.
In Conclusion – Recent EPA actions have enabled Argentina Biodiesel Producers to effectively curtail and displace 100 Mgal./yr. of U.S. domestic biodiesel production in 2015. This has resulted in increased U.S. and World carbon emissions of about 250,000 MT/yr. The net result besides increasing World carbon emissions significantly is that the recently EPA actions are inconsistent with required RFS2 regulations. Also as a result, U.S. Consumers have been forced to pay Argentina Biodiesel Producer-Exporters about (184 Mgal. x $0.80/gal. =) $147 million during 2015, or around twice the equivalent cost of other carbon related RIN’s per actual net reductions in U.S. and World carbon emissions. Based on actual carbon emissions reductions these Argentina imports’ RIN costs are equivalent to over $300 per MT. These results effectively make U.S. Argentina biodiesel imports the highest cost equivalent carbon credits in the World.
In addition, the U.S. Biodiesel Industry has lost a large amount of revenues and the Country’s Workforce has lost 100’s of high paying biodiesel production-and-supply chain related jobs. Lost biodiesel market revenues, of course, makes it increasing difficult for the U.S. Biodiesel Industry to continue investing and growing U.S. production capacity in the future; in direct conflict of a major objective & purpose of the original Federal RFS regulations. As a result of these factors the U.S. GDP has declined by possibly a couple $100 million per year recently and increased the U.S. international trade deficit up to about $500 million per year. The economic attractiveness of further expanding the U.S. Biodiesel or Green Energy Industry has also been reduced significantly. These overall results/impacts are also very inconsistent with the current Administration’s legacy policy; the Paris COP21 Climate Agreement.
So, what was the EPA’s motivation to penalize the U.S. Biodiesel Industry and U.S. economy, while generously rewarding Argentina Businesses for reducing total U.S. and World carbon emissions to only about half the level required by the RFS2?
Your feedback and comments will be most appreciated.