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www.fueloilnews.com | FUEL OIL NEWS | JULY 2014 17 prices. While that is certainly debatable—as the industry well knows, commodity prices have a strange reality today—the idea has gained traction with meat producers and restaurant organi- zations that have brought pressure to bear in Washington. Tax CrediT The biofuels tax credit issue is not new territory for the indus- try. It was allowed to expire twice previously in the past five years with resulting uncertainties and disruptions. As has also hap- pened previously, there is some likelihood that it will eventually be renewed and made retroactive for 2014. "We saw some movement early on. We saw Senate finance moving a package and they tried to take it up on the Senate floor, and it got bogged down by some unrelated partisan differences on what other amendments in other issues might be allowed to be introduced," said Evans. "It has very good, solid bipartisan support. " Unfortunately, it will likely be late in the year before anything substantial happens. "My instincts tell me that after the election it's highly likely that the biodiesel tax credit will be extended retroactively, and it might be two years covering both 2014 and 2015 depending upon the outcome of the elections," said PMAA President Dan Gilligan. "In a lame-duck session of Congress all the members are loath to vote for anything between now and election day. Every vote makes somebody mad and these elections are going to be extremely close, and it could very well be that we have the Senate that's 50-50 and the vice president has to vote. It's hand-to-hand combat out there right now." As for its importance, NBB states that since being imple- mented in 2005, the biodiesel tax incentive has played a key role in stimulating growth in the U.S. biodiesel industry, help- ing it become the first EPA-designated Advanced Biofuel to reach commercial-scale production nationwide. NBB notes a clear correlation between the tax incentive and increased biodiesel production, which has grown from about 100 million gallons in 2005, when the tax incentive was first implemented, to almost 1.8 billion gallons in 2013. rFS VolumeS A major concern with the RFS had long been having enough ethanol to meet the ever increasing EPA RVO mandated pro- duction requirements, given the slow pace with which cellulosic ethanol is developing. Now, as gasoline demand has dropped post 2008, the motor fuels industry faces too much mandated ethanol in the marketplace even from corn-based production. The result has been termed a "blend wall." The market can absorb, barring some dramatic increase in E85 sales, enough ethanol to maintain a 10% or E10 level in the fuel supply. This level poses no issues for equipment UL certifications, or fueling infrastructure equipment and automo- bile warranties. The previously mandated RVO requirement would now pass the E10 boundary. Moving to 15%, or E15, to get past the blend wall has been pushed, but that has apparently failed. There were warranty and liability issues in play for both the station owner and a mis-fueling customer (only later model and flex-fuel vehicles were approved for the higher blend) that have not been resolved. As a counter point, ethanol supporters see the liability issue as being overblown, and driven more by oil company market share concerns than liability. EPA announced in November 2013 that: "Given these challenges, EPA anticipates that in the 2014 proposed rule, we will propose adjustments to the 2014 volume requirements, including to both the advanced biofuel and total renewable fuel categories. We expect that in preparing the 2014 proposed rule, we will estimate the available supply of cellulosic and advanced biofuel, assess the E10 blend wall and current infrastructure and market-based limitations to the consumption of ethanol in gasoline-ethanol blends above E10, and then propose to estab- lish volume requirements that are reasonably attainable in light of these considerations and others as appropriate." The proposed adjustments to the biodiesel side are just as significant. "There was a record U.S. biodiesel market last year of almost 1.8 billion gallons, and in November the EPA proposed an RFS volume requirement of $1.28 billion gallons," Evans said. "That's a tremendous cut and companies are not going to survive that type of cut. That is what we've been pushing with EPA and the administration that this is going to really hurt biodiesel, which is the only advanced biofuel under the program that is really producing on a commercial scale nationwide." Even with ethanol largely driving these actions, EPA has seemingly not been drawing too many distinctions between the various fuels. "One of the things EPA has said with this proposal is that the reason they are cutting volume is to address the concerns about the ethanol blend wall," Evans said. "Whether you agree that the blend wall exists or not —that is what they've said. But biodiesel does not in any way contribute to the blend wall. Biodiesel is blended into the diesel pool not into the gasoline pool. We are confused and frustrated as to why they are mak- ing these cutbacks. The only thing we have requested is to have an RFS volume that is at least consistent with last year's pro- duction, and we had requested 1.7 billion gallons which was a little bit below last year's actual production. We believe that the biodiesel industry can grow in a modest, sustainable pace on an annualized basis that will create a stable market." EPA is expected to set the RVOs by the middle of summer. According to Gilligan the industry may receive some positive news. "I have a hunch that EPA is going to bump it [ethanol RVO] up a little bit to give the ethanol industry a bit of what they want, but not enough to create chaos in the marketplace," he said. "That's what's going on now between EPA and the Office of Management and Budget. "I think biodiesel will get an increase, and that it will be meaningful. I think that there is room in the marketplace for the biodiesel industry to increase production and there is room for refiners and private blenders to blend it in." By Keith Reid Fuels l F O N