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2018 AFOA ANNUAL MEETING

State of the U.S. Biodiesel Market: RFS, Tax Credit, and Politics

Kurt Kovarik Vice President, Federal Affairs

NBB OVERVIEW

¡  NBB is the U.S. trade association representing the biodiesel and renewable diesel industry:

¡  Producers,

¡  Feedstock suppliers,

¡  Fuel distributors.

¡  160 members:

¡  Companies,

¡  Facilities – nearly 3 billion gallon capacity,

¡  State soybean and biodiesel trade associations.

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BIODIESEL IS THE RFS SUCCESS STORY

¡  EPA estimates 2.8 billion gallons is achievable in 2019.

¡  Growth from 400 million gallons in 2010.

¡  Animal fats and recycled cooking oil are significant and growing feedstocks.

¡  Distiller’s corn oil would not have been commercialized without the RFS.

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315

1147 1160

1985 1976 2093

2890 2630

103 414 486 513 591 596

0 500

1000 1500 2000 2500 3000 3500

2010 2011 2012 2013 2014 2015 2016 2017

U.S. Biodiesel & Renewable Diesel Market

(millions of gallons) Source: EPA EMTS*

Biodiesel and Renewable Diesel Renewable Diesel

NEED FOR RFS GROWTH

2015 2016 2017 2018 2019 2020

Cellulosic 0.123 0.230 0.311 0.288 0.381

Biomass-based Diesel (BBD) 1.73 1.9 2.0 2.1 2.1 2.43

Overall Advanced 2.88 3.61 4.28 4.29 4.88

Overall Renewable Fuel 16.93 18.11 19.28 19.29 19.88

Small Refinery Exemptions 0.29 0.79 1.46

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¡  After years of flatlined volumes, EPA proposed increases in BBD and advanced volumes.

¡  The volumes are meaningless if EPA does not address small refinery exemptions.

¡  NBB estimates small refinery exemptions reduced BBD demand by 300 million gallons.

¡  Independent analysis and EPA data verify our estimate.

¡  EPA continues to use flawed methodologies, including its “feedstock diversion” theory, and to disregard the importance of the BBD volume.

RFS SUPPORT IN CONGRESS

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¡  Senators and Congressmembers across the country support the biodiesel industry.

¡  In August, 39 Senators wrote EPA Administrator Wheeler, asking for:

¡  Higher Biomass-based Diesel volumes;

¡  Accounting for small refinery exemptions.

¡  Led by Sens. Patty Murray (D-WA), Roy Blunt (R-MO), Heidi Heitkamp (D-ND), Chuck Grassley (R-IA).

¡  Signatures from Hawaii (Sen. Mazie Hirono) to Maine (Sens. Susan Collins and Angus King).

RFS “REFORM” IN CONGRESS

¡  Congressional efforts:

¡  Rep. John Shimkus (R-IL), Chair, House Energy & Commerce Subcmte. on Environment.

¡  Sen. John Cornyn (R-TX).

¡  Could be undercut by executive efforts:

¡  Oct. 9: President Trump announces directive for E15 approval process.

¡  Unspecified RIN trading reforms.

¡  API/AFPM wrote to President Trump – approval of E15 undercuts their “reform” efforts.

¡  Threatening lawsuits.

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E15 DOESN’T HELP BIODIESEL

¡  NBB engaging to make sure biodiesel is included in any “deal”.

¡  Joint letter with American Soybean Association to President Trump.

¡  Ad in Des Moines Register thanking President Trump, encouraging additional support for biodiesel.

¡  Op-ed in Des Moines Register from NBB Board Member Ron Heck: “Help soybean farmers, too: Expand biodiesel.”

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RFS RESET RULE

¡  When the 2019 RFS rule is finalized, EPA will have cut the overall volumes by more than 20 percent in two consecutive years.

¡  EPA is expected to rewrite the statutory volumes for 2020 – 2022.

¡  Rewrite could be concurrent with 2020 RFS rule.

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Year Statutory Volume (billion)

Set Volume (billion)

% Reduction

2017 24 19.28 >20

2018 26 19.29 25

2019 28 19.88 (proposed)

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RFS LITIGATION ON EXEMPTIONS

¡  Administrative petition to EPA regarding EPA’s failure to account for small refiner exemptions in annual RVOs. ¡  NBB and other trade associations.

¡  EPA must reconsider its 2010 regulations because they do not adjust RVOs when EPA grants retroactive small refinery exemptions.

¡  Lost RVOs: ¡  2015 = 292.5 million

¡  2016 = 790 million ¡  2017 = 1,460 million

¡  Lawsuit in D.C. Circuit regarding EPA’s failure to account for exemptions. ¡  NBB and other trade associations have filed

a lawsuit in the D.C. Circuit on the same grounds.

¡  The case is currently stayed pending EPA’s decision on the petition for reconsideration.

¡  Lawsuit in D.C. Circuit – challenging 2018 RVOs and small refinery exemptions. ¡  Oct. 25 – EPA response to NBB brief.

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BIODIESEL TAX INCENTIVE

¡  NBB now working in unison with NRA, ATA, NATSO, NACS, PMAA, SIGMA, ABFA to support blender incentive – no longer seeking producer credit.

¡  NBB ask:

¡  Congress should extend the $1 per gallon incentive for 2018 and 2019;

¡  Provide long-term certainty – a permanent incentive at a level that fosters growth.

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TAX EXTENDERS

¡  NBB engaging Congressional champions.

¡  Sept. 27: Rep. David Young (R-IA) and Rep. Dave Loebsack (D-IA) organize bipartisan letter supporting biodiesel tax extension;

¡  Signed by 46 Members of Congress.

¡  Anticipating legislative action in November post-election.

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UNFAIR TRADE ENDS

¡  NBB’s Fair Trade Coalition filed trade complaints against Argentina and Indonesia.

¡  Favorable findings announced in August 2017;

¡  Imports from both countries stopped.

¡  U.S. biodiesel producers stepped up to capture the open market space.

¡  16% increase in BBD gallons in 2018, compared to 2017

¡  Argentina and Indonesia have dropped challenges to USITC’s finding of harm to U.S. producers;

¡  Companies still challenging Dept. of Commerce duty rates in U.S. Court of International Trade.

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BIODIESEL IMPORTS/EXPORTS

¡  U.S. maintaining a rough balance in monthly imports and exports of biodiesel since summer 2017.

¡  Most biodiesel trade is regional, cross-border with Canada.

¡  U.S. imports consistent volumes of renewable diesel.

¡  Primarily imports from Singapore to California.

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0

500

1,000

1,500

2,000

Jan-17 Jul-17 Jan-18 Jul-18

Tho

usan

d ba

rrel

s

U.S. monthly imports and exports

U.S. Imports of Biodiesel U.S. Imports of Renewable Diesel

U.S. Exports of Biomass-Based Diesel

BIODIESEL SUSTAINABILITY

¡  Soybean oil represents just under half of U.S. feedstocks for biodiesel.

¡  Animal fats, recycled cooking oil represent nearly one-third.

¡  Distiller’s corn oil was commercialized only because of the RFS.

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¡  Food manufacturers’ use of soybean oil is declining as they move away from partially hydrogenated oils.

¡  Biodiesel adds value to the oil that is left over from meal processing.

Canola Oil 11%

Distillers Corn Oil

15%

Soybean Oil 46%

Animal Fats 13%

Yellow Grease

15%

BIODIESEL CROP LAND USE

¡  Demand for soybean meal is increasing due to demand for animal feed.

¡  Increased production is driven by:

¡  slight increase in acreage,

¡  substantial increase in yield.

¡  Soybeans have a lower lifecycle assessment score than various biodiesel feedstocks:

¡  Canola = 19

¡  Soybean = 15

¡  Palm = 29

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ADVANCED BIOFUEL

¡  EPA classifies biodiesel as an advanced biofuel.

¡  Multiple studies estimate the reduction at or above 50%.

¡  According to EPA, NREL, and other studies, biodiesel reduces:

¡  engine particulate emissions by more than 45%;

¡  hydrocarbon emissions by 67%;

¡  processing wastewater by 79%; and

¡  hazardous waste by 96%

¡  when compared to petroleum diesel.

Author % Reduction Year

EPA 57 2010

USDA 76 2012

CARB 50 2015

Purdue University 60 2017

Argonne National Lab

66-76 2018

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CALIFORNIA LCFS

2030, 1,800 2020, 1,000

2026, 1,750

2030, 2,150

0

500

1,000

1,500

2,000

2,500

Mill

ion

gallo

ns

Projected LCFS BBD Volumes

Low BMBD High BMBD

¡  California recently extended the LCFS through 2030, with new carbon intensity (CI) benchmarks.

¡  New CI calculators – CA-GREET 3.0.

¡  Addresses POET v CARB lawsuit regarding higher CI scores for out-of-state biofuels.

¡  State biodiesel capacity ~80 million gallons.

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Source: CARB Illustrative Supply Scenario Calculator (https://www.arb.ca.gov/fuels/lcfs/rulemakingdocs.htm)

WASHINGTON STATE

¡  In 2018, Washington legislature considered LCFS bill.

¡  HB 2338 patterned after California & Oregon.

¡  Passed Environment & Transportation Committees.

¡  State biodiesel/renewable diesel capacity >100 million gallons;

¡  Overall state diesel market = 789 million gallons.

¡  Initiative 1631 on November ballot.

¡  $15/metric ton carbon tax.

¡  61% of voters support the carbon tax (including Microsoft’s Bill Gates).

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QUESTIONS?

Thank you!

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