Producers of renewable diesel and biodiesel are facing a “serious headwind” after the Environmental Protection Agency set usage mandates so low that they’re restraining demand for the biofuels, Donnell Rehagen, CEO of Clean Fuels Alliance America, said Tuesday.
EPA last June issued renewable volume obligations, or RVOs, for 2023 through 2025 that will require increased usage of biomass-based diesel but not nearly as much as the industry believes it can produce. The agency indicated it held down the requirements because of concerns about the impact on food uses of vegetable oil. Some economists argue that the RVOs effectively set a limit on demand for the products.
Prices for biomass-based diesel credits, officially labeled as Renewable Identification Numbers or RINs, plunged from about $1.70 in late July to about $1.10 in December, according to EPA data.
“We've never, as an industry, really enjoyed an extended period of tail winds. We are not without challenges,” Rehagen said at the opening of the industry organization’s annual conference in Fort Worth, Texas.
“We are facing a serious headwind right now with the low RVOs set by the EPA as part of the Renewable Fuel Standard. I see the recent downturn and the impact that these low RVOs have had on our producers. But please, do not despair. We have faced this and arguably worse before and we've come out on top.”
He noted the RVOs will continue to grow in 2024 and 2025 and exports of renewable diesel have increased modestly as a result of the impact the RVOs had on the market. If export demand continues to build, “that should provide us some help and relief with RIN values,” Rehagen said.
Rehagen later told reporters the EPA got the RVOs “dreadfully wrong. There's no way to make that sound better than that. And I think if they would look at the market today compared to the market before they set these RVOs they would have to admit that they got it woefully wrong.”
Still, Rehagen said the industry has huge potential new markets, including railroads and home heating, that will build demand beyond the RVO levels.
“I don't look at the RFS as 100% of the time it’s going to be a lid … It has the opportunity to be more of a floor. So that's my belief. I'm sure there's others that would want to argue with me about that,” he said.
It’s easy to be “in the know” about what’s happening in Washington, D.C. Sign up for a FREE month of Agri-Pulse news! Simply click here.
BNSF Railway, which uses 1.2 billion gallons of diesel each year and has pledged to reduce its emissions by 30% by 2030, is expected to make an announcement about its biofuel demand later this week. BNSF, which is based in Fort Worth, serves much of the western two-thirds of the United States.
Teasing the announcement, Angela Caddell, BNSF’s group vice president for agricultural products, told the conference attendees, “renewable fuel is going to play a significant role for us.”
Rehagen also said he is confident biodiesel production will continue, although that sector is struggling to compete with renewable diesel, which can be used interchangeably with petroleum diesel. Biodiesel is blended with conventional diesel as an additive.
“I can't sit here tell you that 100% of the biodiesel plants we have today will still be making biodiesel 10 years from now. That's a decision for them to make. What I'm saying is the demand for biodiesel is not going to go away and it's not going to get any less,” Rehagen said.
EPA has projected consumption of renewable diesel will grow from less than 1.36 billion gallons last year to 2 billion gallons this year and 2.6 billion gallons by 2025. Biodiesel consumption is expected to slip from 1.71 billion gallons in 2022 to 1.62 billion gallons in 2025, according to the agency.
For more news, go to Agri-Pulse.com.
