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Watch: Imports, tax credits inform US biodiesel industry's view of proposed RVOs

While the US ethanol industry welcomed the 2018 and 2019 proposed Renewable Volume Obligations from the US Environmental Protection Agency, the biodiesel industry was hoping for an increased mandate. Wes Swift analyzes the mandates and explains how 2018 could be a bellwether year for biodiesel, especially when considering RINs markets, imports from Brazil, Argentina and Indonesia and the prospect of reinstating and changing the $1/gal biodiesel tax credit.

Hear more about the 2018 RVOs in this recent episode of the Commodities Spotlight podcast.

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Video Transcript

Imports, tax credits inform US biodiesel industry's view of proposed RVOs

By Wes Swift, associate editor, agriculture

Welcome to the Snapshot, a series examining the forces shaping and driving global commodities markets today.

After waiting for several weeks, the US biofuels markets got their first look at the 2018 and 2019 proposed Renewable Volume Obligations from the US Environmental Protection Agency on July 5.

By and large, the EPA held static on its two biggest mandates – those for corn-based ethanol and for biodiesel. Two other mandates – the advanced biofuels mandate and the cellulosic mandate – were reduced compared to their 2017 numbers.

D6 ethanol, D4 biodiesel RINs down slightly since announcement; Chicago Argo up slightly

Market price reaction has been muted. Prices for D6 ethanol and D4 biodiesel RINs have dropped slightly since the announcement, and S&P Global Platts Chicago Argo assessments has seen a slight increase in what has been a sluggish market in recent weeks.

The proposed 15 billion gallon mandate for corn-based ethanol was welcome news for the US ethanol industry, which worried that new EPA director Scott Pruitt may reduce the mandate from previous years.

Ethanol industry welcomed mandate, but biodiesel industry hoped for increased mandate

The US biodiesel industry, on the other hand, wasn’t keen on the 2019 proposal, saying that the biodiesel mandate should have been increased as well as the advanced mandate.

For the biodiesel industry, the 2018 RVO could be a bellwether year. In 2017, a lack of advanced biofuel RINs — particularly those associated with sugarcane ethanol from Brazil — has raised the value of both biodiesel and the associated RINs. If that trend continues amid strong sugar prices in Brazil, obligated parties in the US will most likely turn to biodiesel to satisfy that mandate.

And with the US Commerce Department looking into possible antidumping and anti-subsidy allegations against Indonesia and Argentina – two top exporters of biodiesel to the US – domestic biodiesel could be in high demand in 2018.

US biodiesel industry seeking to reinstate $1/gal biodiesel tax and change it to a producers credit

To add another layer of complexity, the US biodiesel industry is seeking a reinstatement and change to the $1/gal biodiesel tax credit. The lobbying group wants to change the credit from a blenders credit to a producers credit that only applies to domestic production.

Any decision that could keep foreign biodiesel imports out of the US market could put US biodiesel in a situation where their product could be extremely valuable for satisfying the advanced mandate.

Of course, there’s no guarantee that the EPA’s proposals make it unchanged to the final approval in November. In 2016, the 2017 proposal were revised upward, much to the biofuels industry’s benefit.

Regardless, there’s still plenty that can roil the markets between now and the end of the year, much less through 2018. Until next time on the Snapshot, we’ll keep an eye on the markets.