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Is the EPA's Approval of Increased Biodiesel Imports a Sound and Cost-Effective Environmental Policy?

John Miller's picture
Owner-Consultant Energy Consulting

During my Corporate career I provided manufacturing with power generation facilities’ technical-operations services and held different technical and administrative management positions.  In order...

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  • Apr 25, 2016

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.

Figure 1 – U.S. Biodiesel Production, Imports and Consumption
Data sources – EIA Biodiesel Overview and Imports.

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.

Figure 2 – Argentina Carbon Emissions from Consuming Fossil Fuels
Data sources – EIA International Energy Statistics and other sources.

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 – U.S. Petroleum Diesel Exports and Biodiesel Imports
Data sources – EIA petroleum diesel exports and biodiesel imports

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.

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Lewis Perelman's picture
Lewis Perelman on Apr 30, 2016

A fine analysis, John, of the EPA’s flawed accounting.

As far as it goes.

But you assume that promoting biodiesel production is a good idea. Not accounted for by either you or the EPA is the effect on food prices and thus on the food insecurity of the world’s poor.

A World Bank report five years ago forecast that poor people in developing countries would find it harder to afford an adequate diet as a result of expanding biofuel production

And a report from FAO concluded: “In general, the effect of the demand for biofuels will be to raise food prices, which will hurt the food security of many poor people in both rural and urban areas.”

Engineer- Poet's picture
Engineer- Poet on May 1, 2016

This is so true.  Even inedible crop byproducts can usually be converted to food of some kind; stalks and straw feed ruminants, and many kinds of mushrooms grow on more or less straight cellulose like wood.  The common button mushroom grows on composted manure.  Converting these things to fuels eliminates most if not all the potential for getting food out of them before restarting the cycle as fertilizer.

You’re not the only one to note the feudal nature of renewables.  A plot with water for cooling is pretty much all a nuclear plant needs, and one plant can serve a million people.  Wind and biomass require vast tracts of land, and who controls that land controls the energy.  They are tailor-made for rule by landed gentry.

Rick Engebretson's picture
Rick Engebretson on May 1, 2016

In recent days, NASA and other analysts have confirmed the Earth is getting greener. There is a reasoned discussion emerging how to best consider this new reality.

I don’t want to get into any discussion about selective criteria on a broken website using facebook science. Just suggesting those actually interested in climate and energy science do some searches and learn we are now accumulating biofuels, and need a serious discussion.

Bob Meinetz's picture
Bob Meinetz on May 1, 2016

Rick, we are accumulating biofuels but we’re not doing it fast enough, and its unlikely we’d ever be able to.

James Hansen estimates all deforestation worldwide added ~60ppm CO2 to the atmosphere over the last “few hundred years”; 20ppm remains. Even with the greening of the planet atmospheric CO2 is increasing at a rate of 50 ppm every 30 years, and it’s accelerating. He outlines a scenario where a concentrated reforesting and soil sequestration effort could lower CO2 50ppm by 2150, about one-fifth of what would be required to stop atmospheric carbon from increasing.

About a century too late to avoid tipping points (loss of Arctic sea ice and the West Antarctic Ice Sheet) which will render any further human efforts inconsequential.

In this 15-minute video Dr. Hansen explains how recent discoveries show the problem is far worse than we thought.

John Miller's picture
John Miller on May 3, 2016

Lewis, you are correct that most existing biofuels do compete with some food markets-and-demands. Today the consumption of soybeans used to produce biodiesel in the U.S., however, is pretty insignificant to influencing North America and World food markets. Probably the largest example, with the greatest impacts on World food market prices has been ethanol production from corn feedstocks. U.S. corn prices have more than doubled over the past couple decades, which have almost proportionally affected many World market prices.

Of course, nearly all forms of much higher cost renewable energy will negatively impact the financial security and living standards of the poor in both rural and urban areas, and, throughout most developing nations.

John Miller's picture
John Miller on May 3, 2016

Engr. Poet, in the case of biodiesel production, only the vegetable oil portion is consumed to make the diesel motor fuel esters. The co-product sugar, protein and starches are normally used to make animal feeds. The non-edible cellulose becomes a feedstock for making soil conditioner-additives. A similar approach applies to conventional corn-ethanol, but in this case the starch is consumed in producing the biofuel and the co-product oil and proteins are used for animal feeds production once again. The cellulosic non-edible material is also used for soil conditioners. In both cases, without taking into account the carbon reductions of the ‘animal feed’ co-products neither soybean biodiesel or corn ethanol would comply with RFS2 full-lifecycle carbon emissions reductions; 50% and 20% vs. petroleum motor fuels respectively.

You and I are in total agreement that nuclear will be a major and critical part of transitioning the U.S. and World to non-fossil fuels economies in the future. The problem statement is, of course, lack of Federal Government support compared to biofuels and strong Environmental opposition (largely safety fears) to the only feasible solution to ultimately displacing highest carbon intensity coal; baseload power grids’ operations.

John Miller's picture
John Miller on May 3, 2016

Rick, yes despite historic human deforestation, climate change, and droughts many studies have found the World is getting greener. This phenomenon is due to a transition from rain forests to non-rain forests.
Example article. While some of these studies project that this form of increased nature’s natural carbon sequestration will be ineffective in preventing future climate change, it does directionally help slow this perceived risk.

Rick Engebretson's picture
Rick Engebretson on May 3, 2016

John, this URL is a good starting reference;

The map is very informative, too. A plant growth limiting resource is now water in most equatorial regions of the world. Severe drought now exists in India, Philippines, California, and Venezuela. Mass human migration and war is happening in the strikingly dead Sahara and Mid-East. This was pretty easy to predict, long ago. Photosynthesis sucks.

Another thing easy to advocate is using some form of biofuel in some manner to do useful work before we have to do un-useful work putting wild fires out.

I wouldn’t dare venture a suggestion how we might better use biofuels to this group. But it is worth noting that many of the primary authors of the cited study are from China. Maybe our time as intellectual leaders is over.

Engineer- Poet's picture
Engineer- Poet on May 3, 2016

Both soybean and corn oils are edible.  Any use which diverts them from human or animal feedstocks means some other source must be increased to meet demand, which means ILUC.  Further, my understanding is that the amounts involved are small (~2 billion GPY) compared to US diesel consumption (~25-30 billion GPY).  This makes them a great diversion path for anything that would otherwise wind up as waste, but a poor way to reduce petroleum consumption.

John Miller's picture
John Miller on May 3, 2016

Engr. Poet, you are correct that the U.S.’s consumption of about 2 billion gal./yr. of biodiesel compared to about 40 billion gal./yr. of total petroleum diesel consumption (up to 5% blends) is pretty small. Even ethanol, with annual U.S. RFS2 required blending-consumption of 330 billion gal. (2015) may be far greater than biodiesel, but its required blending level is still limited to a 5% maximum (i.e. the ‘blend wall’).

A past analysis I did comparing different regulations and market factors that have contributed most towards U.S. reduced carbon emissions in recent years (Re. a past TEC article ), clearly shows the largest impact on reducing U.S. Transportation petroleum consumption and associated carbon emissions is due overwhelmingly to vehicle efficiencies (CAFE Standards), and not biofuels.

Mark Heslep's picture
Mark Heslep on May 4, 2016

Yes, increased vehicle efficiency, *and* declining per capita VMT, dropping since 2003.

John Miller's picture
John Miller on May 4, 2016

Mark, can you provide the link to your VMT data?

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