Biden’s biodiesel quotas scorned by makers of fat-based fuel

The Biden administration dealt a blow to makers of bio and renewable diesel with federal quotas for the fat-based fuel that advocates say ignore a surge in production and a wave of investment in new manufacturing plants.

Under a regulation announced Wednesday, the Environmental Protection Agency in 2023 is requiring the use of 2.82 billion gallons of biomass-based diesel, generally made from soybean and canola oil – a 2.2% increase over the 2.76 billion gallons mandated last year.

For 2024 and 2025, the quotas are being set at 3.04 billion and 3.35 billion gallons, respectively.

Overall, the EPA will require a record amount of renewable fuel to be mixed into gasoline and diesel over the next three years – up to 22.33 billion gallons in 2025.

The biomass-based-diesel requirements are well below the increase sought by producers, who warned the White House that recent surges in U.S. production warrant much higher targets and that multibillion-dollar investments in renewable diesel capacity hang in the balance.

Disappointment in the EPA quotas earlier sent Chicago soybean oil, heavily relied on for making biomass-based diesel, plunging as much as 7% to the price exchange limit.

Most active soy oil futures are down about 20% since late last year when EPA unveiled its proposed blending rules.

The EPA failed to fully consider data “demonstrating an upward trajectory for biodiesel, renewable diesel and sustainable fats and oils,” said Kurt Kovarik, vice president of federal affairs for the Clean Fuels Alliance America.

The closely watched quotas have long been a source of tension for Republican and Democratic presidents as they seek to balance oft-competing oil refining and agricultural interests.

President Joe Biden campaigned on promises to promote corn-based ethanol, but his administration has put muscle into a push for electric vehicles that could limit the market for all liquid fuels, whether made from plants or petroleum.

The latest quotas have united a range of stakeholders in opposition, including biodiesel and ethanol producers, rural farm interests and oil refiners.

The EPA is limiting the amount of conventional ethanol that could be used to fulfill quotas in 2024 and 2025 to 15 billion gallons each of those years – a reduction from the 15.25 billion gallon target it had proposed earlier and a defeat for makers of the corn-based fuel.

Emily Skor, chief executive officer of the Growth Energy ethanol advocacy group, said the EPA was lowering its ambition for conventional biofuels in a way that “runs counter to the direction set by Congress and will needlessly slow progress toward this administration’s climate goals.”

The EPA’s decision to jettison a controversial proposal to expand the Renewable Fuel Standard program to incorporate electric vehicle charging was cheered by some refiners.

But Chet Thompson, president of the American Fuel and Petrochemical Manufacturers Association, said the final conventional biofuel targets are still “unachievable.”

The quotas have taken on a new dimension for U.S. renewable diesel producers, whose margins increasingly depend on the price of tradable credits used to prove compliance with the biofuel requirements.

The U.S. renewable diesel industry’s benchmark margins in 2023 are 3% above five-year averages of $2.27 a gallon, in large part because of an increase in the price of those compliance credits, known as renewable identification numbers, Bloomberg Intelligence analyst Brett Gibbs said.

Producers this year are receiving $2.86 a gallon for RINs tracking biodiesel, up from an average of $1.63 from 2018 to 2022.

Nevertheless, Darling Ingredients, which through its Diamond Green Diesel partnership with Valero Energy is the top U.S. producer of renewable diesel, said it was poised to benefit from the mandates.

“We believe this is a positive for Darling,” company spokeswoman Suann Guthrie said by email.

More than 20 renewable diesel production facilities are proposed or under construction in the U.S., and studies show there are sufficient feedstocks available to supply them, said Michael McAdams, president of the Advanced Biofuels Association.

Some analysts emphasized renewable diesel producers have room to grow, including by exceeding the EPA’s targets.

Ken Morrison, a St. Louis-based independent commodity trader, said he doesn’t foresee the quotas hindering plans to expand U.S. renewable diesel production.

And, he added, the EPA’s decision to pare the ethanol blending target in 2024 and 2025 from its original proposal is warranted based on lackluster gasoline consumption.