US Biodiesel Market’s Inescapable Link with Federal Policy

Brian Milne - DTN Energy Editor,
January 2, 2018

Volatility in the US biodiesel market intensified in December following the final rule on mandated demand for renewable fuels in 2018 released by the Environmental Protection Agency on November 30, with the biodiesel industry disappointed that EPA, the administrator of the Renewable Fuel Standard, didn’t set the required quantity of biomass-based diesel under the federal program higher.

EPA set the annual Renewable Volume Obligation for biomass-based diesel at 2.1 billion gallons for both 2018 and 2019, up from 2.0 billion gallons in 2017 and 1.9 billion gallons in 2016. The National Biodiesel Board, the US trade group for biodiesel, had pushed for a 2.5 billion gallons RVO for 2019, down from an initial request of 2.75 billion gallons. The trade group and other interested parties said flat-lining the mandate would stunt growth for the industry.

In deciding against a higher RVO for biomass-based diesel strongly pushed by the NBB, the EPA cited concern that a greater increase in the mandate would need imports to meet the requirement which contrasts with the Trump administration’s “America First” policy. In comments to the House Subcommittee on Energy and Commerce in early December, Scott Pruitt, EPA administrator, said the agency considered the higher mandate, but determined imports would be needed to fulfill the requirement so limited the RVO to the 2.1 billion gallon for both years.

Pruitt noted a high level of biodiesel imports to the United States from Argentina in 2016. The Energy Information Administration, the statistical and analytical division of the Department of Energy, said biodiesel imports from Argentina in 2016 totaled 449 million gallons, and accounted for nearly 20% of US biodiesel consumption.

In 2016, US biodiesel consumption was 2.189 billion gallons, with 1.569 million gallons or 72% produced domestically. Imported biodiesel is primarily received along the East Coast and Gulf Coast regions of the United States.

EIA said US biofuel facilities achieved a 69% run rate in 2016, with annual production capacity at the start of the year totaling 2.270 billion gallons. US capacity expanded since then, with EIA reporting 99 biodiesel production plants in the United States with capacity of 2.348 billion gallons annually as of the end the third quarter 2017.

Before establishing each year’s RVO, the EPA is required to consult with the EIA and US Department of Agriculture to ensure there’s adequate feedstock and supply to meet the mandate

As the RVO for 2018 was released, two cases against Indonesia and Argentina regarding antidumping and countervailing duties that put US producers at a disadvantage brought to the courts by the National Biodiesel Board Fair Trade Coalition in early 2017 were continuing to advance. The coalition charged the two countries with subsidizing their industries, and selling product below its fair market value that harmed US biodiesel producers.

In early December, the US International Trade Commission voted unanimously that both countries were unfairly subsidizing their industries. The ITC ruling followed the US Commerce Department’s imposition of countervailing duties on soy-based biodiesel in August 2017, and in November 2017, issued an affirmative final determination. The decision set tariffs on the two countries’ biodiesel imports between 34% and 72% that are based on the producer or importer.

Argentina, which had sent as much as 90% of it biodiesel exports to the United States, saw their exports drop by 30% in the third quarter. There were no biodiesel imports from Argentina in the fourth quarter, while biodiesel imports from Indonesia ended in 2016.

Through the first 10 months of 2017, the EPA shows qualified biomass-based diesel supply from domestic production and imports totaled 2.055 billion gallons, up 40.1 million gallons or 1.5% against the comparable year-ago period. The year-on-year increase came despite the lack of a $1 gallon tax subsidy for blending biodiesel that expired at the end of 2016.


US biodiesel industry participants were left on tenterhooks deep in the fourth quarter with the hope the US Congress would reinstate the credit retroactively as it has in past years. Those in the biodiesel market indicate the credit is crucial in bridging the price gap between their product and ultra-low sulfur diesel fuel that trades at a deep discount to biodiesel to move sales.

In Chicago, biodiesel in the spot market traded at a nearly $1.50 gallon premium to spot ULSD in the Windy City in December. During 2017, biodiesel’s premium to ULSD in Chicago ranged from a low of $1.15 gallon in October to a high just over $1.80 gallon in late February, early March.


These conundrums for the biodiesel industry are reflected in open market trading for Renewable Identification Numbers—the credit generated when a qualified renewable is produced or imported, and submitted annually to the EPA to show compliance in meeting the RFS. Shifts in the political winds can and do affect the biodiesel market, and especially the RIN market.

While obligated parties under the RFS, which include oil refiners and blenders, can secure a qualified renewable with a RIN and blend it into their transportation fuel and later submit the RIN to the EPA for compliance, not all refiners have the ability to blend. Smaller refiners and independent refiners such as Valero are forced into the RIN market to secure a compliance credit.

During his testimony in early December, Pruitt told the House Subcommittee that he believed the RIN market needs reform, pointing to speculation in RIN trading, enforcement problems and fraud.

The climbing costs of RINs prompted some states with refineries disadvantaged by the compliance regime to seek exemptions or waivers from the program, including Pennsylvania, New Jersey and Texas. US Senator Ted Cruz from Texas secured a meeting with the White House in early December to push for changes in the RFS program that provide relief for embattled refineries.

In mid-December, a second meeting at the White House took place, with Cruz and US Senator Pat Toomey of Pennsylvania representing the interests of the oil industry, and US Senators Chuck Grassley and Joni Ernst of Iowa, and Deb Fischer of Nebraska representing the biofuel industry.

It was agreed to that Cruz would deliver written proposals outlining ways that the refining industry could better meet the RFS compliance requirements. Grassley and Ernst said while they would listen to the proposals from Cruz, they would not agree to any plan that threatens the RFS.

Nonetheless, the discussions spurred speculation that an agreement between the senators would be reached, pressuring RIN values. D4 biomass-based diesel RINs sunk to a nine-month low at $0.85 in early December.


While trading in the physical market is caught up with the political drama, demand for US distillate fuel had surged year-on-year in 2017.


In 2017 through the first week of December, implied distillate demand averaged 4.043 million bpd, up 258,000 bpd or 6.8% against the comparable year-ago period, EIA data shows. EIA said biodiesel accounted for 4% of diesel consumption in 2016.

In the United States, diesel demand has a strong correlation with economic growth, with the US economy in 2017 coming out of its years-long malaise, reporting annualized growth above 3% for the second and third quarters. The trend is expected to accelerate this year, with new orders for large trucks surging in late 2017 on expectations for a sharp increase in hauling demand in 2018. The outlook should provide support for US biodiesel producers.