Last week, the U.S. House of Representatives and the U.S. Senate Committee on Armed Services passed versions of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2015 that included starkly different provisions on biofuels. The House version would severely limit U.S. Department of Defense (DOD) authority to promote the procurement of biofuels. For instance, it included a provision that would allow DOD to procure biofuels only if their costs were "equivalent to" conventional fuels. In addition, it included provisions preventing DOD from supporting the planning and construction of a biorefinery and exempting DOD from complying with Section 526 of the Energy Independence and Security Act of 2007 (Section 526). Section 526 prohibits federal agencies from procuring synfuel unless its lifecycle GHG emissions are less than those for conventional petroleum sources.
The version of the FY 2015 NDAA passed by the U.S. Senate Committee on Armed Services does not include an exemption from Section 526. In addition, it includes several provisions to allow DOD to further its goals to increase its purchase and use of biofuels. For instance, it would allow DOD to utilize its authority under the Defense Production Act to fulfill its part of a 2011 joint initiative among the Departments of Agriculture, Energy, and the Navy to facilitate the production of U.S. "drop-in" biofuels for military and commercial use.
On May 15, 2014, the U.S. Senate failed to pass a procedural measure that would have allowed for that body to consider and vote on S. 2260, the "Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act," the package of tax extenders approved by the Senate Finance Committee in April. The EXPIRE Act includes extensions through December 31, 2015 (and retroactive to January 1, 2014), of the following key biofuels incentives that have expired: the Alternative Fuel Refueling Property Credit; the Second Generation Biofuel Producer Tax Credit; the Special Depreciation Allowance for Second Generation Biofuel Plant Property; the Biodiesel and Renewable Diesel Fuels Credit; and the Alternative Fuel and Alternative Fuel Mixture Excise Tax Credit. A copy of the EXPIRE Act is available online. A summary of the bill is also available online.
The EXPIRE Act has broad bipartisan support among Senators. The vote on cloture to end debate on the bill and pave the way for Senate consideration failed last week because the Senate Republican and Democratic leadership had a fundamental disagreement over whether and which amendments could be offered to the bill. Senate Majority Leader Harry Reid (D-NV) preserved his right to bring the bill up again for consideration. Senator Reid could do so soon if the leaders are able to agree on rules for offering amendments to the bill. The bill is widely expected to be considered later this year, however, during a lame duck session following the November elections. It is important that the Senate passes tax extender legislation that includes energy incentives in order to help ensure they are included in the final bill. The House of Representatives is expected to consider a smaller package of tax extenders that will likely not include the retroactive biofuels incentives so important to the industry.
On May 21, 2014, Iowa Governor Terry Branstad (R) signed into law Senate Bill 2344, legislation to help promote the biofuels industry in the State. A copy of the legislation is available online. It extends the biodiesel production tax credit that was scheduled to expire at the end of 2014, enhances Iowa's E-15 retailer tax credit, and adds biobutanol as a renewable fuel option. This law reinforces Iowa's ongoing support for the biofuels industry.
On May 21, 2014, Renewable Energy Group, Inc. (REG), a leading U.S. biodiesel producer, and Tyson Foods, Inc. (Tyson) announced that they have agreed to REG's acquisition of Tyson's 50 percent ownership position in Dynamic Fuels, LLC (Dynamic Fuels). Contingent upon the closing of REG's December 2013 announced agreement to acquire substantially all of the assets of Syntroleum Corporation (Syntroleum), the acquisition announced on May 21, 2014, would give REG full ownership of Dynamic Fuels and its 75 million gallon per year nameplate capacity renewable diesel biorefinery in Geismar, Louisiana. Tyson and Syntroleum formed Dynamic Fuels in 2007 as a 50/50 joint venture. A copy of REG's press release on the announcement is available online.
Last week, Purdue University (Purdue) President Mitch Daniels, and U.S. Navy Secretary Ray Mabus signed a Memorandum of Understanding (MOU), agreeing to work together on the development of alternative energy sources, including biofuels, for use by the U.S. Navy. As part of the agreement, Purdue has committed to establishing the Purdue Military Research Initiative. This initiative will cover the cost of graduate education for up to ten active duty members of the military pursuing studies in alternative energy, alternative fuels or energy efficient technologies.
This announcement furthers efforts made by the U.S. Navy in recent years to expand its use of alternative energy sources. The U.S. Department of Defense (DOD) entered into and has worked to implement an MOU with the DOE and the U.S. Department of Agriculture (USDA) to provide a collective $510 million toward the commercial development and availability of drop-in biofuels for military and commercial use. In addition, the U.S. Navy has developed goals to deploy a "Great Green Fleet" strike group of ships and aircraft running on alternative fuel blends by 2016 and to meet 50 percent of its energy consumption through the use of alternative sources by 2020.
On May 7, 2014, the U.S. Government Accountability Office (GAO) released a report on "Alternative Jet Fuels: Federal Activities Support Development and Usage, but Long-Term Commercial Viability Hinges on Market Factors." GAO found that [a]chieving price competitiveness for alternative jet fuels is the overarching challenge to developing a viable market." To this end, according to stakeholders consulted for the report, both federal activities -- including policy stability -- and market factors contribute to the ability of alternative jet fuels to be priced competitively with traditional jet fuels. A copy of the report is available online.
On May 6, 2014, in what is largely seen as a win for the U.S. Environmental Protection Agency (EPA) and the biofuels industry, the U.S. Court of Appeals for the District of Columbia Circuit rejected the challenge to EPA's final 2013 Renewable Fuel Standard (RFS) rule by Monroe Energy, LLC (Monroe Energy), a refinery and subsidiary of Delta Airlines. In Monroe Energy, LLC v. EPA, the court held that EPA properly utilized its authority under the federal RFS to set the 2013 RFS volume requirements. The court disagreed with Monroe Energy that EPA did not sufficiently consider factors in setting the final 2013 RFS rule, including the means of compliance for obligated parties. Further, the court held that the RFS provides EPA wide discretion under its cellulosic waiver provision. As such, it was within EPA's discretion to decide against lowering the overall or advanced 2013 RFS requirements when it lowered the 2013 cellulosic requirements using that authority.
The May 6 decision did not include challenges to EPA's final 2013 RFS rule related to overall, advanced, and cellulosic biofuel requirements of the American Petroleum Institute (API) and American Fuel & Petrochemical Manufacturers (AFPM). The court severed the API and AFPM challenges to the 2013 rule from Monroe Energy's challenge to the same rule. The court had earlier agreed to sever and hold in abeyance challenges to the cellulosic biofuel requirement under the 2013 rule while EPA reconsidered it.
On May 2, 2013, EPA published a proposed rule and a direct final rule that would amend its 2013 cellulosic requirement published on August 15, 2013. The rules are available here and here.
Through these actions, EPA is proposing a revised and reduced cellulosic standard for 2013 of 810,185 gallons. As EPA explains, the direct final rule will be "effective on July 1, 2014 without further notice, unless EPA receives relevant adverse comment by June 2, 2014. If EPA receives relevant adverse comment, [it] will publish a timely withdrawal of this direct final rule in the Federal Register informing the public that this rule will not take effect."
EPA also explains that the proposed rule and direct final rule follow from EPA having granted petitions for reconsideration of the 2013 cellulosic biofuel standard by API and AFPM. Further, EPA explains that it granted the petitions because KiOR, which was "one of the two companies that EPA expected to produce cellulosic biofuel in 2013 announced soon after EPA signed its final rule that it intended to produce substantially lower volumes of cellulosic biofuel in 2013 than it had earlier reported to EPA. Since the cellulosic biofuel standard was based on EPA's projection of cellulosic biofuel production in 2013, EPA deemed this new information to be of central relevance to the rule, warranting reconsideration. On reconsideration, EPA is directed to base the standard on the lower of 'projected' production of cellulosic fuel in 2013 or the cellulosic biofuel applicable volume set forth in the statute. Since data are available to show actual production volumes for 2013, EPA's 'projection' and final rule are based on actual cellulosic biofuel production in 2013."
The U.S. Senate is expected to consider its version of tax extender legislation, S. 2260, the "Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act," as early as next week. On April 3, 2014, the Senate Finance Committee approved its version of the EXPIRE Act. The EXPIRE Act includes extensions through December 31, 2015 (and retroactive to January 1, 2014), of the following key biofuels incentives that have expired: the Alternative Fuel Refueling Property Credit; the Second Generation Biofuel Producer Tax Credit; the Special Depreciation Allowance for Second Generation Biofuel Plant Property; the Biodiesel and Renewable Diesel Fuels Credit; and the Alternative Fuel and Alternative Fuel Mixture Excise Tax Credit. A copy of the EXPIRE Act is available online. A summary of the bill is also available online.
On April 22, 2014, the U.S. Environmental Protection Agency (EPA) signed off on a Direct Final Rule requiring petroleum refiners and importers to blend 810,185 gallons of cellulosic fuels into the fuel supply in 2013 in response to petitions for reconsideration of the Final Rule from the American Petroleum Institute (API) and the American Fuel & Petrochemical Manufacturers (AFPM). The pre-publication version of the Direct Final Rule is available online. Petitioners successfully argued that cellulosic fuel production was well below EPA's projections. Previously, EPA had mandated that the petroleum industry blend six million gallons of cellulosic fuels into the fuel supply under the Renewable Fuel Standard (RFS) for 2013. EPA granted the motion for reconsideration because one of the two companies that EPA expected to produce cellulosic biofuel in 2013 announced shortly after EPA signed the final rule that it intended to produce significantly lower volumes of cellulosic biofuel in 2013 that it had reported to EPA. The rule will be effective 60 days after it is published in the Federal Register.