FARGO — The discussion over what will happen with the Renewable Fuels Standard has quieted down somewhat, but that hasn’t made the biodiesel industry relax.
Some in the Trump Administration and opponents of ethanol and the RFS have tossed around the idea of capping the price of Renewable Identification Numbers attached to ethanol at 10 cents, a number far below the present market value. No definite proposal has come out of the discussions and rumors, but proponents of renewable fuels remain on edge.
A RIN is an alphanumeric code that is attached to every batch of ethanol or biodiesel produced. Petroleum refiners must submit those RINs to the Environmental Protection Agency as proof of their purchase of ethanol or biodiesel to show they’re complying with the RFS.
Knowing that some refiners don’t want to blend ethanol or biodiesel, some people with no obligation under the RFS, including truckstop operators, have purchased RINs to resell, creating a market for the codes that has a lot of speculation and a lot of traders, explains Scott Fenwick, technical director for the National Biodiesel Board. That secondary market has made it more expensive for refiners to purchase RINs to comply with the RFS.
Some refiners have claimed the price of RINs has pushed them to bankruptcy, including the Philadelphia Energy Solutions refinery in Philadelphia. They want to see changes under the RFS, with a cap on the price of RINs high on the list.
Were the price of RINs cheap enough, refiners would stop or slow blending renewable fuels, and the supplies of ethanol and biodiesel would climb.
Fenwick says that rumors and whispers about a possible 10-cent cap primarily would be on “D6” RINs for conventional ethanol. However, since some biodiesel RINs can be used to meet ethanol obligations under the RFS, the impact on the biodiesel industry — and the farmers who grow for the biodiesel market — could be substantial. Fenwick says studies initiated by the National Biodiesel Board and other Washington, D.C., groups indicate the biodiesel industry could take a 300-million to 400-million-gallon hit. Since the RFS requirement for biodiesel use is 2.1 billion gallons, that’s about a 15 percent decrease.
“It was a little unnerving, the effect it would have,” says Ryan Pederson, a Rolette, North Dakota, farmer who serves on the North Dakota Soybean Growers Association board and the governing board of the National Biodiesel Board.
The same study also showed that such a move could decrease soybean prices by 16 cents a bushel by 2021, Pederson says. Figuring 37 bushels an acre and 6 million acres of soybeans in the state, that’s a $35 million hit to North Dakota soybean farmers.
“That doesn’t talk about canola farmers or anything else,” he says.
“I think that farmers here in North Dakota and Minnesota would certainly pay the price,” Fenwick says. “Our studies on industry prices are that biodiesel adds quite a bit of value inherently to those soybeans and those (other biodiesel) crops.”
If the soy oil market tanks, the price of soy meal would go up, leading to impacts on livestock producers who use soy meal as a feed source, Pederson says. Biodiesel plants, like the ADM plant in Velva, North Dakota, would feel the effects as well, putting jobs at risk, he says.
“When you start having significant changes to one cog, it’s going to start affecting cogs down the line,” Pederson says.
Rather than reward refineries for not meeting their obligations by capping the price of RINs, Fenwick says the best solution to the high price of RINs is to leave things the way they are. Refineries that don’t want to purchase high-priced, secondary market RINs instead could actually purchase ethanol or biodiesel and blend it into fuels. They’d get the RINs with the products and wouldn’t have to buy them. Blending more ethanol, such as E15 or E85 rather than the more common E10, also would help, Fenwick says.
“More blending of renewable fuels is a solution in and of itself,” he says. “Our argument is, if you would buy the gallons, you would get the RIN.”
Pederson says it’s also important to note that the price of RINs isn’t the only problem affecting PES, the bankrupt refinery in Philadelphia; the parent company has made business decisions to benefit itself at the expense of the refinery, he says.
“Blaming the RFS seems to be like blaming the dog for eating your homework, but I don’t even think they brought their homework home,” he says.
Pederson and Fenwick urge farmers and others concerned about possible changes to the RFS to reach out to Congressional delegations and other officials. Pederson says North Dakota’s U.S. Senators, Democrat Heidi Heitkamp and Republican John Hoeven, have shown constant support for the RFS. But he urges people to not take that for granted and to thank them for what they’ve done.
Renewable fuels have been a boon to North Dakota agriculture, and they need to stay relevant, Pederson says.
“We’ve talked about value-added for decades. And that is what renewable fuels are doing,” he says. “They’re doing it in our state. And to me that’s important.”