Ongoing development of renewable fuels continues to be a core issue for the agriculture sector and the state of Minnesota. Over the years a variety of policies have been enacted that directly and indirectly support the production and usage of biofuels. One such measure was the establishment of a Renewable Fuel Standard (RFS), which establishes minimum usage requirements to guarantee a market for biofuels.
The RFS was created as part of the Energy Policy Act of 2005 and was expanded under the Energy Independence and Security Act of 2007. Under provisions contained in both pieces of legislation, the administrator of the Environmental Protection Agency (EPA) has the authority to waive the RFS requirements in whole or in part, in response to a petition by a state or a fuel provider, or on her own motion.
Unfortunately, it appears as though the EPA is poised to utilize its waiver authority to reduce biodiesel production to 1.28 billion gallons for 2014 and 2015.
The impact of government actions on our biodiesel industry is of particular interest to Minnesota agriculture. Since 2010, the growth of the biodiesel industry under the Renewable Fuel Standard has been a valuable part of our state’s economy, supporting 3,726 jobs and generating $606 million in economic activity statewide. Nationwide, biodiesel production has increased from about 25 million gallons in the early 2000s to a record 1.7 billion gallons in 2013.
Diverse resources used
According to the Biodiesel Board, biodiesel is produced using a broad variety of resources, many of them recycled and reclaimed oils and greases. This diversity has grown significantly in recent years, helping shape a nimble industry that is constantly searching for new technologies and feed stocks. In addition, it can be used in existing diesel engines without modification and is covered by all major engine manufacturers’ warranties, most often in blends of up to 5 percent or 20 percent biodiesel.
The EPA’s draft proposal is particularly challenging for biodiesel because excess biodiesel production from record volume of 1.7 billion gallons can be carried over and used for RFS compliance in 2014. As a result, the 1.28 billion gallon proposal could mean an effective market closer to 1 billion gallons.
At the very least, the EPA should establish an RFS volume that is at least consistent with last year’s anticipated production of 1.7 billion gallons. Under current EPA targets, biodiesel represents about 2.9 percent of all diesel fuel in the United States. Most modern diesel-powered engines allow fuel blends of at least 5 percent biodiesel and it will be years before biodiesel hits the 5 percent limit. By that time, advances in manufacturing may have raised that 5 percent threshold, pushing the “blend wall” out even further.
At this time, biodiesel is the only EPA-designated advanced biofuel (defined as a renewable fuel other than ethanol derived from cornstarch) with national commercial production. In practical terms, biodiesel is the only widely available biofuel that reduces greenhouse gas emissions by over 50 percent compared to traditional fuel sources.
It is somewhat ironic that the EPA has stated that biodiesel reduces greenhouse gas emissions by at least 57 percent and up to 86 percent when compared to petroleum diesel yet the agency is proposing a reduction in biodiesel targets.
Furthermore, the increase in demand for soybean oil as a source for biodiesel has driven soybean production, decreasing the cost of soybean meal — a staple feedstock for the livestock sector. Both the National Pork Producers Council and the National Restaurant Association are supportive of continued investment in biodiesel.
Signals to investors
Virtually every source of energy — from coal to hydroelectric, nuclear to wind, solar and geothermal energy — has been benefited from incentives in its early years. The guarantee of biodiesel demand over a specified period of time has reduced the risk of investing in this renewable biofuel and moved significant investment capital into the marketplace. The proposed biodiesel reductions send signals to investors that could threaten future growth in the industry, while damaging prospects for other future alternatives to petroleum.
Dave Ladd, president of RDL & Associates, is a frequent commentator regarding public policy and the political environment. He served as a policy adviser to former U.S. Sen. Rod Grams. Ladd received his B.A. degree from Moorhead State University and his Masters in Public Administration from Hamline University. He is a native of Hutchinson, Minn., and lives in Woodbury.
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