A Long, Tough Year for Advanced Biofuels

We can’t afford another year like this one in 2015. Win, lose or draw, the advanced and cellulosic industries need the federal government to reaffirm its support for this sector.
By Michael McAdams | September 02, 2014

As Congress begins August recess, we can look back through the first eight months of the year and observe that not much at all got done in Washington, D.C., this year, let alone anything helpful to the advanced and cellulosic biofuels industry.  In fact, it is easy to argue that this year has essentially been lost to our industry, on several levels. 

First, let's look at the tax code.  Similar to 2012, we are now most of the way through the year and companies are functioning without the support of an operating tax credit. The alternative fuels mixture credit, or fuels credit, the biodiesel credit, the renewable diesel credit, and the second generation cellulosic credit all expired Dec. 31. Given production to date in the biomass-based diesel pool, which is more than a billion gallons in six months, clearly some think that the Congress will retroactively enact the biodiesel and renewable diesel credits.  Remember, the last time these credits got renewed was in early January 2013.

This time, the political stakes are higher and more confusing. We could possibly have a new party in control of both chambers of Congress and a resulting change in priorities in the Senate. Even if the Democrats hold the Senate, the new chairman of the Finance Committee, Sen. Ron Wyden, D-Ore., warned that this is the last time he would be extending these credits. At the same time, the outgoing chairman of the House Tax Committee has threatened not to extend any of the biofuels credits. These assertions beg the question of whether Congress, after the midterm elections, will choose to compromise and extend these credits that are so essential to our industry at this time. One theory is that if the Republicans win the Senate, they will want to clear the slate prior to taking over in 2015. Passing the extenders for a couple of years would allow them to move to a more comprehensive tax reform discussion. To the contrary, some argue that they will wait until they control both chambers so that they will not have to compromise on many of the provisions they find distasteful.  Time will tell which theory holds true, but the industry’s trade organizations are united in seeking to extend the current provisions this year.

As for the renewable fuel standard (RFS), we are still waiting for the renewable volume obligation (RVO) mandates for 2014. Meanwhile, the U.S. EPA has extended the compliance period for the 2013 mandated number three times, in the latest instance indefinitely, so that the 2014 numbers can be finalized. At this time, it is unclear what the EPA's game plan is for the 2015 RVO numbers, which are due on Nov. 30. By carrying over the mandated numbers from 2013, which were under 900,000 gallons for the cellulosic sector and left the 2013 cellulosic renewable identification number (RIN) credit value unchanged, the cellulosic sector has had no support in terms of driving the market or sending a signal of success to the financial community.  

As for the approval of additional advanced and cellulosic pathways, once again it has not been a good year. While we did see the Pathways II rule finalized, 38 pending pathways still are outstanding. With many of these pending pathways waiting more than two years, it is difficult for those seeking financing to build commercial plants using their first-of-a-kind, innovative technologies. Currently, EPA is reviewing the pathways process, but it’s likely this will not be completed until well after we finally fulfill the RVO mandates. 

In regard to specifics of the Pathways II rule, we had a major gain for renewable biogas, and, potentially, the ability to move to liquid transportation fuels in addition to liquid natural gas and compressed natural gas, if EPA is able to move forward on several pending pathways. However, there are still many feedstocks that need determinations to allow a full ramp-up of advanced and cellulosic biofuels production and a significant increase in the gallons, which would go toward meeting any RVO mandates.  Furthermore, issues such as colocation must be resolved in order to realize the full potential of renewable crude as a feedstock, which already impacts several companies with operational facilities. 

In addition, the Quality Assurance Program was announced, but many of the day-to-day approval decisions are still awaiting someone to make a final decision on their outcome. In the Quality Assurance Program, we still have a “buyer beware” approach.  However, the final program will still provide smaller companies the opportunity to engage a third party to review their processes and afford the potential purchasers of their RINs with more confidence and an affirmative defense should something go wrong. It is still in its early days, but the reduction in the complexity and the announcement should be extremely helpful to many smaller and midsized companies. 

Last but not least, the year has been full of efforts to open and repeal the RFS. Next year may well be the year Congress takes up consideration of the RFS legislatively. My guess is that should the Republicans take the Senate, it will be one of the first priorities of the new Congress.

We can’t afford another year like this one in 2015. Win, lose or draw, the advanced and cellulosic industries need the federal government to reaffirm its support for this sector and its importance to delivering environmentally sustainable fuels of the future and a balanced energy portfolio for America.

Author: Michael McAdams
President, Advanced Biofuels Association