Uncertainty over EPA’s final decision on renewable volume obligations, or ROV, in the Renewable Fuel Standard for 2014 has clouded the outlook for biofuels. At this writing in mid-October, the industry was still waiting to hear whether the U.S. Environmental Protection Agency would reduce the conventional renewable fuel requirement from the statutory level of 14.4 billion gallons to 13.01 billion gallons. Also at this writing, EPA’s final rule was awaiting approval from the Office of Management and Budget.
After an extended comment period and multiple debates, EPA could make changes to the proposal it issued last year about this time. The reduction may not be as steep as originally proposed.
Wally Tyner, Purdue University agricultural economist, says EPA could announce a level of 13.5 billion gallons or somewhat higher. The 13.01 billion-gallon level proposed last fall is considerably lower than the so-called blend wall, given that the Department of Energy has forecast an increase in domestic gasoline consumption, Tyner says.
Ethanol has been running an average of $1 per gallon less than gasoline over the last year, he says. “There is also potential to blend more E85 with the current infrastructure. Therefore, it would be difficult for EPA to justify just 13 billion gallons.”
While the outlook for the domestic market remains cloudy, ethanol exports have been going well and could continue to do so in 2015. Tyner attributes this in part to Brazil having reduced its export activity to keep up with domestic demand. “Moving forward, exports will depend on what happens around the world, as well as the weather in Brazil,” Tyner says.
On the home front, the ethanol industry would benefit if more E85 pumps would be installed on both the East and West coasts. Most of the country’s 12 million flex-fuel vehicles on the road today belong to people living on either coast, Tyner says.
Longer term, Tyner says the outlook for drop-in aviation biofuels (not conventional ethanol) could be significant. This summer, the U.S. Department of Defense released its annual procurement plans for bulk fuels. The procurement requested military-specification diesel fuel and jet fuel to be blended with biofuels. The U.S. Energy Information Administration reported that the Navy’s interest in biofuels is part of its goal to generate 50% of its energy from alternative sources by 2020.
It also should be pointed out that Tyner has been working on a task force to develop estimates for the global potential of aviation biofuels out to the year 2050. “While not cost-competitive with fossil fuel yet, the technology for producing drop-in biofuels is progressing,” Tyner says. “This is important because corn stover and other ag residues could be viable feedstocks for aviation biofuels and provide additional markets for farmers.”
Tyner added that United Airlines recently bought aviation fuel containing 3 million gallons of biofuels, and that Alaska Airlines is also testing it.
The loss of the biodiesel tax incentive at the beginning of the year combined with EPA’s proposal concerning the RFS has “created tremendous uncertainty resulting in a weak domestic market,” says Ben Evans, director of public affairs and federal communications, National Biodiesel Board. Many biodiesel producers have reduced production or have idled plants as a result.
“This could be reversed quickly if Congress restores the tax incentive, and the administration finalizes this year’s RFS rules with meaningful growth for biodiesel,” Evans says.
After a difficult five-year implementation period, the RFS has been working as intended, Evans says. “It had finally hit its stride, with steady production gains over the last few years and a record of nearly 1.8 billion gallons of biodiesel last year. That has come to a halt, however, after the inexplicable proposal from EPA to cut biodiesel production under the RFS this year, even though it is the first advanced biofuel under the program to reach commercial-scale production nationwide.”
Evans adds, “It is difficult to make projections about 2015 until we know where things stand with the RFS. With stable policy, we do know the industry will continue to grow.”
He pointed out that successful implementation of the RFS has spurred development in biofuels infrastructure at every level, from production to retail.
The U.S. market for biodiesel in 2013 was nearly 1.8 billion gallons with room to grow, Evans says. “That volume amounted to about 5% of on-road diesel use. With off-road markets like agriculture, construction, mining, railroads and others expanding their use of biodiesel blends, the domestic market remains the primary destination for U.S. biodiesel.”
Biodiesel blends have made huge strides in the retail over-the-road truck market, Evans notes. “Love’s Truckstops, one of the country’s largest truck stop companies, began offering B20 in virtually all of its retail locations nationwide. This occurred with no changes to their infrastructure — including storage, blending and distribution equipment.”
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