RFS uncertainty continues to depress imports of biomass-based diesel

March 25, 2015

After reaching record levels in 2013, United States imports of biomass-based diesel fuel (both biodiesel and renewable diesel) fell 36%, to 333 million gallons in 2014, according to the US Energy Information Agency (EIA). Uncertainty surrounding future Renewable Fuel Standard (RFS) targets and the absence of a late-year influx of volumes from Argentina were two main factors in this decline.

The strongest drivers of the resurgence in U.S. biomass-based diesel demand since 2012 have been increasing RFS targets and the on-again, off-again biodiesel tax credit. Biodiesel and renewable diesel are valuable because they qualify for the two major renewable fuel programs in the United States: the RFS applied at the national level, and California's Low Carbon Fuel Standard (LCFS). Biomass-based diesel fuels have additional advantages over other renewable fuels because of their relatively high energy content and low carbon intensity, which allow them to qualify for higher credit values in both renewable fuel programs.

Both biodiesel and renewable diesel fuels are produced from refining vegetable oils or animal fats. Biodiesel is blended with petroleum diesel up to 5% or 20% by volume (referred to as B5 and B20, respectively). Renewable diesel is a diesel-like fuel that meets specifications for use in existing infrastructure and diesel engines, and thus is not subject to any blending limitations.

While the RFS is meant to encourage the production and consumption of renewable fuels, obligations for 2014 still have not been finalized and those for 2015 have not yet been proposed. The initial proposal for the 2014 RFS program year, released in November 2013, stated that the 2014 biomass-based diesel obligation would remain unchanged from its 2013 value at 1.28 billion gallons, while the advanced biofuels obligation would be reduced to 2.2 billion gallons, down from 2.75 billion gallons in 2013. The uncertainty and proposed lower target levels have made it difficult for refiners to comply with the RFS recently, but the flexibility and value of biomass-based diesel volumes towards all obligation levels make it a strong driver of biodiesel consumption as long as the RFS is still active.

Two other factors help explain lower biomass-based diesel imports in 2014. In late 2013, there was a surge of biodiesel imports from Argentina as a result of European Union (EU) antidumping duties placed on Argentine biodiesel. This action by the EU temporarily diverted large volumes of Argentine biomass-based diesel that were previously destined to be exported to Europe, Argentina's largest biodiesel export market, to the United States. US imports of biodiesel from Argentina fell by 57% from 2013 to 52 million gallons in 2014.

Another factor was the expiration of the $1.00 per gallon biodiesel tax credit at the end of 2013. While the credit was retroactively restored at the end of 2014, the extent to which producers considered this outcome in making decisions during 2014 remains unknown. Still, relatively high diesel fuel prices for much of 2014 kept domestic biodiesel relatively economic to blend, supporting production at levels near those in 2013. Domestic biomass-based diesel production was sufficient to meet most of the proposed reduced RFS obligations in 2014, thus reducing the need for imports. Total imports of biodiesel and renewable diesel represented an average of 23% of domestic biomass-based diesel consumption in 2014, down from an average of 34% of consumption in 2013.

The 212 million gallons of biodiesel imported into the United States in 2014 was sourced primarily from Canada (47%), reclaiming its spot as the top US supplier after being surpassed by Argentina in 2013. The remaining volumes of regular biodiesel imports entered the United States primarily on the East Coast, mostly from Indonesia and Argentina. US renewable diesel imports reached 121 million gallons in 2013, down 42% from 2013. Slightly more than 92% of total US renewable diesel imports came from Singapore and entered the United States primarily through West Coast ports, likely destined for California LCFS compliance.