February 4, 2008: Fuel Quality, Sustainability and Feedstocks (and Policy, Policy, Policy)

Monday Opening Session

The Monday morning general session began with Joe Jobe addressing the rumored 4,000-member audience (there were a lot of people, but I’m not sure it hit that mark) with a state of biodiesel discussion. Despite the huge industry success of biodiesel’s role in the new Renewable Fuels Standard and large gains in public awareness, he sees fuel quality, feedstock development, and sustainability as the three most pressing issues facing the biodiesel industry.

There was some talk about the Farm Bill, which should be settled in the next 6 weeks. Jobe sees the CCC Biofuels program as a very important program to assist in the transition to diversity and wider availability of feedstocks. Many strides are also being made at the state level, especially on the production and use side.

Don Reynolds with 21st Century Forecasting gave a humorous and sobering talk on the state of the global economy. Let me give you a hint, it’s not good. He talked about globalization, the rise of China and India, the rise of the middle class, problems in the banking and housing industries, and long-term agricultural and energy trends.

Don said the word “Chinese economy” is an oxymoron – a centrally planned free market. Somehow, though, it’s working! He predicts that in 10 years the Chinese will replace the US economy as the largest. Additionally, if you look at the 20 largest polluted cities, China has 16 of them. China will demand 10 billion barrels per day of oil in 2010. Today, an excess of 3% in oil supply exists. Within 2 years, China will eat this up. His best guess is that by 2020, we will be pumping less oil every year. He predicts oil prices might stabilize for the near term, but over the next couple of years we will see $120 or even $150 per barrel. Intense, huh?

Don Reynolds reiterated the sentiments of Daryl Hannah about the massive environmental problems that we are facing, which are now, very much an economic issue. He did echo how important it was for him, an economist (“show me the money”) from Texas with oil roots (sound familiar – well, minus the economist part), to admit that Global Warming is becoming such an issue that he is worried his children will not have access to the same quality of life and access to the same resources as he has had. He said that global warming will make 4% of the worlds agricultural land useless – having huge economic implications.

State of the States: Public Policy and Regulatory Update

Scott Hughes kicked off this session with a whirlwind overview of incentives passed throughout the nation. I’ll let you wait until the presentations are posted to see the summary because I couldn’t even type as fast as he was talking.

He did say they anticipate dispenser labeling requirements to be passed by the federal government in the first or second quarter of this year. He also discussed the new trend of states beginning to look at ways to enhance production of feedstocks by providing incentives to growers.

Best Practices of the Northwest

Nikola Davidson with the North West Biofuels Association in Oregon, and founder of the largest biodiesel cooperative in Washington gave a very energetic presentation about what is happening in the Northwest as far as policy goes.

She discussed Idaho’s biofuels infrastructure grants, which contributed to the tripling of ethanol production in one year, how Montana has a large focus on rural and tribal development, which savvy producers have figured out how to take advantage of this large incentive base available.

Washington and Oregon have both passed renewable fuel standards. Washington’s RFS is not volumetric, as Oregon’s is. So, the whole state has to meet the mandate collectively rather than just being B2 across the board. Washington also has in place:

• Energy freedom loans: 1% rate, 10 year term, public-private partnership

• A state fleet mandate: starting in June 2009 all state vehicles must use B20

• Tax incentives: reduced business & occupation rate for manufacturers of biodiesel and feedstocks, retail and sales and use tax exemptions for sale, use and for delivery vehicles and equipment

• Quality testing program: State Ag Department funded program

• Funding for biodiesel research: to see what feedstocks are a good fit in order to bring results to legislature for possible legislation to stimulate growth

• Expedited permitting on the biodiesel retail and distribution end of things.

Oregon’s RFS is volumetric in that every gallon has to have at least 2% biodiesel. For the mandate to become effective, the production from regional feedstocks total 5 million gallons per year (and is sustained for 3 months). Oregon also has in place:

• Business energy tax credit: tax credit up to 50% of product cost (capital cost), can be taken over 5 years, is a dollar for dollar credit against Oregon business excise (income) of tax owned.

• Oregon’s Small Scale Energy Loan Program

• Production Credits: growers receive income tax credit for virgin oil and was grease

• Consumer credit: if using B99 in your car, can get up to $200 per year. Home heating (B20) also qualifies for up to $200 per year.

• Biofuels Investment Fund: funded in-line ratio blending rack project, retail station conversion to biodiesel and ethanol, contracted for outreach to commercial fleets to switch to B20,

• Portland’s fuel contract: ensures that the biodiesel feedstocks and production are local. Portland is willing to pay a premium for this and doesn’t set up a long-term contract but rather will pay x amount above the cost of feedstock/product costs so they carry some of the risk with the local biodiesel industry.

Nikola’s suggestion for a successful biofuels policy portfolio is to have all the different components: RFS, tax credits, funding for infrastructure, incentives for local feedstock production, and mandatory fleet use.

North Carolina Update

I’m always slightly embarrassed to hear what North Carolina is doing as far as biodiesel goes. I can drive to North Carolina faster than I can drive to Richmond, yet they seem like a different planet in terms of their make-up of legislation and coordination amongst all biodiesel stakeholders.

Anne Tazewell with the NC Solar Center spoke about what North Carolina has done to stimulate biodiesel growth: EPAct credit and banking program, state petroleum displacement plan (20% for state fleets), producer credits, biofuels center, North Carolina Biodiesel Association trade group…

The majority of biodiesel used in North Carolina is used by non-taxable entities including manipulates, school systems, and transit. In North Carolina, there is a statewide purchasing contract, which makes biodiesel available to all entities at a price premium of around 4.5 cents per gallon (last year’s average).

One of the coolest parts of her presentation was a discussion of their EPAct credit banking and selling program. EPAct requires regulated fleets to purchase AFVs, and biodiesel use can meet half of the EPAct credit requirements. Since North Carolina has been a leader in biodiesel use statewide, the North Carolina Department of Administration and the NC Department of Transportation have accrued several hundred credits through the use of E85 and B20. After a 2-year rule making process, legislation was passed to allow the state to sell their excess credits at a net profit of about $480,000 that has been placed in an alternative fuel revolving fund for alternative fuel infrastructure.

North Carolina also passed a state petroleum displacement plan requirement that says there must be a 20% reduction or displacement of current petroleum products by the state fleet. The goal is that by 2010, 4.65 million gallons of petroleum will be displaced.

In 2005, a biodiesel producer credit was passed allowing for those producing at least 10,000 gallons to claim an income tax credit. In 2007, the state budget included $5 million to fund a Biofuels Center of North Carolina and another tax credit was passed for biodiesel producers.

Capitol Gains: Federal Legislative Review and Outlook

Either I need to take a refresher course in political science, or the speakers thought they were still on Capitol Hill.

It was difficult for me to understand what was going on in this session – yes, I probably do need a refresher course. But, in a nutshell, I think I got it. A lot of legislation is pending, and the NBB is focusing it’s efforts on getting the biodiesel tax credits (small producer and blender) extended, addressing splash and dash and co-processed renewable diesel, and reinstating the CCC Bioenergy Program which sunset in 2006.

I’m With the Federal Government and I’m Here to Help

This session felt like a family reunion with a lot of Clean Cities Coordinators in the audience, Jill Hamilton moderating, and Linda Bluestein presenting first. As much as folks bash the federal government for never getting anything done, there are a lot of federal programs and federal employees that have a lot to offer.

EPAct Alternative Compliance

Linda Bluestein presented on the differences between the new EPAct alternative compliance rule and the old standard compliance coverage. Basically, I will put you to sleep if I write about all the details (if I haven’t already put you to sleep), but alternative compliance allows for more flexibility in meeting the rule and will hopefully allow for more biodiesel growth by the removal of the 50% cap.

Linda said the main takeaway is that if a fleet decides they want to work on a petroleum reduction program (versus the old plan), they have to become approved by DOE to do it, but they then have more flexibility to do it. DOE has a great tutorial online to walk you through the new alternative compliance rule: www1.eere.energy.gov/vehiclesandfuels/apact/state/index.html.

Biodiesel, DPM & Underground Mine Worker Health

The Mine Safety and Health Administration proposed new health standards for underground coalmines using diesel powered equipment. You can only imagine the levels of diesel particulate matter that miners are exposed to.

Richard Nelson presented on the new standards and how the industry might achieve them. The original thought was to add particulate traps to equipment such as front-end loaders that would have met the first revision standards proposed. However, the current rule cannot be met with just PM traps. As a result, a lot of investigation into the use of high-level biodiesel blends is in the works since biodiesel meets the elemental carbon exposure limits. This may be a fast growing B99 niche market. And since it’s a worker health issue, price won’t be much of an issue. It’s either pay the incremental cost of biodiesel, or pay fines to the EPA.

EPA’s SmartWay and Grow & Go Programs

Cheryle Bynum with US EPA kicked off her presentation with these thoughts: “By the end of 2007, the market in “green” investing grew to 1.3 trillion US dollars worldwide, a 35% increase over 2006. This rise due in large part to awareness over climate change. What does this mean to individuals and organizations and how is EPA advancing climate-friendly solutions?”

So Cheryle transitioned into some of the climate focused programs EPA has in place including: Climate Leaders, Green Power, CHP, SmartWay, and Energy Star.

We’ve talked about SmartWay before, so you may know a little bit about it. It’s basically an Energy Star program for trucking fleets. It was launched in 2004 to help quantify strategies for fleets to improve efficiency and save money. Last year, EPA released the technical specification and every truck manufacturer offers at least 1 SmartWay certified truck.

Grow and Go is a specific part of the SmartWay program. It helps partners implement strategies to: measure, track, and report progress. The program identifies and promotes GHG savings attributable to the use of biodiesel and recognized partners for their achievements. Some of the current partners are: Anheuser-Busch, Coca-Cola, GM, Whole Foods, JB Hunt, and Kimberly-Clark.

Since 66% of GHG contributions in the US come from passenger vehicles, EPA wants to turn some of the focus to the consumer market. The Department of Transportation is authorized to work with EPA and DOE to put out fuel economy standards for passenger vehicles that could be expanded to commercial vehicles. EPA is currently working with key stakeholders to develop better test metrics and methods. Stay tuned.