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.
On April 15, 2014, the U.S. Department of Energy (DOE) announced that it would provide up to $10 million to promote the production of "advanced biofuels, substitutes for petroleum-based feedstocks, and bioproducts made from renewable, non-food-based biomass, such as agricultural residues and woody biomass." For more information, and to apply for this opportunity, please visit DOE's Funding Opportunity Exchange website. A copy of the press release is available online.
API, AFPM, and ExxonMobil urged EPA and the Office of Management and Budget (OMB) to eliminate the ability of biodiesel producers to sever RINs from batches of fuels produced as part of an upcoming final rule establishing a quality assurance program for the fuels credit market.
The rule, as proposed, would establish qualifications for third-party auditors who would determine the validity of the RINs. It would also establish audit procedures for renewable fuel production facilities, including minimum frequency, site visits, review of records, and reporting requirements. The rule is open for comment now, and EPA is requesting feedback on whether renewable fuel producers should be allowed to separate and sell their own RINs. The groups emphasized that allowing biodiesel producers to separate and sell fuel credits creates opportunities for fraud in the RIN market.
Biodiesel producers are authorized to sever RINs from fuel batches and sell them as credits to comply with the annual RFS blending mandates. This generates two revenue streams -- one from fuel sales, and another from RIN credit sales. This anomaly resulted from a settlement between 30 refiners and other companies and EPA in April 2013, where $3.65 million was paid to EPA in penalties for purchase of fraudulent credits. The National Biodiesel Board and the Renewable Energy Group emphasized that "[t]he biodiesel marketplace is not as mature as other biofuel markets" and "often the value of the RIN provides biodiesel producers with [their] only opportunity to create a margin."
On April 8, 2014, House Committee on Ways and Means Chair Dave Camp (R-MI) held a hearing on the "Benefits of Permanent Tax Policy for America's Job Creators." The hearing focused on the expiring business tax provisions that are made permanent or extended under Camp's recently released discussion draft of the "Tax Reform Act of 2014" (TRA). Unlike his Senate counterpart -- Senate Committee on Finance Chair Ron Wyden (D-OR) -- Camp is not very supportive of passing a tax extender package to extend retroactively the approximately 50 incentives that expired at the end of 2013, including several for advanced biofuels development. In fact, the TRA would eliminate most clean energy incentives. The House Ways and Means Hearing Advisory is available online.
Last week, the Senate Finance Committee approved its version of tax extender legislation, the "Expiring Provisions Improvement Reform and Efficiency (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 available online.
Whether a tax extenders package will pass this year depends on several factors. It is likely to be more difficult to pass in the House of Representatives than in the Senate.