The Imports Cometh
The U.S. imported nearly three times more biodiesel and renewable diesel in 2016 than what the entire domestic industry produced in 2010. According to import data from the Energy Information Administration, combined biodiesel and renewable diesel imports last year totaled more than 915 million gallons (692.87 million gallons of biodiesel and 222.77 million gallons of renewable diesel), far surpassing annual import volumes of any previous year on record. In fact, biomass-based diesel imports in 2016 were higher than domestic production every year from the industry’s inception in the 1990s through 2010, and they nearly matched domestic volumes produced in 2011 and 2012.
Despite rising imports, U.S. production is also hitting new heights. The figures vary, depending on which data are used—U.S. EPA’s EMTS domestic D4 RIN generation data or EIA’s Form EIA-22M survey production data—but both sets show an appreciable uptick in domestic production last year. According to EIA data, U.S. biodiesel production is up 23.5 percent from 2015-’16, moving from nearly 1.27 billion gallons to almost 1.57 billion. EMTS data shows more impressive growth, and overall production volumes in 2016 at more than 1.9 billion gallons vs. 1.45 billion gallons in 2015, or more than 31 percent growth.
Part of the variance in domestic production volumes could be explained by the nature of the two data collection methods—RIN generation vs. a production survey. The discrepancy could also be reconciled, in part, because EMTS D4 RIN generation includes the U.S.’s two large renewable diesel facilities, Diamond Green Diesel and REG Geismar. Both plants are located in Louisiana and have a combined production capacity of 235 MMgy. Once DGD completes its expansion, the cumulative capacity at REG Geismar and DGD will top 350 MMgy. It is certain EIA biodiesel production data do not include renewable diesel, since the agency’s map shows no production in Louisiana.
Import Data Discrepancies
While production tallies differ depending on which agency and method is utilized, import reports also vary from government agency to agency, and company to company. Some private companies such as Genscape and Prima Markets leverage government data for reference or comparison, but they also have their own proprietary collection methods unique to them, thus providing even more inconsistencies for those on the outside looking in. EIA biodiesel imports for 2016 come in at nearly 693 million gallons, whereas both Genscape’s and Prima Markets’ tallies are roughly 720 and 725 million gallons, respectively. For renewable diesel, EIA figures show nearly 223 million gallons entered the U.S. in 2016, while Genscape tracks the volume at about 206.5 million gallons and Prima Markets at almost 200 million.
For biodiesel and renewable diesel imports, EMTS data are particularly confounding because EPA does not separate D6 biodiesel and renewable diesel from D6 ethanol in the yearly breakdown of domestic, importer and foreign RIN generation. Biodiesel and renewable diesel made from palm oil do not qualify for D4 RIN generation because they do not meet EPA’s threshold for greenhouse gas (GHG) emissions reductions of 50 percent compared to the baseline diesel fuel. These products can, however, qualify for the less stringent D6 RIN generation, which only requires 20 percent GHG reduction.
“Many people would agree that EMTS data doesn’t accurately reflect what enters the U.S.,” says Will Martin, an analyst with Genscape Inc. For instance, EMTS data show approximately 166 million D6 RINs generated for renewable diesel in 2016, yet Genscape’s own data demonstrate that just 21 million gallons, or 10 percent, of renewable diesel imports in 2016 generated D6 RINs. Heather Zhang, an analyst with Prima Markets, says her data also show about 10 percent of renewable diesel imports entering the U.S., or about 20 million gallons, generated D6 RINs. Unfortunately, EIA data do not include RIN assignments.
Martin says DGD and REG Geismar are not using palm oil and are not generating D6 RINs. Paul Nees, director of the operations control team for REG Services Group LLC, confirms that Renewable Energy Group Inc. does not use palm oil for renewable diesel production in Geismar, Louisiana. It follows, then, that the 166 million gallons of D6 renewable diesel product represented in EMTS must have come from overseas. “A lot of people are interested in why this is,” Martin says, referring to the EMTS D6 RIN generation for renewable diesel. Martin and others suggest the numbers have to do with RIN retirements or grandfathered facilities, but Martin admits he—like many others—does not know why EMTS shows this data, or what it means. “This is a question for us also,” Nees says, “and we follow this very closely.”
One possibility for this, a source says, could be a scenario in which a major renewable diesel producer manufactures fuel intended for the U.S., generates D6 RINs associated with that fuel and then, instead of exporting the fuel to the U.S., the shipment lands elsewhere, requiring those RINs to be retired.
By the Numbers
Argentina alone exported 129 million more gallons of biodiesel to the U.S. in 2016 than what the U.S. industry produced in 2010. Last year, U.S. ports received approximately 444 million gallons of Argentine biodiesel, according to EIA data. To put this in perspective, that is 64 million gallons more than what Argentina shipped to the U.S. in the previous three years combined. Argentine biodiesel represents the single largest source of imported biodiesel, accounting for 64 percent of biodiesel imports and more than 48 percent of combined U.S. biodiesel and renewable diesel imports.
According to Genscape and its data collected through Vesseltracker, which monitors ship traffic using automatic identification system (AIS) data and other intelligence, 18 different port cities along the East and Gulf Coasts received 136 shipments totaling 444 million gallons—the same import volume from Argentina that EIA reports. The largest single entry point was Houston, receiving 25 shipments totaling 117 million gallons. New York received 19 shipments totaling 52 million gallons. Savannah, Georgia, took in 66 million gallons of Argentine biodiesel in 17 different shipments. From Mobile, Alabama, to Boston, the imports from Argentina cometh throughout 2016.
The major consignees of biodiesel shipments from Argentina in 2016, according to Genscape, include Biosphere, receiving 47 shipments at 145 million gallons total; Shell, receiving 56 million gallons in 18 shipments; Cargill, receiving 10 shipments totaling 37 million gallons; and Louis Dreyfus, receiving nine shipments totaling 26 million gallons. It’s important to note that 118 million gallons of Argentine biodiesel was received by what Genscape identifies as an unknown consignee in 29 shipments. Other consignees include Noble, Noble Americas, Targray, Oleaginosa Moreno, Cofco Argentina, Vincentin S.A.I.C., Claypool Holdings, Molinos Agro S.A., and Archer Daniels Midland Co.
U.S. biodiesel imports from Indonesia are also steadily climbing. In 2016, Indonesia exported roughly 102 million gallons of biodiesel to the U.S., according to EIA data, nearly twice as much as in 2013 (52.4 million gallons). Genscape data show 101 million gallons. Based on the huge palm industry in Indonesia and the players involved, most experts assume all the biodiesel entering the U.S. from Indonesia is palm-based product generating D6 RINs.
About half the volume of Indonesian biodiesel coming to the U.S. in 2016 did so via Houston, according to Genscape, with 21 shipments throughout the year totaling 51 million gallons. Eight shipments carrying 15 million gallons entered through New Orleans, and eight other port cities along the East and Gulf Coasts, including three in Florida, received the remainder of Indonesian biodiesel.
Consignees of biodiesel shipments from Indonesia, according to Genscape, include Wilmar, receiving 22 shipments totaling 47 million gallons; Biosphere, receiving 14 shipments totaling 33 million gallons; Targray, receiving eight shipments totaling 16 million gallons; Lynette Johnson, receiving one shipment of 5 million gallons; and an unknown consignee receiving three shipments totaling 5 million gallons.
The third largest source of U.S. biodiesel imports in 2016 is as familiar as the top two nations but a lot closer: Canada. Imports from Canada surpassed 98 million gallons last year, according to EIA data. Genscape’s data, which include an imputed rail value based on U.S. International Trade Commission data, indicate the U.S. took in more than 114 million gallons of biodiesel from Canada. ADM was a top consignee of Canadian biodiesel, according to Genscape, with 17 shipments totaling 42 million gallons.
EIA data show three additional countries exported biodiesel to the U.S. in 2016, totaling slightly more than 49 million gallons: Germany (24.74 million), Korea (22.47 million) and Australia (1.89 million). Genscape data further indicate three more countries exported biodiesel to the U.S. last year totaling an additional 10.09 million gallons: Singapore (4.96 million), the Philippines (4.53 million) and Malaysia (600,000).
U.S. imports of renewable diesel totaled nearly 223 million gallons, according to EIA data, which indicate it all originated in Singapore, where Neste Corp. has a large renewable diesel production facility. Zhang says Prima Markets tabulates roughly 200 million gallons of renewable diesel imports, and like EIA data, it all came from Singapore and most of the product entered the U.S. through various California ports, where it is used to satisfy GHG reductions for the low carbon fuel standard (LCFS) program and generates LCFS credits. Genscape data show about 206.4 million gallons of renewable diesel entering the U.S. from Neste, with most of it coming from Singapore and entering California. “There were a few surprise shipments from Europe, I remember,” says Susan Olson, Genscape’s managing director of agriculture and biofuels. “I recall one ship coming from Rotterdam that went to the East Coast.”
According to Genscape data, the East Coast shipments of renewable diesel included 10.3 million gallons received in Philadelphia, 9.2 million in New York and 3.3 million in Boston. Portland, Oregon, received 5.4 million gallons. Seven California port cities took in the lion’s share remainder of Neste’s renewable diesel in 2016, with Los Angeles, San Francisco, Long Beach and Richmond shipments totaling close to 160 million gallons. Zhang says a U.S. division of Finland-based Neste is the consignee for Neste renewable diesel. “Then they sell their fuel to U.S. customers,” she says.
Why So High?
On a high level, biodiesel and renewable diesel imports flooded the U.S. for the same reasons that domestic production increased between 23.5 percent (EIA) and 31 percent (EMTS): The combined effectiveness of two important federal biodiesel policies. These are, of course, the $1-per-gallon biodiesel blenders tax credit, reinstated in late 2015 retroactive from Jan. 1, 2015, through Dec. 31, 2016, and the Renewable Fuel Standard, which had gone through a series of setbacks and delays by EPA throughout most of 2014-’15, but by late 2015 the program was back on track and forged new promise of, at minimum, modest growth for biomass-based diesel at 100 MMgy.
Anecdotally, in late May 2015, when EPA released its much-anticipated proposed RFS rule for 2014-’17 biomass-based diesel, U.S. imports of biodiesel more than tripled in two months, jumping from a meager 14.1 million gallons in May to 48.6 million gallons in July. With a growing RFS is the economic incentive of the associated RIN values purchased by obligated parties for regulatory compliance. Furthermore, companies such as Neste that export to California can cash in on LCFS credits on top of RINs and the federal tax credit.
“The biodiesel blenders tax credit is the top reason that motivates more imports,” Zhang says. “Also D4 and D6 RINs in 2016 have consistently stayed at a very good level. This has also added additional incentives to the imports economy.” She adds that the growing RFS—with biomass-based diesel moving from 2 billion gallons in 2017 to 2.1 billion gallons in 2018, and the overall advanced biofuels category increasing from 3.61 billion ethanol-equivalent gallons in 2016 to 4.28 billion in 2017—has also had a meaningful impact on imports. “Brazilian ethanol arbitrage didn’t work to fulfill the advance renewable fuels category, so biomass-based diesel would need to help to supply the significant increase in demand,” Zhang adds.
On a more granular level, countries such as Argentina and Indonesia encourage exportation of finished biodiesel from soy and palm oils, respectively, with differential export taxes (DETs), through which decreased export tax rates are applied to various stages of the oilseed value chain. These tax schemes are designed to incentivize domestic manufacturing whereby the economic benefits associated with value-added production are retained in-country. According to a Global Agricultural Information Network report by USDA’s Foreign Agricultural Service, titled, “Argentina Biofuels Annual 2016,” in June 2016, the Argentine government taxed exports of biodiesel at 5.04 percent while whole soybean exports were taxed at 30 percent and soybean oil at 27 percent. Zhang says Argentina’s biodiesel export tax ranged from a low of 1.62 percent to a high of 7.15 percent last year.
Also, in late 2013, the EU imposed antidumping duties on Argentine and Indonesian biodiesel that significantly reduced exports to the EU. With the No. 1 destination for biodiesel from these two countries effectively closed, other outlets—namely the U.S.—were pursued. Late last year the General Court of the EU annulled the antidumping measures, but the European Biodiesel Board stated the duties will remain in full effect throughout an appeal. The dispute settlement body at the World Trade Organization has also been busy with claims from Argentina, Indonesia and the EU regarding these tariffs. Additional developments are expected this year.
Furthermore, in early 2015, while the U.S. biodiesel industry was in limbo due to inaction by EPA, the agency approved a certification process presented by the Argentine Biodiesel Chamber (CARBIO) allowing an alternative feedstock tracking mechanism to demonstrate compliance with RFS regulations, the decision and timing of which riled U.S. producers and its trade association, the National Biodiesel Board. This approval process was never opened to public comment. In January 2015, NBB stated, “EPA’s Jan. 27 decision allows Argentinian biodiesel producers to use a survey plan for certifying that feedstocks used, in this case soybean oil, are sustainable. The change—effectively leaving it to the foreign producer to pay an independent third party to survey their feedstock suppliers—is far less stringent than the current map and track requirement and more difficult to verify.” In 2014, before this approval, Argentine biodiesel exports to the U.S. were roughly 52 million gallons. A year later, after the approval, they quadrupled. Moreover, Argentine biodiesel exports to the U.S. were more than eight times higher in 2016 than in 2014.
The same USDA FAS GAIN report, however, suggests local exporters are not using this certification scheme, “as there are seven processors registered individually with EPA and use an individual record-keeping system,” the report states. “EPA segregation requirements add an estimated cost of $30 to $40 per ton of biodiesel. This includes a price premium paid to farmers producing ‘EPA soybeans,’ the cost of segregations and controlling the whole chain until export, the time consumed in the whole process, etc. Different companies have different problems. The most common are limited supply of traced soybeans, smaller-than-needed biodiesel storage capacity, and logistical complications.” Nevertheless, USDA FAS forecasts Argentine biodiesel exports to the U.S. in 2017 at nearly 449 million gallons, slightly higher than in 2016.
The new U.S. president, billionaire real estate mogul celebrity Donald J. Trump, campaigned incessantly on what some deem a platform of protectionism, calling for domestic job retention and creation, energy production, and a reduction of both imports of goods and exports of jobs and tax dollars that benefit foreign manufacturing sectors. While Trump and many cabinet members, including new EPA administrator Scott Pruitt, are avid climate change deniers, the U.S. biodiesel industry’s record of domestic job and energy creation alone are ample reasons to expect resolute support from the new administration, not to mention Trump’s avowed backing of the RFS while campaigning through the Midwest, where voters played a major role in his election. But for U.S. biodiesel producers, Trump’s installation of fossil-fuel industrialists in top executive positions somewhat quell this enthusiasm. What biodiesel can do for the U.S. economy, however, and what the U.S. government can do to support the domestic biodiesel industry, are what NBB is focusing on with laser-like precision.
NBB’s strongest hope to suppress imports is action the association has been pushing for years—reforming the blenders tax credit to a domestic producers credit. “The RFS and tax credit were designed to incentivize U.S. biodiesel production,” says NBB CEO Donnell Rehagen, who spoke at the California Biodiesel Conference on March 1. “RFS was enacted to create American jobs and energy, and reduce pollution and imports of diesel. This is why we are emphasizing domestic production.” The blenders tax credit expired Dec. 31 for the fifth time since its inception. Historically, it has been reinstated in extenders packages. In the past two years, bills have been introduced—some passed at committee levels—seeking to extend the credit for two years and reform it to a domestic producers credit. While ultimately unsuccessful, the efforts laid the groundwork for future discussions, Rehagen says.
The argument to push for a domestic producers credit is that, while domestic production has increased considerably in 2016, there is still appreciable idled capacity due to an influx of imports subsidized, in some cases, at the point of origin and again in the U.S. via the tax credit, RINs and other incentives such as LCFS credits. Anne Steckel, NBB’s vice president of federal affairs, says the U.S. biodiesel industry is only running at two-thirds capacity. Biodiesel Magazine’s own statistics show that when existing U.S. production capacity, including capacity of plants under expansion or construction (totaling approximately 2.74 billion gallons, 350 million gallons of which is renewable diesel), is compared to both EIA and EMTS production figures for 2016, the U.S. biodiesel industry operated at between 65 and 69 percent last year, respectively (adjusting for EIA production data excluding renewable diesel). EIA’s monthly biodiesel production report indicates 2.3 billion gallons of U.S. biodiesel productive capacity, thus EIA’s own capacity and production numbers reflect a 68 percent utilization rate.
According to a study conducted by LMC International, a 2.9 billion gallon biodiesel and renewable diesel market—roughly the 2016 U.S. consumption market—divided between domestic and foreign supply supports about 64,000 U.S. jobs and $11.42 billion in total impact. Economic benefits increase substantially with growing domestic production, rather than imports. For example, just 2.5 billion gallons domestic production would support at least 81,600 U.S. jobs and $14.7 billion in total economic benefit. These are the numbers NBB wants Congress and the new administration to heed.
Tax reform is also a hot topic with the Trump administration and Republican-controlled Congress, and while this would be a massive undertaking by the federal government, the NBB believes its message of retaining U.S. tax dollars for the domestic biodiesel industry falls on attentive ears. “The fact that an extenders package is on the shelf,” Rehagen says, referring to tax reform replacing or delaying discussion of an extenders package, “this gives us a chance to talk to Congress about what we need.” That, of course, is a longer-term tax credit for which only domestic producers would be eligible.
Steckel says tax reform is a big job to get done in one year. “People have good intentions to get it done, but it’s a very heavy lift to do in one year,” she says, “unless you have a strong commitment from the House, Senate and administration.” Repealing and replacing Obamacare is taking longer than anticipated. “That is pushing back tax reform,” Steckel says, “but we are participating in conversations about it.” She adds that extenders are not something people are talking about right now. “But at some point, if Congress is not moving forward with tax reform, then we will move focus to the extenders,” Steckel says. Rehagen says NBB intends to remain active in the extenders tax group. “We don’t want to put all eggs in one basket though,” he says. “But by midyear, if we see no tax reform moving forward in Congress, we’ll look for a bridge [by way of an extenders package].”
Another piece of legislation that could have an effect on biodiesel imports is the border adjustment tax, a complicated system to financially encourage exportation of goods while financially discouraging exportation of jobs and importation of products. “This seems to be something that’s being discussed heavily in the House,” Steckel says, “but the Senate is taking a wait-and-see approach.” She says Kevin Brady, the House ways and means committee chair, is showing support for the border tax. “But there’s a lot of opposition from the folks who are against it,” Steckel says. “It would be a change, and with any sort of change comes opposition. But the House is weighing this and it appears there’s a possibility it would make it through House. It’s an intriguing idea that could have some positive influences on the biodiesel industry.”
The federal court system was sought as a solution by NBB to the CARBIO approval for Argentine imports, but on Feb. 24 the U.S. Court of Appeals denied NBB’s petition for a rehearing on the case. “It’s unfortunate,” Steckel says, “but this is an issue that needs to be addressed. The lack of public comment was a strong concern for us. It didn’t go through the proper channels, which is very frustrating. The CARBIO issue is one we’ll continue to watch. Discussions with the administration may occur.” It is conceivable that Pruitt, as the new head of EPA, could revisit this issue without the need for court involvement—particularly if influenced by Trump himself, given his viewpoint on imports.
Finally, the U.S. may eventually follow EU’s suit on biodiesel imports by opening up a trade investigation that could ultimately impose tariffs on product from Argentina and Indonesia.* “The NBB has decided to do a trade assessment,” Rehagen says, “to find out the validity of doing a trade case. This is still to be determined.” He says it’s an uphill battle, but there’s not a level playing field since the EU has tariffs on U.S., Argentine and Indonesian biodiesel. “A Finnish renewable diesel producer can take advantage of selling its product into the EU and at the same time selling it to the U.S., but also receiving subsidies from the American tax payer,” Rehagen says.
The trade assessment is in the information-gathering stage, says Jessica Robinson, communications director for NBB. A third party is conducting a producer survey about impacts that have been realized due to potentially dumped, subsidized imported biodiesel and renewable diesel. “The intent of the trade assessment is to confirm or find the answer to whether the trade processes, as they are currently set up, are fair for all parties involved,” she says. “What has to be assessed is what the impact on the market might be.”
“Under U.S. law, U.S. industries may petition the government for relief from imports that are sold in the United States at less than fair value (“dumped”) or which benefit from subsidies provided through foreign government programs,” the USITC states. “The U.S. Department of Commerce determines whether the dumping or subsidizing exists and, if so, the margin of dumping or amount of the subsidy; the USITC determines whether there is material injury or threat of material injury to the domestic industry by reason of the dumped or subsidized imports.” The third-party survey intends to gather information so the U.S. industry can make the case that, indeed, material injury or the threat thereof has occurred.
“Domestically processed biodiesel in the United States faces imported price-competitive biodiesel and renewable diesel that is more price competitive,” the USDA FAS GAIN government report states. “According to Bloomberg, biodiesel derived from soybean oil costs $3.71 a gallon, but imported biodiesel coming through the Gulf of Mexico port costs $3.07 with Argentine supplies up to 30 cents cheaper than that. This presents a significant opportunity for Argentina to gain greater market share.”
What 2017 will bring is only speculative at this point. “Without any tax credit currently in place, I expected a slowing down of imports, majorly influenced by the market share of Indonesian imports,” Zhang says. “This year D6 RINs have dropped to 30 cents and there’s no biodiesel blenders tax credit to help make imports lucrative, so [Indonesian imports] have already been reduced in the first two months.” She adds, however, that Argentine and renewable diesel imports were still strong so far this year. “But if the U.S. passes a producers tax credit very soon, I think there would be some impacts on Argentina’s biodiesel imports, as the domestic producers would enjoy a $1 tax credit whereas importers wouldn’t,” she says. “It would really depend on where the D4 [RIN credit prices] will go, although the U.S. market would still need the help from foreign products to fulfill its mandates.”
Rehagen suggests U.S. producers would be able to meet its RFS targets even if imports were significantly reduced. “Just look at the December numbers,” Rehagen says. “There’s more than 200 million gallons of domestic production. There’s no doubt the U.S. biodiesel industry can meet its RFS targets.”
EIA import data for January were not available at press time, and while Zhang says U.S. imports of Argentine product were still strong this year, Martin says Genscape was unable to confirm one single shipment in January. Olson says there’s typically a “demand hangover” in the first quarter for biomass-based diesel. “January is usually a slow month,” she says.
Martin, however, says, “Look at how big December’s import numbers are, and January slows to a trickle. It’s so abundantly clear how much that tax credit impacts this business.”
*Editor’s Note: On March 23, after this article was in process of publication for the April 2017 print edition of Biomass Magazine, the NBB officially filed an antidumping and countervailing duty petition with the U.S. Department of Commerce and the U.S. International Trade Commission against Argentina and Indonesia.
Author: Ron Kotrba
Senior Editor, Biomass Magazine