COMMENTS OF THE NATIONAL BIODIESEL BOARD ON THE

2014 STANDARDS FOR THE RENEWABLE FUEL STANDARD PROGRAM,

Proposed Rule, 78 Fed. Reg. 71,732 (Nov. 29, 2013)

Docket ID EPA‐HQ‐OAR‐2013‐0479

and on the

NOTICE OF RECEIPT OF PETITIONS FOR A WAIVER OF THE

RENEWABLE FUEL STANDARD,

78 Fed. Reg. 71,607 (Nov. 29, 2013)

Docket ID EPA‐HQ‐OAR‐2013‐0747

Attachment 9

   
COST OF CARBON REDUCTION FROM BIODIESEL 

SUMMARY OF PRELIMINARY RESULTS 

David W. DeRamus, Ph.D. 

Bates White Economic Consulting 

Marc Chupka 

The Brattle Group 

Prepared for the National Biodiesel Board 

January 28, 2014

Recent data demonstrate that biodiesel is a cost-effective means of reducing CO2 emissions from 

the transportation sector. In 2013, U.S. consumption of biodiesel resulted in the elimination of 

approximately 16.4 million metric tons of CO2 – equivalent to the annual emissions from 3.4 

million cars. Since 2011, biodiesel production costs have declined by fully 20%, even while 

annual production has grown by more than 50% to over 1.7 billion gallons. At the same time, 

the biodiesel industry has significantly increased its use of exceptionally low carbon-footprint 

feedstocks derived from waste grease, animal fats, distillers corn oil, and other ancillary 

agricultural products, which currently account for almost half of U.S. biodiesel production. 

Based on carbon lifecycle estimates and 2013 feedstocks, biodiesel currently reduces CO2

emissions by approximately 81% relative to petroleum diesel, on an energy-equivalent basis. 

This combination of declining biodiesel production costs and increasing use of low carbonfootprint feedstocks has made biodiesel an increasingly cost-effective means of reducing CO2

emissions from fossil fuels. Based on current feedstocks and carbon lifecycle estimates, 

biodiesel is currently eliminating CO2 emissions from petroleum-based diesel at a cost of 

approximately $71 - $91 per metric ton of eliminated CO2, which is within the range of recent 

estimates of the “social cost of carbon” from fossil fuels. Current trends in feedstock availability 

and costs indicate that the cost of carbon reduction using biodiesel will be even lower in 2014 

and beyond. 

These highly favorable recent developments in the biodiesel industry are the result of major 

recent investments by producers in new production and feedstock processing technologies, which 

will enable continued cost reductions, additional penetration of the lowest carbon-print 

feedstocks, further production increases in excess of the 1.7 billion gallons produced in 2013, 

and greater reductions in U.S. CO2 emissions. These major technological investments and 

developments, in turn, have been spurred in large measure by the predictability of growing U.S. 

demand for biodiesel that, at least until EPA’s recent proposal for 2014, was both the intention 

and actual effect of the RFS2 program. 
 

2 

The Energy Information Administration documents the biodiesel industry’s increasing use of 

exceptionally low carbon-footprint feedstocks from waste grease, animal fats, and distillers corn 

oil.1

 Based on biodiesel feedstock use, feedstock commodity prices, and additional costs for a 

“typical” biodiesel plant,2

 estimated average biodiesel production costs have fallen from 

approximately $4.57 per gallon in 2011 to $3.89 per gallon in 2013. As of 2013, biodiesel 

production costs were only $0.88 per gallon above the average wholesale price of diesel fuel, 

reflecting lower biodiesel feedstock prices and advances in production technology to exploit 

lower cost, and lower carbon, feedstock pathways. 

Each feedstock has a different carbon footprint, as evaluated through a carbon lifecycle analysis 

that accounts for a variety of factors, including crop yields, additional resources required to 

produce the feedstock, indirect land use effects, and impacts on other agricultural products. 

Carbon lifecycle estimates from the EPA, the USDA, and the California Air Resources Board 

can be used to estimate the carbon reduction impact of biodiesel as a replacement for petroleum 

diesel. Based on the most recent carbon lifecycle estimates and 2013 feedstocks, biodiesel 

currently reduces CO2 emissions by approximately 81% relative to petroleum diesel, on an 

energy-equivalent basis. In 2013, substituting 103 gallons of biodiesel in place of an energyequivalent volume of petroleum diesel eliminated one metric ton of CO2 emissions. 

These emission reduction estimates can be combined with production cost data to derive the cost 

of using biodiesel to reduce CO2 emissions. For 2013, this cost was approximately $91 per 

metric ton of CO2 emission reduction, based on an estimated $0.88 per gallon cost differential 

for biodiesel relative to the wholesale price of petroleum diesel. Lower processing costs, 

reflective of current biodiesel producer capabilities rather than generic plant assumptions, result 

in 2013 CO2 reduction costs as low as $71/metric ton. Based on current feedstock projections, 

biodiesel’s CO2 reduction cost for 2014 will likely decline further. Even at the higher estimate, 

however, the implicit cost of carbon reduction via the RFS2 program requirements for biodiesel 

is within the EPA’s range of estimates of the “social cost of carbon” from fossil fuels, and far 

below the costs of other policies directed at reducing CO2 in the transportation sector.3 

In addition, biodiesel provides significant additional benefits in reducing emissions of other 

pollutants, such as particulate matter (PM2.5), carbon monoxide, and unburned hydrocarbons. 

Based on benefit values estimated by the EPA for particulate matter reductions under 

implementation of the Diesel Emissions Reduction Act, the production of biodiesel at 2013 

levels (1.7 billion gallons) provides annual benefits on the order of $1.12 billion, or 

approximately $0.66 per gallon of biodiesel, for particulate matter reduction alone. Thus, 

accounting for the benefits obtained by reducing such other pollutants would further reduce the 

above estimates of the cost of reducing CO2 emissions using biodiesel. 

 

1

 EIA biodiesel data can be accessed at http://www.eia.gov/biofuels/biodiesel/production/. 2

 Available at: http://www.extension.iastate.edu/agdm/energy/xls/d1-15biodieselprofitability.xlsx 3

 See e.g., Ted Gayer, “Cash for Clunkers: An Evaluation of the Car Allowance Rebate System,” 

Economic Studies at Brookings, October 2013. 
Draft--Preliminary work product

Biodiesel Renewabl

Sta

Analysis of Cost of Carbon 

DRAFT – PRELIMINARY A

January 
Draft--Preliminary work product

Summary of conclusions

• Biodiesel reduces CO2 emissions by 81% relative to die

• Based on current mix of biodiesel feedstocks• Biodiesel carbon footprint steadily improving as mix of feedstocks 

• Biodiesel reduced 2013 CO2 emissions by 16.4 million metric ton

• Biodiesel production costs have declined, especially rel

petroleum diesel

• Lower feedstock costs relative to petroleum diesel• Greater availability of feedstocks with lower carbon footprint• Technology changes allow greater use of lower-cost, lower-carbon 

• Cost of carbon reduction via biodiesel is currently $71 – 

metric ton of CO2, before accounting for other benefits

• Biodiesel capacity and feedstocks are available to supp

production increases with minimal cost/price impacts
Draft--Preliminary work product

Estimates of Biodiesel C

Carbon Red
Draft--Preliminary work product

Biodiesel has a significantly lower carbon footprint than pe

05

1015202530

regular diesel canola soy used cooking

oil

other recycled

grease

animal fat 

lb CO2e/125,000 Btu

Biodiesel lifecycle carbon emissions, by 

feedstock

On average, biodiesel emits 81% less CO2 than petroleum diesel with current feeds

Source: ‘Best available data’ from USEPA 2010, USDA/Idaho 2012 & CARB 2011

Carbon content compares favorably to 
Draft--Preliminary work product

Currently, 103 gallons of biodiesel = 1 ton reduction in CO

• With current feedstocks, biodiesel emits 81% less CO2 

petroleum diesel (normalized for energy content)

• 2013 wtd. average CO2 reduction: 21.3 pounds/gallon b

• 2204 lbs / 21.3 lbs/gallon = 103 gallons biodiesel to red

emissions by 1 metric ton

• Current annual CO2 reductions due to biodiesel: 16.4 m

tons

 1,700 million gallons x 21.3 lbs / 2204 = 16.43 million metr Equivalent to the emissions from 3.4 million cars*

*Source: EIA’s emissions calculator
Draft--Preliminary work product

Share of biodiesel production from lower carbon footprint feedstocks has increased, even with rising biofuel product

0%5%

10%15%20%25%30%35%40%45%50%

2011 2012 2013

Lowest Carbon Feedstock %

Biodiesel Use of Lowest Carbon Feedstoc

Biodiesel Production Distillers Corn Oil, Tallow, Yellow Grease, and Other Oils

At the margin, increased biodiesel production has used distillers corn oil or waste grease 

Source: EIA Monthly Biodiesel Production Report (November 2013). 
Draft--Preliminary work product

Changing feedstocks have made biodiesel increasingly efreducing carbon emissions

100101102103104105106107108109110

2011 2012 20

Gallons of Biomass-Based Diesel

Gallons of Biodiesel Required to Reduce a 

Metric Ton of Carbon

Source: EIA Monthly Biodiesel Production Report , USEPA , USDA and CARB carbon reduction figures 
Draft--Preliminary work product

Biodiesel production costs have been declining, especially to the price of petroleum diesel

$2.00$2.50$3.00$3.50$4.00$4.50$5.00

2011 2012 20

Dollars per Gallon

Sources: Production cost estimates based on output and feedstock data from EIA for biodiesel and industry estimdiesel; feedstock prices from Jacobsen; processing costs from Iowa State biodiesel plant model.

Wholesale Price of DieselBiodiesel Production Cost
Draft--Preliminary work product

The difference between the cost of biodiesel and the whoprice of diesel has dropped by over 40% since 2011

$1.52 

$1.21 

$0.88 

$1.45 

$1.15 

$0.00$0.20$0.40$0.60$0.80$1.00$1.20$1.40$1.60

2011 2012 20

Dollars per Gallon

Based on Iowa State processinBased on NBB processing cos
Draft--Preliminary work product

Biodiesel production costs are falling with increased relianlower cost feedstocks

2011 2012 

Weighted average feedstock cost $3.90 $3.66 Average processing cost $0.67 $0.66 Total production cost $4.57 $4.32 Average wholesale diesel price $3.05 $3.11 Biodiesel production cost difference $1.52 $1.21 

Sources: Production cost estimates based on output and feedstock data from EIA for biodiesel and industry esdiesel; feedstock prices from Jacobsen; processing costs from Iowa State biodiesel plant model.

Processing costs from Iowa State model are likely overstated, especially with higher plant ut
Draft--Preliminary work product

Lower biodiesel production costs reflect overall feedstock decline and cost advantage of lower carbon footprint feed

$2.00$2.50$3.00$3.50$4.00$4.50

2011 2012 2013

Feedstock Cost per Gallon of Biodiesel Distillers Corn Oil, Yellow Grease, and Animal Fats Soybean Oil

Source: Feedstock prices from Jacobsen; feedstock prices per pound were multiplied by 7.5 to determine the cost per gallon of 
Draft--Preliminary work product

Expanded use of lower-cost/lower-carbon footprint feedstoto recent investments in new technology

• New technology increased production of lower carbon fe

 Distillers corn oil Waste oils

• Updates to existing biofuel production systems

 Flexible plants able to use different feedstock

• Alternative processing systems/pathways, e.g.:

 Hydrotreating

 Removes sulfur, oxygen, and nitrogen Produces propane as a byproduct

 Biomass-to-Liquid

 Biomass is gasified Resulting gas is converted into oil

Investments in technology for new feedstocks and more efficient biodiesel production due to incre
Draft--Preliminary work product

Based on 2013 feedstocks and production costs, biodiesecarbon reduction is approximately $71 - $91 per metric to

$166 

$128 

$91 

$158 

$121 

 $-

 $20 $40 $60 $80

 $100 $120 $140 $160 $180

2011 2012 2

Cost of Carbon Reduction 

($/metric ton)

Based on Iowa State processiBased on NBB processing cos

Changes in production costs and feedstocks have lowered biodiesel’s cost of carbon reduction 
Draft--Preliminary work product

Calculation details: CO2 reduction cost from biodiesel procost differential relative to wholesale diesel price

• $0.88 biodiesel cost differential relative to wholesale 

 Wholesale diesel price in 2013 averaged $3.01/gal Production cost of biodiesel in 2013 was $3.89/gal

• 21.3 lbs CO2 emission reduction from biodiesel disp

one gallon of petroleum diesel (0.00967MT/gal)

 Based on carbon intensity estimates by feedstock and curre

feedstock production shares

• $0.88/gal ÷ 0.00967MT/gal = $91/MT CO2 reduction
Draft--Preliminary work product

An upper bound estimate of the cost of RFS2 is the cost dbetween biodiesel and petroleum diesel

Adapted from Taheripour and Tyner, “Welfare Assessment of the Renewable Fuel Standard: Economic Efficiency, Rebound Effin a General Equilibrium Framework,” Purdue University Working Paper, June 2012, presented at 15th Annual Conference on G

Price of blend Sblend mandate

Pblend

P0

Pdiesel

E1

E0

Price of biodiesel

Sdiesel

Dfuel

Implicit costs ofmandated blend

Pbio

Dbio mandate

Sbiodiesel

Pdiesel

Q Qbio Quantity of biodiese

diesel Q0 Quantity of blend 

Blend Market with Volume Mandate Biodiesel Market with Volume Mandate

Dbiodiesel

Q blend
Draft--Preliminary work product

Cost of carbon reduction from biodiesel should be calculaother benefits

• RFS2 has three distinct policy objectives:

• Agricultural policy: increase rural employment, farm incomes• “Energy independence:” reduce petroleum imports• Reduce GHG emissions

• Biodiesel is effective at reducing CO2 and other emissio

particulate matter (PM2.5)

• Biodiesel reduces PM2.5 emissions by 47%1• EPA estimate of benefits from PM2.5 reduction: $230k – 880k/ton2

• RFS2’s other objectives also have significant monetary 

Our initial estimate of biodiesel’s cost of carbon reduction does not account for these ot

1 EPA, “A Comprehensive Analysis of Biodiesel Impacts on Exhaust Emissions,” October 2002, p. 37. 2 EPA, “Report to Congress on Black Carbon,” March 2012, p. 143.
Draft--Preliminary work product

$0

$50

$100$150$200$250$300$350$400$450

10/10/2006 2/22/2008 7/6/2009 11/18/2010 4/1/2012 8/14/2013 

Oil price ($/barrel)

Crude vs. Diesel

Diesel: Los Angeles (Dollars Per Gallon) Crude Oil: Europe Brent (Dollars per Barre

No indication that D4 RIN prices have had a significant imretail price of diesel fuel

Whether RIN costs are passed through to consumers is important in analyzing welfare eff
Draft--Preliminary work product

Further increased biodiesel production is not constrained available feedstocks

Source: LMC International, “Current and Future Supply of RFS2 Qualifying and Non-qualifying Oils and Fats for Biofuels,” July 2

Biodiesel feedstock production forecast
Draft--Preliminary work product

Recent rapid growth in biodiesel has not increased soybean oil additional production is unlikely to cause large feedstock cost in

0

102030405060

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

2010 2011 2012 2013

Cents/Pound of Soy Oil

Biodiesel RIN Production Soybean Price

Source: Soy Oil prices from Jacobsen; RIN volumes from EPA EMTS database.
Draft--Preliminary work product

Increasing availability and recent price trends suggest incbiodiesel production will come from lower carbon feedstoc

0

200400600800

10001200140016001800

2011 2012 2013 2014 

Thousand Tons of Corn Oil

Biodiesel Use of Distillers Corn Oil as 

Feedstock

Consumption for BiodieselProjected Production

Sources: EIA Monthly Biodiesel Production Report, November 2013; LMC International Report, “Current and Future Supply of RQualifying Oils and Fats for Biofuels,” July 2013.
Draft--Preliminary work product

Further increased biodiesel production is not constrained biodiesel capacity

2.4 bill gal

0.4 bill gal

0.8 bill gal

2012 Biodiesel Production Capacity

Registered produced Registered produce aFacilities tregistered 

Source: Biodiesel plant list 2-6-13 from Docket EPA-HQ-OAR-2013-0479; numbers are from a combination of NBB, EIA, and EP
Draft--Preliminary work product

D4 RIN prices are currently well below historical levels, regrowth in biodiesel supplies and production capacity

Source: Bloomberg; average of available indices. 

$0.00$0.50$1.00$1.50$2.00$2.50

2010 2011 2012 2013

D4 RIN Price

2013 D4 RIN 

demand fo

Current D4 prices 

production cost dif
Draft--Preliminary work product

Simulation models suggest biodiesel production can rema2013 levels or further expand without significantly increas

2013 2014 Forec

Production, billion gallons 1.74 1.70

Weighted feedstock cost, $/gal $3.20 $2.70

Avg processing cost, $/gal $0.50 $0.50

Total Production Cost, $/gal $3.70 $3.20

Wholesale Diesel Price, $/gal $3.01 $2.92

Biodiesel cost differential, $/gal $0.69 $0.28

Cost of 1 metric ton CO2 reduction $71 $29

Sources: 2013 production cost analysis with industry processing cost estimate; 2014 production cases from World Agric

Environmental Services (WAEES) model.
Draft--Preliminary work product

Current biodiesel cost differential would be largely elimina$43/ton carbon price

• 2014 projected wholesale price of diesel = $2.92/gallon• A gallon of diesel fuel produces around 96g CO2e/MJ• A gallon of diesel fuel has an energy intensity of 36.17 M

• With carbon price of $43/ton, diesel price would increas

D4 RIN prices of $0.57/gallon are equivalent to a $43/ton carbon tax on petroleum 

ܱ2ܥ ݃ $ .000043 ∗ ݊݋݈݈݃ܽ ݏݎ݁ݐ݈݅ 3.785 ∗ ݎ݁ݐ݈݅ ܬܯ 36.17 ∗ ܬܯ ܱ2ܥ	݃ 	96	 ൅ ݊݋݈݈݃ܽ $ 	2.92
Draft--Preliminary work product

Biodiesel cost of carbon reduction compares favorably to 

$0

$50

$100$150$200$250$300$350

Electric vehicle

tax credit

Hybrid vehicle

tax credit

CARS program B

$ per Metric Ton of CO2 Reduction

Cost of Reducing Carbon in Transportation Sec

Source for data regarding electric vehicle tax credit, hybrid vehicle tax credit, and CARS program: Ted Gayer, “Cash for ClunkeAllowance Rebate System,” Economic Studies at Brookings, October 2013.
COMMENTS OF THE NATIONAL BIODIESEL BOARD ON THE

2014 STANDARDS FOR THE RENEWABLE FUEL STANDARD PROGRAM,

Proposed Rule, 78 Fed. Reg. 71,732 (Nov. 29, 2013)

Docket ID EPA‐HQ‐OAR‐2013‐0479

and on the

NOTICE OF RECEIPT OF PETITIONS FOR A WAIVER OF THE

RENEWABLE FUEL STANDARD,

78 Fed. Reg. 71,607 (Nov. 29, 2013)

Docket ID EPA‐HQ‐OAR‐2013‐0747

Attachment 10

   
1

!The!Census!Bureau’s!M311K!reports!provided!the!data!for!2007!through!2010,!while!the!Department!of!Energy’s!Energy!Information!Administration!began!

collecting!similar!data,!starting!with!2010!production.!!Therefore,!there!is!an!overlap!of!information!in!2010.

Overview/Introduction

As#the#U.S.#biodiesel#industry#has#expanded#and#contracted#over#the#last#5#1⁄2#years,#the#industry#has#adapted#its#feedstock#

utilization#based#on#feedstock#availability#and#cost.##A#consistent#biodiesel#feedstock#source#has#recently#been#animal#fats#and#

tallow.##These#byAproducts#of#animal#slaughter#had#traditionally#been#used#as#a#feed#ingredient,#for#industrial#purposes,#and#

on#a#smaller#scale#as#a#food#ingredient.##Therefore,#as#their#use#has#shifted#towards#biodiesel#production,#it#has#drawn#

attention#to#the#impact#of#the#change#in#utilization#and#consequently#prices#on#the#livestock#industry.##The#ultimate#question#

has#been#“How#has#the#biodiesel#industry’s#use#of#animal#fats#and#tallow#affected#the#livestock#industry?”##This#paper#will#

report#the#utilization#of#animal#fats#and#tallow#for#biodiesel#production#beginning#in#2007,#proffer#reasons#for#the#new#

demand,#explore#price#relationships,#and#conclude#with#illustrations#showing#how#livestock#producers#have#impacted#from#

the#increased#demand.#

Animal Fats and Tallow Use as a 

Biodiesel Feedstock

The#U.S.#biodiesel#industry#has#experienced#significant#

growth#beginning#in#2007.##While#soybean#oil#was#the#

dominant#biodiesel#feedstock#and#the#feedstock#of#choice#

in#2007,#feedstock#substitutes#have#easily#entered#the#

market#which#is#a#strength#of#the#biodiesel#industry.##

Animal#fats#and#tallow#have#been#consistent#feedstocks#

since#2008.##Figure 1#reports#animal#fats#and#tallow#share#

of#total#biodiesel#production#using#two#data#sources1.##

Animal#fats#and#tallow#use#jumped#from#about#1%#of#the#

biodiesel#produced#in#2007#to#over#10%#in#2008.##Since#

there#is#a#large#disparity#in#the#two#data#sources’#2010#

data#as#shown#in#Figure 1,#both#data#sources#are#presented#

to#show#the#potential#range#of#the#share#of#animal#fats#and#

tallow#use#that#year.##Animal#fats#and#tallow#were#around#

13%#of#the#biodiesel#feedstocks#the#first#seven#months#in#

2012.

Figure'1.''Animal'Fats'and'Tallow'Share'of'Biodiesel'Production

Biodiesel Feedstock Demand for Animal 

Fats and Tallow

There#are#multiple#reasons#for#the#increased#use#of#animal#

fats#and#tallow.##These#reasons#include#their#availability,#

the#fact#that#they#qualify#for#D4#fuel#pathway#for#

generating#RINs,#and#importantly,#their#price#advantage#

over#virgin#vegetable#oils,#despite#their#need#for#additional#

processing#due#to#their#high#free#fatty#acid#(FFA)#content.##

Biodiesel Feedstock Price Relationships

Figure 2#illustrates#two#points;#the#first#observation#is#the#

confirmation#of#the#consistent#price#advantage#that#animal#

fats#and#tallow#have#had#over#crude#soybean#oil#averaging#

7#to#11#cents#per#pound#less#than#crude#soybean#oil.##The#

second#point#is#the#closer#tracking#of#soybean#oil,#animal#

fats#and#tallow#prices#beginning#in#2007.##

Figure'2.''Biodiesel'Feedstock'Prices

September 2012 by Centrec Consulting Group, LLC for the National Biodiesel Board

B IODIESEL D EMAND FOR A NIMAL F ATS AND T ALLOW G ENERATES 

AN A DDITIONAL R EVENUE S TREAM FOR THE L IVESTOCK I NDUSTRY

Animal'fats'and'tallow'provide'an'

important'feedstock'source'for'

biodiesel'production.

Animal'fats'and'tallow'

prices'correlate'closely'with'

soybean'oil'prices.
Page 2 B IODI ESEL D EMAND FOR A NIMAL F ATS AND T ALLOW G ENERATES 

AN A DDITIONAL R EVENUE S TREAM FOR THE L IVESTOCK I NDUSTRY

The#price#correlations#between#crude#soybean#oil#(SBO)#

and#tallow,#choice#white#grease#(lard)#and#poultry#fat#have#

all#increased#since#January#2007#(Table 1).#These#more#

highly#correlated#price#relationships#hint#at#an#increased#

alignment#of#utilization#across#these#feedstocks#(e.g.,#they#

are#increasingly#used#for#the#same#purpose#such#as#

biodiesel#production#as#SBO)#and#that#they#are#impacted#

by#similar#market#forces#such#as#changes#in#demand#for#

biodiesel#production.

Table'1.''Feedstock'Price'Correlations

Correlation!Coefficients

Feedstocks Apr!’01 – Dec!‘06 Jan!’07!–!Aug!‘12

Crude!Soybean!Oil!and!

Edible!Tallow 0.7969 0.8885

Crude!Soybean!Oil!and!

Choice!White!Grease 0.8094 0.8976

Crude!Soybean!Oil!and!

Poultry!Fat 0.8172 0.8712

Impact of Biodiesel Use of Animal Fats 

and Tallow on Livestock Industry

Basic#economic#principles#state#that#when#demand#

increases#for#a#product,#prices#for#that#product#increase.##

For#products#for#which#there#is#direct#demand#such#as#

beef,#increased#demand#stimulates#increased#supply.##

However,#animal#fats#and#tallow#are#byAproducts#of#

livestock#and#poultry#harvest,#and#increased#demand#does#

not#stimulate#increased#supply#due#to#their#small#share#of#

the#gross#revenue#of#the#animal#carcass.##While#these#byA

products#are#not#primary#drivers#in#determining#the#prices#

paid#for#poultry,#fed#cattle#and#market#hogs,#they#do#affect#

the#profit#margins#in#these#industries#by#increasing#the#byA

product#“drop#value.”##As#a#result,#the#increased#prices#

received#for#the#animal#fats#and#tallow#have#helped#

support#or#possibly#increased#the#prices#paid#for#the#

animals.##These#relationships are#demonstrated#through#

the#positive#price#correlation#between#edible#tallow#and#

slaughter#steers#of#0.863.##This#correlation#does#not#imply#

that#one#price#is#causing#the#other#price#to#increase,#but#

simply#indicates#that#the#prices#tend#to#increase#or#

decrease#together.

The#potential#economic#benefit#of#increased#animal#fats#

and#tallow#prices#to#livestock#producers#can#be#illustrated#

on#a#per#head#basis#for#feeder#steers,#market#hogs,#and#

broilers.##The#following#tables#summarize#the#average#yield#

of#the#respective#species’#fat#or#tallow#per#head.##In#

addition,#it#shows#the#value#of#the#fat#or#tallow#at#two#

points#in#time.##The#“2007”#prices#are#from#January#2007#

before#the#demand#for#animal#fats#and#tallow#increased#

significantly.##The#“2012”#prices#are#what#were#

experienced#early#in#2012#after#animal#fats#and#tallow#use#

as#a#biodiesel#feedstock#had#been#incorporated#into#the#

demand#and#supply#structure#of#the#livestock#slaughter#

industry.##Summarizing#the#differences#between#the#2007#

and#2012#price#scenarios#stated#in#these#tables#are#not#

meant#to#imply#the#total#change#in#value#per#head#are#

directly#attributable#to#the#increased#biodiesel#use#for#

animal#fats.##There#are#other#demand#and#supply#factors#

that#mostly#likely#are#impacting#the#increased#value#of#the#

animal#fats.##However,#these#numbers#provide#a#starting#

point#from#which#to#estimate#a#contribution#by#the#

biodiesel#industry#to#the#increased#drop#value.#

Table#2#indicates#that#the#change#in#drop#value#from#2007#

to#2012#for#edible#and#inedible#tallow#for#one#steer#is#

$16.79.##Tallow#production#did#not#change#significantly#

between#2006#and#2010#(the#most#recent#year#in#which#

twelve#months#of#Census#Bureau#data#are#available),#thus#

supply,#which#could#have#impacted#prices,#did#not#vary

greatly.##Over#the#same#timeframe,#there#was#a#significant#

increase#in#inedible#use#of#tallow,#while#edible#

consumption#remained#fairly#constant.##Those#factors#lead#

one#to#conclude#that#the#majority#of#the#change#in#prices#

was#driven#by#the#change#in#inedible#use#(in#other#words,#

biodiesel#use).##Multiple#market#factors#impact#prices#so#all#

of#the#recent#increases#in#animal#fats#and#tallow#prices#

should#not#be#attributed#to#increased#biodiesel#use.##

However,#because#of#no#significant#changes#in#supply#or#

edible#use#of#tallow,#it#is#conceivable#that#biodiesel#

demand#for#tallow#could#have#contributed#approximately#

60#to#72%#of#the#change#in#value#or#between#$10#to#$12#

per#head#of#the#increased#drop#value#of#the#tallow.##Using#

2011#slaughter#numbers#for#beef#steers#and#heifers#only#

(representing#78%#of#the#total#cattle#slaughtered),#total#

contribution#of#biodiesel#demand#could#possibly#have#

ranged#from#$262.6#MM#to#$315.2#MM.#

Table#3#shows#that#the#change#in#drop#value#from#2007#to#

2012#for#lard#and#choice#white#grease#for#one#market#hog#

is#$1.69.##Assuming#$1.00#to#$1.25#could#be#attributed#to#

biodiesel#demand#(using#similar#assumptions#about#the#

supply#and#demand#factors#causing#the#lard#and#choice#

white#grease#price#increases#as#for#tallow)#and#2011#barA

row#and#gilt#slaughter#(97%#of#the#hogs#slaughtered),#the#

range#of#increased#value#the#biodiesel#industry#may#have#

contributed#to#the#pork#industry#is#$26.3#MM#to#$32.8#MM.

Table#4#reports#that#the#increased#value#in#poultry#fat#from#

2007#to#2012#for#a#single#broiler#is#estimated#at#$0.18.##If#

$0.11#to#$0.12#per#broiler#could#be#attributed#to#increased#

use#as#a#biodiesel#feedstock#(using#the#same#assumptions#

about#the#supply#and#demand#factors#causing#the#poultry#

fat#price#increases#as#for#tallow,#lard#and#choice#white#

grease)#and#2011#young#chicken#slaughter,#total#

contribution#of#biodiesel#demand#for#poultry#fat#to#the#

poultry industry#could#possibly#have#ranged#from#$2.8#MM#

to#$3.2#MM.
Page 3 B IODIESEL D EMAND FOR A NIMAL F ATS AND T ALLOW G ENERATES 

AN A DDITIONAL R EVENUE S TREAM FOR THE L IVESTOCK I NDUSTRY

Table'2. Beef'Tallow'Drop'Value

Price Value!per!Head

Yield1

(lbs/cwt)

20072

($/cwt)

20123

($/cwt)

2007

($/hd4)

2012

($/hd4)

Difference

($/hd)

Edible!Tallow 1.20 $21.75 $45.25 $3.33 $6.92 $3.60

Inedible!Tallow 4.50 $20.75 $43.75 $11.91 $25.10 $13.20

Total!Tallow!Drop!Value $15.23 $32.02 $16.79

Biodiesel!Contribution!to!Price!Increase!(Estimated!Share!Ranging!from!60!to!72%) $10!U!$12

Estimated!Aggregate!Biodiesel!Contribution!to!Beef!Sector5 $262.6!MM!to!$315.2!MM 1

!Source:!USDA!AMS!NW_LS441!Report,!05.01.12

2

!Source:!USDA!AMS!NW_LS441!Report,!01.02.07

3

!Source:!USDA!AMS!NW_LS441!Report,!03.29.12

4!For!typical!slaughter!beef!animal!weighing!1,275!lbs

5

!Based!on!2011!slaughter!numbers!for!steers!and!heifers

Table'3. Pork'Lard'and'Choice'White'Grease'Drop'Value

Price Value!per!Head

Yield1

(lbs/cwt)

20072

($/cwt)

20123

($/cwt)

2007

($/hd4)

2012

($/hd4)

Difference

($/hd)

Lard 1.72 $21.75 $53.00 $0.94 $2.30 $1.35!

Choice!White!Grease 0.50 $20.75 $47.00 $0.26 $0.59 $0.33!

Total 5% 13% $1.20 $2.89 $1.69!

Total!Lard!and!Grease!Drop!Value $1.47 $3.48 $2.02

Biodiesel!Contribution!to!Price!Increase!(Estimated!Share!Ranging!from!60!to!74%) $1.00 U $1.25

Estimated!Aggregate!Biodiesel!Contribution!to!Pork!Sector5 $26.3!MM!to!$32.8!MM 1

!Source:!USDA!AMS!NW_LS446!Report,!04.27.12

2

!Source:!USDA!AMS!NW_LS446!Report,!01.05.07

3

!Source:!USDA!AMS!NW_LS446!Report,!04.27.12

4

!For!typical!slaughter!hog!animal!weighing!252!lbs

5

!Based!on!2011!slaughter!numbers!for!barrows!and!gilts

Table'4.''Poultry'Fat'Value

Price Value!per!Head

Yield1

(lbs/hd)

20072

($/lb)

20123

($/lb)

Low

($/hd)

High

($/hd)

Difference

($/hd)

Poultry!Fat 0.75 $20.08 $43.43 $0.15 $0.33 $0.18

Total!Poultry!Fat!Value $0.15 $0.33 $0.18

Biodiesel!Contribution!to!Price!Increase!(Estimated!Share!Ranging!from!60!to!70%) $0.11 U $0.12

Estimated!Aggregate!Biodiesel!Contribution!to!Poultry Sector4 $2.8!MM!to!$3.2!MM 1

!Estimate!based!on!Havenstein,!Ferket!and!Qureshi!article 2

!Poultry!fat!price,!Jan!'07

3

!Poultry!fat!price,!Feb!'12

4

!Based!on!2011!slaughter!numbers!for!young!chickens

Acknowledgement

This#material#is#based#upon#work#supported#by#the#Department#of#Energy#under#Award#Number#DEAEE0003118.

Disclaimer

This#report#was#prepared#as#an#account#of#work#sponsored#by#an#agency#of#the#United#States#Government.##Neither#the#United#

States#Government#nor#any#agency#thereof,#nor#any#of#their#employees,#makes#any#warranty,#express#or#implied,#or#assumes#

any#legal#liability#or#responsibility#for#the#accuracy,#completeness,#or#usefulness#of#any#information,#apparatus,#product,#or#

process#disclosed,#or#represents#that#its#use#would#not#infringe#privately#owned#rights.##Reference#herein#to#any#specific

commercial#product,#process,#or#service#by#trade#name,#trademark,#manufacturer,#or#otherwise#does#not#necessarily#

constitute#or#imply#its#endorsement,#recommendation,#or#favoring#by#the#United#States#Government#or#any#agency#thereof.##

The#views#and#opinions#of#authors#expressed#herein#do#not#necessarily#state#or#reflect#those#of#the#United#States#Government#

or#any#agency#thereof.

Data'indicate'an'increase'of'$10

to'12'per'head'between'2007'and'

2012'due'to'biodiesel'use'of'

tallow.

Data'indicate'an'increase'of$1.00'

to'$1.25'per'head'between'2007'

and'2012'due'to'biodiesel'use'of'

lard'and'choice'white'grease.

Data'indicate'an'increase'

of $0.11'to'$0.12'per'head'

between'2007'and'2012'due'to'

biodiesel'use'of'poultry'fat.
COMMENTS OF THE NATIONAL BIODIESEL BOARD ON THE

2014 STANDARDS FOR THE RENEWABLE FUEL STANDARD PROGRAM,

Proposed Rule, 78 Fed. Reg. 71,732 (Nov. 29, 2013)

Docket ID EPA‐HQ‐OAR‐2013‐0479

and on the

NOTICE OF RECEIPT OF PETITIONS FOR A WAIVER OF THE

RENEWABLE FUEL STANDARD,

78 Fed. Reg. 71,607 (Nov. 29, 2013)

Docket ID EPA‐HQ‐OAR‐2013‐0747

Attachment 11

   
National Biodiesel Board 

605 Clark Ave. 

PO Box 104898 

Jefferson City, MO 65110-4898 

(800) 841-5849 phone 

(573) 635-7913 fax

National Biodiesel Board 

1331 Pennsylvania Ave., NW

Suite 505 

Washington, DC 20004 

(202) 737-8801 phone

www.biodiesel.org 

www.nbb.org 

November 13, 2013  

The Honorable Gina McCarthy

Administrator

U.S. Environmental Protection Agency

1200 Pennsylvania Ave., N.W.

Washington, D.C. 20460

Re:  Application by CARBIO, et. al. on behalf of biodiesel companies from Argentina related to the

“Alternative Renewable Biomass Tracking Requirement” (40 C.F.R. § 80.1454(h))

Dear Administrator McCarthy:  

We hope you are well.  Today, we bring to your attention an important matter that if not addressed may

allow hundreds of millions of gallons of biodiesel that do not meet any of the renewable biomass

requirements of the Renewable Fuels Program (RFS2) to be imported into the United States as early as

January 1, 2014.

We understand a number of companies in Argentina, working through their trade association “CARBIO”,

are requesting the U.S. Environmental Protection Agency (EPA) to approve an “Alternative Renewable

Biomass Tracking Requirement” under 40 C.F.R. § 80.1454(h), which, generally, would serve to replace

the stringent feedstock recordkeeping requirements of the RFS2 regulations.

We do not believe that any “independent third party” has actually conducted a comprehensive program

of annual compliance surveys on any biodiesel facilities or their feedstock suppliers in Argentina.  

Rather, we believe a plan has been submitted to EPA that outlines a survey program, but that the actual

“comprehensive program of annual compliance surveys” has not yet begun.  In context of the steps that

EPA is taking to insure that RINs being generated actually meet the requirements of the regulations, at

best, it would seem premature for EPA to approve a foreign survey plan that cannot meet the

requirements of any of the recently proposed quality assurance plans.  This is especially true where EPA

has provided the public with little to no guidance on what a survey plan under Section 80.1454(h) would

entail.

Furthermore, it would seem that any approval under Section 80.1454(h) of a plan by EPA would be

premature given that the issue of what constitutes allowable RIN generation is being discussed in two

pending rules that have not yet been finalized:   

1. The RFS Renewable Identification Number (RIN) Quality Assurance Program;

Proposed Rule, 78 Fed. Reg. 12,158 (Feb. 21, 2013), Docket ID No. EPA–HQ–OAR–

2012–0621; and  

2. Regulation of Fuels and Fuel Additives:  RFS Pathways II and Technical Amendments

to the RFS2 Standards; Notice of Proposed Rulemaking, 78 Fed. Reg. 36,042 (June 14,

2013), Docket ID No. EPA–HQ–OAR–2012‐0401.
2

www.nbb.org 

The National Biodiesel Board has commented on both rules.  We support additional assurances that

foreign producers of renewable fuel are in compliance with the RFS2, and we support additional

provisions to assist EPA in the enforcement of the RFS2 requirements, particularly increasing the bond

requirements for foreign production of renewable fuels.  We commented at length on how a “quality

assurance plan” (Q‐A‐P) should be applied to foreign biofuel producers.  Specifically, we are concerned

about the jurisdiction of the EPA and the U.S. Department of Justice in reaching into other countries to

enforce the RFS2 program.  We asked the question: How does EPA best protect obligated parties and

the RFS from fraud or invalid RINs that are illegally or invalidly generated from foreign producers?  Of

particular difficulty is ensuring that EPA’s restrictions on the types of renewable biomass that can be

used are met.  These restrictions require a rigorous tracking program.  Again, we think this is an

important issue for the EPA to get right, as there are currently hundreds of millions and potentially

billions of RINs that will likely be generated under the program.  An excerpt of our Q‐A‐P comments is

attached.

In light of the current Renewable Volume Obligation discussion being undertaken as a proposed rule by

the EPA, there will likely be huge losses in domestic production if the EPA moves to prematurely

approve biodiesel from Argentina to qualify for the program based on a survey plan that has not been

subject to public review and that does not have the same level of rigor or oversight as the programs in

place for domestic producers.  Even as we write, the EPA is in the process of proposing the 2014

Renewable Volume Obligations for Biomass‐based Diesel.  As you know, many believe the proposal will

include a meager 1.28 billion gallons for 2014, and perhaps hold it steady in 2015 at the same volume.

Due in part to a “Differential Export Tax”1 in Argentina, which encourages biodiesel exports over

soybean exports, the Argentinian Biodiesel industry has the ability to produce and import to the United

States more than 900 million gallons of biodiesel annually.   

                                                            

1 Understanding DETs (LMC March 2013 DET Analysis)

The Argentine Differential Export Tax on soybean and soybean related products are as follows:  

 Soybeans ‐ 35%

 Soybean Oil – 32%

 Soybean Meal – 32%

 Biodiesel – 17.5%

DETs are Differential Export Taxes. In Argentina, export taxes are levied on beans as well as soybean products;

however, they create an incentive to process soybeans in the country for export. This is done by applying different tax

rates on soybeans and the products from crushing which decline with the degree of processing, being higher on beans

than on products. DETs the government to change the balance of exports between beans and products away from that

balance that would exist in a free market, with a knock‐on effect on soybean crushers elsewhere in the world.

Soybeans can either be used directly as beans, or can be crushed to produce soybean oil and meal. The crush margin is

the difference between the cost of the beans and the revenue from the meal and oil. This is determined, in turn, by the

relative price of the beans compared to the prices of the meal and oil. If the beans become cheaper in relation to

products, crushing becomes more profitable and the crush margin increases.

This “differential” in the DETs arises because ...  soybean exports are taxed at the highest rate in Argentina; this is

currently set at 35%. A lower export tax rate of 32% is charged on oil and meal. These differences in the rates of

taxation increase the profitability of crushing in Argentina, .... The export tax on biodiesel until very recently was set at

a net rate of 17.5% (calculated after deducting a 2.5% tax refund from the nominal export tax of 20%). This provides

an incentive to process soybean oil into biodiesel for export.
3

www.nbb.org 

According to the Energy Information Administration, already in 2013, we have seen imports from

Argentina come to the United States, even though presumably these gallons do not qualify as RIN

generating gallons for purposes of the RFS2.  In 2013, without biodiesel from Argentina, the United

States will import approximately 350 million gallons of biodiesel, of which approximately 1⁄2 will qualify

for the Biomass‐based Diesel program.   

In 2014 it is anticipated, without including biodiesel from Argentina, that as much as 400 million gallons

of RIN generating biodiesel and renewable diesel may be shipped to the United States.   

Given this outlook for 2014, the total volume of imports including biodiesel from Argentina could be as

much as 1.3 billion gallons.  Potentially, this import volume could be more than the entire 2014 RVO for

Biomass‐based Diesel (1.28 billion gallons).  Clearly, we do not believe this is the program envisioned by

Congress or this Administration.   

As you consider moving forward on an “Alternative Renewable Biomass Tracking Requirement” under

40 C.F.R. § 80.1454(h), we urge you to consider the greater context of this decision and the ever present

impact it will likely have on domestic biodiesel production.   

Due to the difficulty in overseeing foreign production and in taking enforcement actions against foreign

producers highlighted in the proposed rules noted above, we also have significant concerns regarding

the effectiveness of any survey plan that might have been proposed.  According to a case study by the

Association of American Geographers, Argentina ranks third in soybean production and soybean

consumption due to its large cattle industry, and is a leading exporter of soybean oil.2

  Soybean

production in Argentina has grown fast in the past few years, and soybean area continues to increase at

a rapid pace.3

  The World Bank has noted, with respect to Argentina, that “[a]griculture (including land

use change and forestry) is the largest contributor to GHG emissions in the country, while contributing

less than 6% of GDP....”4

  The concerns of the National Biodiesel Board are even more pronounced due

to the lack of public notice and opportunity to comment that EPA has provided on its “alternative

renewable biomass tracking requirement,” as it relates to foreign production.

Thus, we urge you to provide the public with notice and an opportunity to comment on any proposed

survey plan for foreign feedstocks and production before EPA takes any action.  This is particularly true

in light of recent events that may not have been contemplated under the RFS2 proposed rule, and the

lack of any meaningful guidance provided to the public as to how EPA might implement a “consortium”

approach overseas.  We also believe that the implementation and enforcement of the program must be

                                                            

2 Kingsland, M. and Hamilton, M. 2010. Population & Natural Resources case study: How can food production be

produced sustainably to feed growing populations? In Solem, M., Klein, P., Muñiz‐Solari, O., and Ray, W., eds., AAG

Center for Global Geography Education. Available from http://globalgeography.aag.org. 3 Doane Advisory Services, A Look at Brazil, Argentina soybean sectors, AG Professional, Mar. 14, 2013, available at

http://www.agprofessional.com/news/A‐look‐At‐Brazil‐Argentina‐soybean‐sectors‐197594841.html.  “Over the

last seven years [Brazil and Argentina] have added nearly 24 million acres, an amount equal to soybean acreage in

Illinois, Iowa and Indiana combined.”  Id. 4 World Bank, Latin American and the Caribbean Region: Agriculture and Rural Development Team, Argentina:  

Country Note on Climate Change Aspects in Agriculture, at 2 (Dec. 2009), available at

http://siteresources.worldbank.org/INTLAC/Resources/Climate_ArgentinaWeb.pdf.
4

www.nbb.org 

transparent to ensure compliance.  The public, in addition to EPA, should be able to monitor

compliance.  Finally, we outline additional issues that EPA should consider prior to approving any such

survey plan.

I. EPA Must Give the Public Notice and an Opportunity to Comment on Argentina’s Proposal for

Alternative Renewable Biomass Tracking.

In the proposed RFS2 rule, EPA outlined possible compliance alternatives for “domestic renewable fuel.”  

74 Fed. Reg. 24,904, 24,938‐24,940 (May 26, 2009) (emphasis added).  One such alternative was to

require renewable fuel producers to set up and administer a quality assurance program, creating the

possibility of a partial affirmative defense.  Id. at 24,940.  The proposal provided no explanation as to

how such a plan might apply to foreign feedstocks, only noting that EPA seeks comment on whether

foreign producers should be subject to similar requirements as domestic producers with respect to the

renewable biomass requirements.

EPA suggested, for domestic producers, creation of a “consortium” to establish a quality assurance

program for the renewable fuel production supply chain.  74 Fed. Reg. at 24,940.  This alternative was

purportedly to be patterned after the survey program administered by the Reformulated Gasoline

Survey Association.5

  Id.  The proposal referenced a “nationwide verification program” carried out by an

independent surveyor providing oversight of the feedstock designations and handling processes.  Id.  

The survey plan would be required to include a methodology for conducting the surveys, and would be

required to be approved by EPA.  Id.  The proposal indicated that this alternative approach was intended

to merely provide a partial affirmative defense, and would include a means of addressing potential

violations.  Id.  Although EPA sought comment on whether the alternatives proposed for domestic

producers should also apply to foreign producers, EPA recognized in the proposed rule that “EISA

creates unique challenges related to the implementation and enforcement of the definition of

renewable biomass for foreign‐produced renewable fuel.”  Id. at 24,941.

The consortium approach finalized in the RFS2 Final Rule under 40 C.F.R. § 80.1454(h) differs in

significant ways from the proposal, and, moreover, provides only very broad strokes as to what is to be

included in any such plan.6

  Among the significant differences from the proposal is that the final

regulation does not require participation by all feedstock producers and handlers in the plan, 74 Fed.

Reg. at 24,940, requiring only that the renewable fuel producer “take all reasonable steps to ensure that

each feedstock producer, aggregator, distributor or supplier cooperates with this program.”  40 C.F.R.

§ 80.1454(h)(5)(i).  It also moved from a “nationwide verification program,” 74 Fed. Reg. at 24,940, to a

                                                            

5

  Under the reformulated gasoline program, a refiner or importer can establish compliance based on an average

basis, allowing, for example, use of offsets to meet emissions requirements.  Under these surveys, EPA is also able

to monitor compliance with testing.  EPA provided no indication that the alternative tracking program under the

RFS2 program would allow for averaging, and testing cannot be conducted to ensure the feedstock meets the

renewable biomass requirements at issue. 6

  The proposal did include a reference to a quality assurance program implemented by producers, outlining some

specific elements of such program.  74 Fed. Reg. at 24,939.  EPA did not finalize this proposed alternative, noting

instead that it was finalizing the option that was “similar to the model of the successful Reformulated Gasoline

Survey Association.”  75 Fed. Reg. 14,670, 14,700 (Mar. 26, 2010).
5

www.nbb.org 

plan for an undefined “survey area” and “covered area” or an undefined set of producers.  40 C.F.R.

§ 80.1454(h).  The broad category of issues that are to be included in a survey plan also significantly

differs from the regulation providing for a survey program under the reformulated gasoline program,

which provides more prescriptive requirements and criteria for approval of the survey plan by EPA.  See

40 C.F.R. § 80.68; see also 40 C.F.R. § 80.1502 (establishing a survey program related to sales of E15).  

EPA provided no guidance in either the proposal or final rule as to the methodology for the surveys to

be conducted.  That EPA must approve the survey plan under the RFS2 program does not substitute for

EPA’s obligation to provide adequate notice and opportunity to comment or to replace the need for

public input.

The approval of a plan constitutes final agency action, which is subject to judicial review under Section

307(b) of the Clean Air Act.  42 U.S.C. § 7607(b).  Given the lack of guidance provided by EPA in the

proposed and final rules, EPA has not provided adequate public notice or a meaningful opportunity to

comment as required under the Act.  42 U.S.C. § 7607(d).  Public notice and comment gives the parties

affected by a decision an opportunity to participate in the decision‐making process.  Donner Hanna Coke

Corp. v. Costle, 464 F. Supp. 1295, 1305 (W.D.N.Y. 1979); see also Envtl. Integrity Project v. EPA, 425 F.3d

992, 996 (D.C. Cir. 2005).  The D.C. Circuit has stated that it will defer to an agency “so long as we are

assured that its promulgation process as a whole and in each of its major aspects provides a degree of

public awareness, understanding, and participation commensurate with the complexity and

intrusiveness of the resulting regulations.”  Weyerhaeuser Co. v. Costle, 590 F.2d 1011, 1028 (D.C. Cir.

1978). Indeed, it was impracticable for parties to provide comment on the implementation of a survey

plan and its potential application to Argentina.  While the public could comment as to why foreign

producers should be subject to more stringent requirements,7 only by placing the proposal in context

does the public have adequate opportunity to address technical, factual and policy concerns with the so‐

called consortium approach for foreign feedstocks and production.  Considering the rapid expansion of

soybean area in Argentina and the very recent history of deforestation and land use changes for such

production, providing for public comment ensures that EPA has “negate[d] the dangers of arbitrariness

and irrationality in the formulation of rules ....”  Id. (citation omitted).  The concerns behind EPA’s recent

proposals also indicate that EPA should reassess its consortium approach with respect to feedstock from

foreign countries.  As such, there are grounds to grant a petition for reconsideration of the consortium

approach in general, 42 U.S.C. § 7607(d)(7), and EPA should provide notice and comment on any

proposed approval of the request for a consortium approach in Argentina.

Moreover, the regulation itself provides that the survey program is intended to “achieve the level of

quality assurance required under” the other renewable biomass provisions.  40 C.F.R. § 80.1454(h).  

EPA’s regulation for foreign countries seeking an aggregate compliance approach, which was

promulgated after the RFS2 Final Rule, provides for a 60‐day public comment period.  40 C.F.R.

§ 80.1457(c).  EPA found that public notice and comment on these petitions “is necessary and

important,” and that the data and calculations in the petitions should be made available to the public.  

75 Fed. Reg. 76,790, 76,823‐76,824 (Dec. 9, 2010).  EPA provides no explanation why a “consortium”

                                                            

7

  See, e.g., NBB Comments at 27, EPA‐HQ‐OAR‐2005‐0161‐2249.2 (Sept. 25, 2009) (distinguishing countries with

declining agricultural land from those with increasing agricultural land).    
6

www.nbb.org 

survey plan for feedstock from foreign countries should escape similar public scrutiny, particularly

where the aggregate compliance approach has only been applied in countries where agricultural land is

stable or declining, which is simply not the case for Argentina.  In addition, EPA is not familiar with

agriculture production in foreign countries, and the public could provide invaluable assistance to EPA to

ensure that the proposed plan will be effective.  Thus, EPA should provide for public notice and

comment on survey plans submitted to EPA under 40 C.F.R. § 80.1454(h) to ensure that the survey plan

provides the same assurances as the other compliance approaches for the renewable biomass

requirements.   

Even if EPA somehow believes that the public had ample opportunity to comment, EPA has discretion to

provide additional opportunities to ensure “public understanding and participation” in the process.  

Weyerhaeuser Co., 590 F.2d at 1028 (citations omitted).  Given the significant concerns that have arisen

with respect to quality assurance programs conducted overseas and with respect to EPA’s ability to

enforce the RFS2 requirements, EPA should provide the public with an opportunity to review and

comment on any survey plan under consideration by EPA.

II. EPA Should Ensure Sufficient Transparency of Any Approved Survey Plan Under Section

80.1454(h).

EPA should also consider making the plans and results of the audits available to the public on an ongoing

basis.  In its proposal for a quality assurance program for RIN generation, EPA recognized that the

effectiveness of a quality assurance program is positively correlated to the amount of transparency with

its implementation.8

  78 Fed. Reg. at 12,189.  EPA found that providing a level of transparency on the

auditors and the quality assurance programs being implemented by them would “allow affected

stakeholders to notify EPA of concerns or deficiencies in a third‐party auditor’s registration or QAP.”  Id.  

EPA also found that transparency “will work hand‐in‐hand with our QAP process to improve the integrity

of information submitted for RFS compliance and deters fraudulent behavior.”  Id. at 12,197.  Under the

proposal, this transparency is to be provided on an ongoing basis where EPA has proposed requiring

annual renewal of an auditor’s registration.  Id. at 12,189.

Transparency has also been identified as a key component in voluntary certification programs for

sustainable production of crops, including soybean.  For example, the Roundtable on Responsible Soy

Standard for Responsible Soy Production (RTRS) identified a commitment to transparency as necessary

for those participating in the certification program, including providing a publicly available summary of

information about the performance of each certified organization with respect to each criterion.9

  EPA

should provide the public with notice of its proposed determination on the request for a consortium

approach for Argentina and give the public an opportunity to comment on the types of information EPA

                                                            

8

  Although NBB has concerns with the quality assurance program for RINs as proposed, it does believe that EPA

should reconsider its “consortium” approach for renewable biomass from foreign countries based on its proposal

and the comments submitted, particularly with respect to EPA’s concerns regarding foreign production of biofuels.  

NBB respectfully refers EPA to its comments on the February 2013 proposed rule. 9

  RTRS, RTRS Standard for Responsible Soy Production Version 2.0_Eng., at i, Sept. 16, 2013, available at

http://www.responsiblesoy.org/.
7

www.nbb.org 

should provide on an ongoing basis to ensure compliance with the approved plans and with the

renewable biomass requirements.

III. EPA Must Ensure that Any Survey Plan Approved Under Section 80.1454(h) is Designed to

Achieve at Least the Same Level of Quality Assurance Required Under the Individual Tracking

Program and the Aggregate Compliance Approach.

EPA’s regulations establish an “alternative renewable biomass tracking requirement” in lieu of the

recordkeeping requirements for individual producers under 40 C.F.R. § 80.1454(c)(1) and (d).  The

regulation requires an independent third party to conduct a comprehensive program of annual

compliance surveys to be carried out in accordance with a survey plan approved by EPA.  40 C.F.R.

§ 80.1454(h)(1).  The plan, however, must be “designed to achieve at least the same level of quality

assurance required in paragraphs (c)(1), (d) and (g).”10  40 C.F.R. § 80.1454(h)(2)(iv).  EPA’s regulations

provide little detail as to what the survey plan must look like except that it must be (1) conducted at

renewable fuel production and import facilities and their feedstock suppliers and (2) representative of

all renewable fuel producers and importers in the survey area and representative of their feedstock

suppliers.  40 C.F.R. § 80.1454(i)(ii), (iii).  Although NBB believes that public notice and comment should

be provided prior to any determination with respect to any proposed survey plan for Argentina under

40 C.F.R. § 80.1454(h), we provide the following guidance that we believe must be considered as EPA

reviews any such plan.

A. Production and import facilities and feedstock suppliers.

Although EPA notes that the survey plan should include production and import facilities and feedstock

suppliers, EPA does not adequately define these facilities, particularly with respect to import facilities

and feedstock suppliers.   

The regulations do not define “import facilities.”  EPA’s regulations include various testing and

recordkeeping requirements for imports.  See, e.g., 40 C.F.R. § 80.1466.  Any survey plan should include

a review of these records and inspection of the load port and port of entry.

The regulations also do not define “feedstock suppliers.”  The feedstock supplier may not be the actual

grower of the commodity.  EPA recognized as much noting that the producer/importer participating in

the alternative tracking program “must take all reasonable steps to ensure that each feedstock

producer, aggregator, distributor, or supplier cooperates.”  40 C.F.R. § 80.1454(h)(5)(i) (emphasis

added).  Given certain commodities, the feedstock suppliers may be in a central location, such as a

crushing facility, accepting feedstock grown on cropland from a very broad area.  If the aggregate

compliance approach is not available, then we assume that, unlike in the United States and Canada, the

total amount of eligible agricultural land is not stable or declining in these areas.  As noted above,

reports indicate that soybean production in Argentina continues to grow at a rapid pace, hitting a record

high for the 2012/2013 crop year.  China and the European Union remain significant importers of

                                                            

10  Paragraph (g) relates to the aggregate compliance approach established for planted crops and crop residues in

the United States and other countries that petition and obtain such an approach under 40 C.F.R. § 80.1457.
8

www.nbb.org 

soybean oil from Argentina and soy production is expanding into other parts of Argentina once

considered too dry and uneconomical to produce soy.11  “Argentina has lost 70 percent of its natural

forest, much of it in the last 20 years, with increased soy production.”12

The proposal should identify the original source of the feedstock and establish requirements to show

that, e.g., for crops and crop residue, the feedstock is from “existing agricultural land.”  It should also

provide a detailed explanation of how the feedstock gets from the original source to the biofuel

production facility and then to the importer.  In other words, the survey plan should ensure that the

eligible feedstock is adequately segregated throughout the supply chain.  It is only upon fully

understanding the production process from the original source of the feedstock and down the chain that

the survey plan can be reviewed and compared to the individual tracking requirements.

The annual surveys would confirm that the fuel is being produced from feedstock from the “existing

agricultural lands” of the identified sources.  If new growers are included in the survey area, it must

show that the new growers similarly meet the requirements.  This would provide safeguards to ensure

that feedstock from outside these survey areas are not being used.

B. Representative of all renewable fuel producers and importers in the survey area and

representative of their feedstock suppliers.

Although the producers and importers eligible to rely on the survey plan appear limited under EPA’s

regulations, EPA makes clear that the survey plan must be representative of all renewable fuel

producers and importers in the survey area and their feedstock suppliers.  While EPA requires that the

survey plan identify the parties covered, the public has not had the opportunity to review and comment

on what such a plan might look like for foreign production.  The effectiveness of a plan may depend on

several factors, including the policies of the country at issue regarding land use, the type of fuel being

produced, the type of feedstock being utilized, and the size of the survey area.  EPA must ensure the

plan clearly defines the survey area and the parties subject to the survey requirements.

As an initial matter, EPA did not provide the public with any parameters as to the “survey area” that can

be covered in any such plan.  This is unlike the petition process provided for an aggregate compliance

approach, which EPA determined must be on a nationwide basis.  EPA found that “national level data

most accurately reflects the broader effects of renewable fuel feedstock production on land use

patterns.”  75 Fed. Reg. at 76,821.  EPA’s proposed rule similarly indicated that an industry‐wide

“consortium” would be on a nationwide level.  74 Fed. Reg. at 24,940.  If the survey area is less than the

entire nation, it is likely that the country’s policies or land use trends are not similar to those in the

United States or Canada.  It also would be difficult to determine if there merely have been shifts in land

use, resulting in substantial new clearings outside the survey area.  In addition, EPA provides no

guidance on how the survey plan is to confirm that the lands to be covered met the “existing agricultural

land” definition on December 19, 2007.  Any evidence indicating that the areas may have been cleared

                                                            

11  Anne Herrberg, Soy production endangers Argentina, Deutsche Welle, Mar. 9, 2012, available at

http://www.dw.de/soy‐production‐endangers‐argentina/a‐16216304. 12  Id.
9

www.nbb.org 

post‐2007 should require a careful review of the proposed survey area.  The initial identification of these

lands must be based, at a minimum, on the types of documentation required for individual tracking.  In

short, the survey area should be carefully delineated, and the compliance carefully tracked.   

EPA similarly did not explain how it would determine that the surveys are “representative” of

producers/importers in the survey area and feedstock suppliers.  Ensuring that the surveys to be

conducted are sufficiently representative of the producers/importers and their suppliers is key to

ensuring that that this approach will provide at least the same assurances as individual tracking and the

aggregate compliance approaches.  With the aggregate compliance approach, for example, agricultural

lands in the United States and Canada are tracked through extensive and highly reliable surveys

conducted by government entities.  These surveys have broad coverage, and, more importantly, are

subject to strict quality control standards.  EPA should ensure that the survey plan includes quality

control standards.  This is particularly true where, as noted above, it is unclear how far down the chain

EPA is going to require the annual surveys to cover.

C. EPA must ensure that the annual compliance surveys are sufficiently rigorous.

EPA’s regulations provide merely broad strokes as to what is expected in a survey plan.  This includes:  

(i) identification of the parties for whom the survey is to be conducted; (ii) identification of the

independent surveyor; (iii) a methodology for determining when the audits will be conducted, the audit

locations, and the number of audits; and (iv) any other elements determined to be necessary to achieve

the level of quality assurance required under the individual tracking program and the aggregate

compliance approach.  40 C.F.R. § 80.1454(h)(4).   

To achieve the level of quality assurance required, the compliance surveys must include audits along the

supply chain within the “survey area.”  Because EPA cannot inspect or even easily visit other countries,

these audits should include on‐site visits.  Section 80.1454(h) simply refers to audits, and requiring

producers ensure cooperation by parties along the supply chain, referring simply to “copies of

management plans, product transfer documents, and other records or information.”  40 C.F.R.

§ 80.1454(h)(5)(i).  Simply reviewing documentation at a producer or importer’s facility does not

adequately establish that the feedstock came from, e.g., eligible agricultural lands.  In the proposed rule

for a quality assurance program for RINs, for example, EPA proposed to require on‐site visits as part of

the audits.  78 Fed. Reg. at 12,192.  EPA noted that the goal of these visits is to “verify that plant has the

technology to produce, store, and blend biofuels at registered levels, is operating in accordance with the

facility’s registration, and that the RINs generated since the last visit are valid.”  Id.  Similarly, site visits

along the entire supply chain would better ensure that the feedstock is properly being segregated in a

manner consistent with the survey plan and the requirements of the RFS2.

In addition, EPA makes no mention of the use of satellite imagery under the consortium approach.  

Under the individual tracking and aggregate compliance approaches, EPA is able to obtain mapping and

nationwide data to track new clearings of land.  Requiring the parties to submit satellite imagery of the

surveyed lands and surrounding areas would provide additional assurances that new clearings are not

occurring, allowing the surveyors to focus on ensuring the feedstock used came from lands within the
10

www.nbb.org 

surveyed area.  Such mapping, however, should not replace ongoing on‐site visits of fields and review of

new clearings and agricultural production for that year.  But, it could provide the public with added

assurances that the plan is effective and that the compliance surveys for Argentina are being conducted

properly.

D. NBB is concerned that the surveyor is not truly independent.

Independence of the party conducting the audit (here, surveys) is key to ensuring the integrity of the

program.  EPA so recognized in its proposed rule for a quality assurance program for RINs, noting that

the “first, and perhaps the most important, requirement for auditors is that they remain independent of

renewable fuel producers.”  78 Fed. Reg. at 12,187.  Ensuring against a conflict of interest is necessary to

avoid incentives to promote invalid verification.  Id.  EPA’s regulation for a consortium approach refers

to the requirements in 40 C.F.R. § 80.68(c)(13)(i), but that provision refers to independence from the

“refiner or importer.”  Without a better understanding of the survey plan, it is not clear who the “refiner

or importer” is in this situation.  There are various parties that can be involved in the production and

import of the biofuel, including, e.g., the farmer, the feedstock supplier, the biofuel producer, the

exporter, the importer, and the purchaser of the fuel.  Moreover, EPA notes that an organization may

arrange for the surveys, but does not explain what type of “organization” it is referencing.  EPA should

protect against any conflict of interest that might influence the “independence” of the surveyor.

EPA’s regulations also do not provide specific requirements for the independent surveyor’s

qualifications.  Given the range of facilities being reviewed, the surveying entity must ensure that it has

appropriately qualified employees who have experience and knowledge regarding the growing practices

within the survey area.  For example, there are several bodies that provide certification for sustainable

production, such as the RTRS.  These bodies provide various core competency requirements that could

serve as a model for EPA to ensure the surveyors being hired meet the appropriate qualifications.

* * *

Given the questions left unanswered by the RFS2 Final Rule with respect to its potential application to

foreign production, EPA should provide the public with notice and an opportunity to comment on

requests for approval of a “consortium” approach under 40 C.F.R. § 80.1454(h).  At a minimum, it should

provide the public with additional guidance as to the actual content of a survey plan, including an

explanation of what constitutes a covered survey area, who are the participants in such a program, what

facilities are being audited and what are the elements of such audit, how EPA is ensuring against

conflicts of interest, and what methodology must be implemented in determining the number and

location of the surveys/audits.  Consistent with its proposed approach for quality assurance programs

for RINs, EPA should also provide greater transparency on the survey plans and their implementation on

an ongoing basis.  Due to the concerns that have been raised recently regarding potential fraud and the

difficulty in policing activities overseas, EPA must take every precaution to ensure that proposals for a

consortium approach provide the same level of assurance as the individual tracking and aggregate

compliance approaches.

While we believe that public notice and comment is required on any proposed survey plan, we would

like to meet with you to determine whether EPA is in fact considering a proposal similar to the one
11

www.nbb.org 

described herein – and provide you with additional information on the detrimental impacts it is likely to

have on our industry.   

To arrange a meeting, please call Kirsten Skala at 202.737.8801 or by email to KSkala@biodiesel.org.  We

look forward to hearing from you on this important issue.  

Sincerely,  

Anne Steckel  

Vice President of Federal Affairs  

National Biodiesel Board

cc:    The Honorable Tom Vilsack,  

The Honorable Dan Utech

   
12

www.nbb.org 

Attachment  

NBB’s comments are as follows:  

IF IMPORTS OF RENEWABLE FUEL ARE ALLOWED TO CONTINUE TO QUALIFY FOR THE RFS

PROGRAM, THEN IT IS IN THE PUBLIC INTEREST FOR EPA TO REQUIRE EVERY GALLON OF

IMPORTED FUEL TO HAVE BEEN VALIDATED BY AN ENHANCED AND THE MOST ROBUST QUALITY

ASSURANCE PLAN AND TO MEET SPECIFIC BOND REQUIREMENTS THAT AMOUNT TO NO LESS

THAN 10% OF THE VALUE OF RENEWABLE FUELS IMPORTED EACH YEAR PER COMPANY.

EPA addresses the imports of biofuels and whether the RINs from foreign producers are valid as

a bit of an afterthought.  At the core of the RFS program is the requirement that feedstocks

sufficiently qualify for the program.  The EPA provides specific regulations for the treatment and

qualifications of foreign producers at 40 C.F.R. §§ 80.1465, 80.1466 and 80.1467, but once

paperwork documents are initially approved by the EPA, it does not require any validation or

certification that the renewable biofuel product that arrives in the United States was produced

in accordance with the RFS regulation.  In order for the RFS to continue to function as intended,

then each RIN used for compliance must be valid.  Under the program today, it is impossible to

determine whether any gallon of imported renewable fuel actually meet any requirements of

the program.

NBB proposes that each gallon of imported renewable fuel must be validated through the

highest level quality assurance plan, where each gallon produced and each RIN validated must

first be approved through a real time monitoring system.  In the cases where foreign product is

being used to meet the strict requirements of the RFS program, then it is necessary for each

foreign biofuel producing company to be continually monitored.

In its proposal EPA did not propose to limit whether purchasers of RINs from imported

renewable fuel can also be eligible for the affirmative defense under the Q‐A‐P and importers

can participate under the Q‐A‐P.  EPA requested “comment on the likelihood of such producers

participating in the quality assurance program, any difficulties to participating they might

encounter, and any issues that could affect the integrity of the proposed program.”  78 Fed. Reg.

at 12,165.  To the extent imports of renewable fuel continue to qualify for the program, NBB is

concerned that EPA is unable to adequately oversee foreign entities.   

With respect to the verification process, NBB is most concerned with the ability of EPA to

accurately verify feedstock used outside of the United States, such as palm oil or palm oil

derivatives and soybean oil from Argentina and Brazil used to produce biodiesel.  Certain such

feedstocks are yet to be approved, and foreign crops (except Canada) are subject to numerous

recordkeeping and reporting requirements.  High level Q‐A‐P’s should be required to ensure that

the renewable fuel generating RINs (i.e., fuel designated as “RFS‐FRRF”) has been properly

segregated as required under 40 C.F.R. § 80.1466(j)(1).  The Q‐A‐P should be required, and the

third‐party auditor also should ensure that the bond is updated annually and meets the

requirements of 40 C.F.R. §§ 80.1466 and 80.1467.  EPA should consider additional

requirements for such fuels to ensure adequate oversight including increasing the bond

required for each company to be no less than 10 percent of the total value of imports each year.   
13

www.nbb.org 

The elements of the proposed Q‐A‐Ps also do not appear to account for the additional

recordkeeping requirements required for foreign renewable fuel producers and foreign RIN

owners under 40 C.F.R. §§ 80.1466 and 80.1467.  This additional documentation includes, for

example, certification each time the renewable fuel is transferred for transport and load port

and port of entry testing.  This documentation should be required for all imported renewable

fuel, regardless of who generates the RIN.  EPA should ensure that any approved Q‐A‐P covers

both the foreign renewable fuel producer and the domestic purchaser.  The Q‐A‐P elements as

proposed appear to focus on the production process.  Thus, EPA should consider imposing

additional requirements to review documentation from the foreign producer, the exporter in

the foreign country (if different), and the importer itself once the fuel reaches the United States.   

In addition, EPA should strengthen the ability to ensure invalid RINs associated with imported

fuel are replaced.  For example, EPA should consider having the domestic purchaser of the

imported fuel be first in line to replace any invalid RIN, regardless of whether the RIN was

subsequently transferred.  EPA should also consider increasing the bond required for foreign

renewable fuel producers and foreign RIN owners.  At a minimum, EPA should provide

additional information on how it assesses bonds and ensures that the bond is updated annually.   

While NBB believes additional regulations may be required for imports of fuel from overseas to

ensure compliance with the RFS2 requirements, it also recognizes the ongoing and significant

trade that occurs directly across the border, largely as a result of NAFTA.  In addition, EPA has

approved an aggregate approach for crops from Canada, and EPA has provided for alternative

methods for truck imports.  See, e.g., 40 C.F.R. § 80.1466(l).  NBB agrees that truck and rail

imports crossing one land border do not present the same types of difficulties in tracking and

enforcement as imports brought in through multiple countries or on vessels from overseas.  

Thus, the additional requirements proposed by NBB focus on imports from vessels and not on

imports brought in on trucks or by rail across the border, and EPA should continue to consider

additional flexibilities for imports by truck or rail, which we expect would largely be from

Canada.
COMMENTS OF THE NATIONAL BIODIESEL BOARD ON THE

2014 STANDARDS FOR THE RENEWABLE FUEL STANDARD PROGRAM,

Proposed Rule, 78 Fed. Reg. 71,732 (Nov. 29, 2013)

Docket ID EPA‐HQ‐OAR‐2013‐0479

and on the

NOTICE OF RECEIPT OF PETITIONS FOR A WAIVER OF THE

RENEWABLE FUEL STANDARD,

78 Fed. Reg. 71,607 (Nov. 29, 2013)

Docket ID EPA‐HQ‐OAR‐2013‐0747

Attachment 12

   
Implications	of	the	Statutory	

Advanced	RFS 2	Volume	

Obligation	for	the	U.S.	Biodiesel	

Industry

Prepared	by:		

John	Kruse,	PhD

Director	of	Quantitative	Analysis,	WAEES

Email:	jkruse@waees-llc.com

Phone:		573-228-9842

Website:		www.waees-llc.com

January	27,	2014
WAEES, Copyright 2014, All Rights Reserved Page 2

Table	of	Contents

Introduction................................................................................................... 4

Scenario	Assumptions.................................................................................... 4

Crude	Oil,	Gasoline,	and	Diesel	Price	Assumptions....................................... 4

Motor	Gasoline	Use....................................................................................... 6

Global	Economic	Growth	Assumptions ......................................................... 7

Yield	Technology............................................................................................ 8

Biofuels	Technology—Lipid	Removal	from	Distiller’s	Grains....................... 12

International	Biofuels	Policy	Assumptions/Models..................................... 14

The	European	Union................................................................................................14

Argentina .................................................................................................................16

Brazil ........................................................................................................................16

Biodiesel	Industry	Developments................................................................ 17

US	Biofuels	Policy	Assumptions................................................................... 18

Marketing	Year	versus	Calendar	Year......................................................................18

Scenario	Results........................................................................................... 19

Compliance	Costs ........................................................................................ 32

Key	Scenario	Sensitivities ............................................................................ 34

Crude	oil	and	derivate	prices....................................................................... 34

Penetration	of	the	Blend	Wall ..................................................................... 34

Feed	Stock	Availability	and	Costs ................................................................ 34

Global	Biofuels	Policy .................................................................................. 35

Appendix	A	– Overview	of	the	WAEES	Modeling	System............................ 36

The	WAEES	Global	Modeling	Process.......................................................... 44
WAEES, Copyright 2014, All Rights Reserved Page 3

Table	of	Figures

Figure	1.		Crude	Oil	Price,	West	Texas	Intermediate ............................................... 5

Figure	2.		US	Gasoline	Prices.................................................................................... 5

Figure	3.		U.S.	Diesel	Prices...................................................................................... 6

Figure	4.		US	Motor	Gasoline	Use ............................................................................ 7

Figure	5.	US	Soybean	Yield....................................................................................... 9

Figure	6.		Argentina	Soybean	Yield ........................................................................ 10

Figure	7.		Brazil	Soybean	Yield ............................................................................... 10

Figure	8.		US	Corn	Yield.......................................................................................... 12

Figure	9.		Corn	Oil	Extraction	Rates	from	Distillers'	Grains.................................... 13

Figure	10.		Percent	of	Ethanol	Plants	with	De-oiling	Capacity ............................... 14

Figure	11.		EU	Biofuels	Targets	and	Attained	Levels		(Share	of	Total	Fuel	Use,	

Energy	Equivalent	Basis) ........................................................................................ 15

Figure	12.		EU	Biodiesel	Production	and	Imports .................................................. 15

Figure	13.		Biodiesel	RIN	Price ............................................................................... 21

Figure	14.		Biodiesel	Production	and	Imports		(Calendar	Year) ............................. 26

Figure	15.		Biodiesel	Plant	Price............................................................................. 27

Figure	16.		Feed	Stock	Prices.................................................................................. 28
WAEES, Copyright 2014, All Rights Reserved Page 4

Introduction

The	purpose	of	this	study is	to	analyze the implications of	statutory	advanced	biofuel volume	

obligations.		This	analysis	was	conducted	using	the	WAEES	global	agricultural	partial	equilibrium	

model which	encompasses	44	countries	and	geographic regions	and	over	30	agricultural	

commodities	as	well	as	ethanol	and	biodiesel	in	the	key	global	markets (see	Appendix	A	for	

additional	details.)						

Scenario Assumptions

The	assumptions used	in	this	scenario	analysis proceed	from	the	latest	projections	in	the	2014	

Annual	Energy	Outlook	from	the	U.S.	Department	of	Energy’s	Energy	Information	

Administration	(EIA),	the	latest	industry	thinking	on	crop	yield	advances from	seed	technology	

companies,	WAEES	interpretation	of international	biofuels	policies,	and	technology	and	feed	

stock	developments	in	the	biodiesel	industry.

The	historical	data used	in	this	study	was	updated to	USDA’s	production,	supply,	and	

disposition	estimates	database	(PSD)	as	of	December	1,	2013.		The	two	later	issues	of	USDA’s	

World	Ag	Supply	and	Demand	estimates	were	considered	in	the	analysis,	but	recalibration	to	

the	January	2014	revisions	to	2013	US	crop	size	estimates	was	not	possible	within	the	timeline	

of	this	analysis.		International	biofuels	historical	data	draws	upon	the	reported	estimates	by	

USDA’s	Foreign	Agricultural	Service	that	was	cross	validated	with	local	country	reported	data.		

Crude	Oil,	Gasoline,	and	Diesel	Price Assumptions

The	crude	oil,	gasoline,	and	diesel price	projections	used in	this	analysis	are	from	the	U.S.	

Department	of	Energy’s	Energy	Information	Administration	(EIA)	as	part	of	their	early	estimates	

release	on	December	16,	2013,	for	the	2014 Annual	Energy	Outlook.		This	analysis	uses	the	

projections	from	the	“Reference	Case”	scenario.		The	projections	for	crude	oil	prices	are	similar	

to	the	previous	year’s	estimates	by	EIA	although	historical	prices	are	slightly	higher.		The	EIA	

forecast	continues	to	have	some	softening	in	crude	oil	prices	in	2014	and	2015	which	translates

into	lower	wholesale	and	retail	prices	for	gasoline	and	diesel	fuel.		Lower	crude	oil	derived	fuel	

prices	result	in	lower	retail	biofuels	prices	and	increases in RIN	prices,	ceteris	paribus.		

However,	significantly	lower	feed	stock	prices	will	offset	lower	crude	oil	prices.
WAEES, Copyright 2014, All Rights Reserved Page 5

Figure	1.		Crude	Oil	Price,	West	Texas	Intermediate

Figure	2.		US	Gasoline	Prices

0

20

40

60

80

100

120

201020112012201320142015

Dollars Per Barrel

Source:		US	Dept. of	Energy,	Energy	Information	Administration,	AEO 2014,	

Early	Release:	Reference	Case

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

201020112012201320142015

Dollars Per Gallon

Wholesale Price Retail Price

Source:		US	Dept. of	Energy,	Energy	Information	Administration,	AEO 2014,	Early	

Release:	Reference	Case
WAEES, Copyright 2014, All Rights Reserved Page 6

Figure	3.		U.S.	Diesel	Prices

Motor	Gasoline	Use

Similarly	to	crude	oil	prices	assumptions,	this	analysis	utilizes	EIA’s	projections	of	motor	

gasoline	usage.		EIA	projects	that	through	fuel	economy	improves	and	other	factors	that	US	

motor	gasoline	usage	will	decline	significantly	over	the	next	decade.		The	decline	in	motor	

gasoline	use	is	especially	relevant	in	the	current	market	situation	which	is	already	struggling	

with	the	10	percent	ethanol	blend	wall.		There	are	some	indications	that	there	could	be	some	

increase	in	motor	gasoline	demand	in	2014	due	to	strong	economic	growth	which	would	

expand	the	blend	wall	in	the	short	run.		However,	this	analysis	uses	the	motor	gasoline	use	as	

projected	in	the	EIA’s	2014	Annual	Energy	Outlook.		Expanding	ethanol	consumption	beyond	

the	blend	wall	requires	consumers	to	have	flex	fuel	vehicles	capable	of	burning	higher	blends	as	

well	distribution	infrastructure	support	these	blends.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

201020112012201320142015

Dollars Per Gallon

Wholesale Price Retail Price

Source:		US	Dept. of	Energy,	Energy	Information	Administration,	AEO 2014,	Early	

Release:	Reference	Case
WAEES, Copyright 2014, All Rights Reserved Page 7

Figure	4.		US	Motor	Gasoline	Use

Global	Economic	Growth	Assumptions

WAEES	used	the	International	Monetary	Fund’s (IMF) October	2013 macroeconomic	outlook	

for	income	growth	and	inflation	for	all	countries	with	the	exception	of	the	United	States,	China,	

and	India	which	are	based	on	WAEES’	slightly	more	conservative	forecasts.		Overall,	real global	

economic	growth	is	expected	to	increase 2.4 percent	in 2013,	followed	by	3.09 percent	in	2014,	

and	3.54	percent	in	2015.		Global	projections	continue	to	show	stronger	income	growth	in	

developing	countries, especially	Asia, versus	developed	regions	including	the	European	Union	

and	the	United	States.	The	growth	rate	of	incomes	in	the	developing	countries	is	especially	

important	for	agriculture	because	food	consumption,	particularly	meat	and	vegetable	oil	

consumption,	is	very	responsive	to	income	growth.		In	high	population	regions	such	as	China	

and	India,	even	small	changes	in	food	demand	result	in	large	changes in	overall	global	food	

demands.		Accounting	for	these	demands	is	especially	important	in	determining	the	costs	and	

benefits	of	biofuels	which	interact	with	these	demands.

Global	inflation	is	projected	to	average	4.5 percent	per	year	over	the	2013 to	2015	period,	with	

US	inflation	growing	at	a	modest	1.4 to	1.8	percent.		Population	projections	were taken	from	

the	United	Nations	and	show	an	expected	growth	in	world	population	of	1.1	percent	per	year	

130

131

132

133

134

135

136

137

138

139

201020112012201320142015

Billion Gallons

Source:		US	Dept. of	Energy,	Energy	Information	Administration,	AEO 2014,	

Early	Release:	Reference	Case
WAEES, Copyright 2014, All Rights Reserved Page 8

over	the	2013 to	2015	period.		Notably,	China	recent	relaxation	of	the	single	child	per	family	

policy	was	not	factored	into	the	UN	forecast.

Exchange	rates	are	based	on	WAEES’	global	exchange	rate	model	which	utilized	IMF’s	

macroeconomic	projections	as	key	drivers	for	the	forecast.		Perhaps	most	important	for	this	

analysis	are	the	projections	for	Brazil’s	exchange	rates	which	affect	the	pricing of	sugarcane	

ethanol.		The	exchange	rate	for	Brazil	in	2013	is	expected	to	average 2.18 reals	per	US	dollar,	

followed	by	2.22 reals	per	US	dollar	in	2014,	and	2.26	reals	per	US	dollar	in	2015,	which	is	a	

somewhat	weaker	outlook	than	previous	forecasts.

Yield	Technology

Without	a	doubt,	the	drought	of	2012	significantly	reduced	US	corn	and	soybean	yields	and	

sent	commodity	prices	significantly	higher.		Yet,	even	with	the	mediocre	planting	and	growing	

conditions	of	2013,	a	single	year’s	production	quickly	turned	high	commodity	prices	into low	

commodity	prices.		Yields	continue	to	be	one	of	the	largest	sources	of	uncertainty	in	making	

any	agricultural	projections.		All	of	the	technology	companies	continue	to	indicate	that	new	

genetics	significantly	boosting	crop	yields	are	already	in	the	pipeline	and	that	over	the	next	five	

years	significant	growth	in	yields	will	occur.				

Many	studies	including	USDA's	annual	forecast	use	linear	trends	to	project	future	crop	yield	

growth.		Technology	companies	such	as	Monsanto,	DuPont,	and	Syngenta	have	argued	that	

genetic	engineering	offers	the	opportunity	to	accelerate	crop	yields	beyond	trend	levels.		

Recent	measured	yield	performance	backs	up	those	claims1.		In	2010,	Monsanto	yield	data	from	

over	30,000	field	comparisons	across	the	US	showed	an	average	yield	advantage	of	3.8	bushels	

per	acre	for	Roundup	Ready	2TM versus	their	initial	Roundup	Ready	2TM with	an	average	yield	of	

54	bushels	per	acre.		Average	US	soybean	yields	in	2010	were	43.5	bushels	per	acre.			Other	

research from	Farmer’s	Independent	Research	of	Seed	Technologies	suggests	a	yield	advantage	

of	4.5	bushels	per	acre	for	Roundup	Ready	2TM versus	initial	Roundup	ReadyTM varieties.			Of	the	

77.4	million	acres	planted	in	2010	only	about	6	million	acres	were	planted	to	Roundup	Ready

2TM soybeans	(7.7	percent).		In	2011,	the	number	of	soybean	acres	planted	to	Roundup	Ready	

2TM soybeans	was expected	to	reach	the	mid-teens	in millions	of	acres.		Other	soybean	yield	

technologies	in	the	pipeline, with	greater	than	50	percent	probability	of	being	released, include	

high	yield	traits	offering	a	7	percent	yield	improvement,	other	herbicide	tolerant	soybeans,	

second	generation	insect	protection,	soybean	fungal	resistance,	and	aphid	resistance.	

Based	on	the	demonstrated	performance	of	technologies	already	available	in	2010	we	have	

assumed	a phased	in 10	percent	step	in	soybean	yields	above	trend	yield	growth	levels	used	by	

																																																						

1 Monsanto	soybean	performance	data	based	data	reported	in	the	Monsanto	Yield	Review	Luncheon,	November	8,	

2010	and	a	presentation	entitled,	“Annual	R&D	Pipeline	Review”,	January	6,	2011.
WAEES, Copyright 2014, All Rights Reserved Page 9

USDA	and	others.		This	10	percent	step	is	based	on	taking	10	percent	of	the	average	yield	over	

the	2009 through	2011 period	and	incrementally	phasing	this	in	over	the	2014 thorough	2019

period.		This amounts	to	adding	0.6 bushels	per	acre	above	trend	yields	in	2014,	and	1.4

bushels	per	acre	above	trend	yields	in	2015.		Soybean	yield	assumptions	only	assume	

technology	advancements	that	are	now	commercially	available	and	increasingly	adopted	by	

U.S.	producers.

Since	yield	technologies	tend	to	disseminate	quickly	to	Brazil	and	Argentina,	we	further	assume	

that	the	10	percent	step	in	yields extends	to	these	countries	in	the	planting	season	following	

the	US	but	with	a	one	year	lag	in	the	adoption	rate.		

The	yield	graphs	below	present	the	yield	assumptions	used	in	the	biofuels	scenarios	in	

comparison	with	USDA	trend	yields	from	the	February	2013	forecast.		Note	that	the	USDA	

yields	will	be	updated	in	February	2014	and	after	including	the	historical	data	for	2013,	USDA	

yields	will	likely	be	very	similar	to	the	yields	used	in	this	analysis.

Figure	5.	US	Soybean	Yield

34

36

38

40

42

44

46

48

201020112012201320142015

Bushels Per Acre

USDA February 2013 Forecast Scenario
WAEES, Copyright 2014, All Rights Reserved Page 10

Figure	6.		Argentina	Soybean	Yield

Figure	7.		Brazil	Soybean	Yield

0.0

0.5

1.0

1.5

2.0

2.5

3.0

201020112012201320142015

Metric Tons Per Hectare

USDA February 2013 Forecast Scenario

2.4

2.5

2.6

2.7

2.8

2.9

3.0

3.1

3.2

201020112012201320142015

Metric Tons Per Hectare

USDA February 2013 Forecast Scenario
WAEES, Copyright 2014, All Rights Reserved Page 11

In	the	case	of	corn,	yield	growth	is	also	expected	to	exceed	trend	growth	levels.		Two	

technologies	are	driving	this	accelerated	growth.		The	first	is	stacking	multiple	traits	to	enable	

the	corn	plant	more	resistance	to	various	types	of	insect	pressure	in	addition	to	herbicide	

tolerance.		In	addition,	yield	gains	have	been	experienced	by	building	the	required	refuge	into	

the	seed	mix	with	a	bag	of	seed	instead	of	planting	specific	acres	to	corn	without	insect	

resistant	traits.		In	2010,	Monsanto’s	VT	Triple	ProTM corn	hybrids	demonstrated	an	8.8	bushel	

per	acre	yield	advantage	over	competitors	based	on	data	from	9,900	strip	trials.		Monsanto	also	

notes	regional	differences in	yield	improvements	from	refuge	reduction.		In	the	Corn	Belt,	yield	

improvements	ranged	from	1.5	to	3	bushels	per	acre	while	in	the	southern	states,	yield	

improvements	ranges	from	3	to	6	bushels	per	acre	from	refuge	reduction.		In	its	final	stage	of	

development,	drought	tolerant	corn	is	also	emerging.		This	technology	is	more	difficult	to	

quantify	in	its	impact	because	it	affects	the	distribution	of	possible	corn	yields	given	

precipitation	variation.		In	the	2012	drought, there	is	general	agreement	that	current	genetics	

sustained	corn	yields	much	better	than	the	1988	drought	which	was	of	similar	magnitude2.		

Other	corn	yield	technologies	in	the	pipeline	with	greater	than	50	percent	probability	of	being	

released	include	second	generation	drought	tolerance,	better	nitrogen	utilization,	high	yield	

traits,	roundup	ready	2	corn,	generation	3	corn	rootworm	and	corn	borer	traits,	and	other	

herbicide	tolerant	corn.	

Based	on	the	demonstrated	performance	of	technologies	already	available	in	2010	this	analysis	

assumes a	7.5	percent	step	in	corn	yields	above	trend	yield	growth	levels	used	by	USDA	and	

others.		While	this may	seem	smaller	than	soybeans,	corn	is	already	starting	from	a	very	high	

yield	level	(US	corn	yields	were	152.8	bushels	per	acre	in	2010).		This	7.5	percent	step	is	based	

on	taking	7.5	percent	of	the	average	yield	over	the	2009 through	2011 period	and	phasing	it	in	

incrementally	over	the	2014 through	2019 periods	as	farmers	adopt	the	technology.		In	2014,	

US	average	corn	yields are	expected	to	be	167.8 bushels	per	acre,	which	is	2.3	bushels	per	acre	

above	trend	yield	growth.		In	2014,	US	corn	yields	are	expected	to	be	172.3	bushels	per	acre,	

4.6	bushel	per	acre	above	trend	yield	growth.		

It	is	important	to	note	that	this	increase	in	corn	yields	was	not	extended	to	South	America.		

Issues	with	intellectual	property	protection	in	Argentina	regarding	corn	technologies	and	other	

factors	suggested	that	this	assumption may	not	be	appropriate at	this	time.	

																																																						

2 Based	on	a	July	11,	2012	article	released	by	the	Associated	Press	entitled,	“Crop	technologies	limit	corn	losses	in	

drought”
WAEES, Copyright 2014, All Rights Reserved Page 12

Figure	8.		US	Corn	Yield

Biofuels	Technology—Lipid	Removal	from	Distiller’s	Grains

For	these	scenarios,	one	of	the most	important	technology	developments is	the	yield	

improvements	in	de-oiling	distiller’s	grains.			Distillers	corn	oil	(DCO) is	non-food	grade	oil	

extracted	from	distillers	[dried] grains	with	solubles	(DDGS) by	the	corn	ethanol	industry.	This	

oil	is	of	initial	lower	quality	than	that	extracted	from	the	corn	kernel	for	the	food	market. DCO

is	darker	in	color,	viscous	and	high	in	free	fatty	acid content	all	of	which	are	indicators	of	oil	

degradation	making	it	unsuitable	for	human	consumption.3		

Although	average	industry	yields	are	less,	demonstrated	technology	available	today	suggests	

corn	oil	yields	per	bushel	of	corn	processed	from	distillers’	grains	have	reached	levels	as	high	as	

1.3	pounds	per	bushel	approaching	fractionation	yields	of	1.5	pounds	per	bushel.		Increased	

production	of	this	feed stock	will	come	from	a	combination	of	technology	adoption	and	

improvement	in	the	yield	of	oil	removed	from	a	bushel	of	corn.		In	these	scenarios	we	have	

assumed	that	corn	oil	yields	from	de-oiled	distillers’	grains	per	bushel	of	corn	processed	will	

																																																						

3 Sandra	Majoni.	“Oil	recovery	from	condensed	corn	distillers	solubles”.	PhD	Dissertation,	Iowa	State	University.	

2009.	http://udini.proquest.com/view/oil-recovery-from-condensed-corn-pqid:1868390891/

0

20

40

60

80

100

120

140

160

180

200

201020112012201320142015

Bushels Per Acre

 USDA February 2013 Forecast Scenario
WAEES, Copyright 2014, All Rights Reserved Page 13

increase	from	0.71	pounds	in	2012	to	0.86	pounds	by	2017.		Other	industry	analysts	believe	

these	assumptions	to	be	conservative	and,	based	upon	economic	returns	to	ethanol	plant	

profitability,	anticipate	removal	rates	will	be	1.5	lbs	by	2022.4

Figure	9.		Corn	Oil	Extraction	Rates	from	Distillers'	Grains

This	analysis	also	assumes	that	in	2012,	75	percent	of	all	ethanol	plants	are	assumed	to	be	deoiling	distillers’	grains	and	by	2017,	91	percent	of	all	ethanol	plants	are	assumed	to	have	this	

capability.		Oil	removed	from	this	process	will	be	utilized	for	biodiesel	production	or	may	be	

utilized	as	an	energy	source	in	feed	markets.		However	this	source	of	fat	is	additive	in	nature	to	

overall	supplies,	regardless	of	use,	as	fats displaced	from	the	feed	market	(e.g.	inedible	tallow)	

would	be	utilized	for	biodiesel	production.

																																																						

4 Urbanchuk,	John. Production	and	Availability	of	Animal	Fats,	Waste	Greases	and		Inedible	Plant	Oils	for	Biodiesel	Production.		

2013.

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

201020112012201320142015

Pounds Per Bushel
WAEES, Copyright 2014, All Rights Reserved Page 14

Figure	10.		Percent	of	Ethanol	Plants	with	De-oiling	Capacity

International	Biofuels	Policy	Assumptions/Models

While the	focus	of	this	analysis	is	US	based,	clearly	biodiesel	programs	in	other	countries	have	a	

significant	impact	on	US	Biofuels.		The	most	important	players	continue	to	be	the	European	

Union,	Brazil,	and	Argentina	although	the	cumulative	effect	of	other	countries	is	also	important.		

In	this	summary,	the	policy	assumptions	in	the	European	Union,	Brazil,	and	Argentina	are	briefly	

discussed.

The European Union 

The	EU	has	a	stated	renewable	fuels	target	of	10%	of	transportation	fuel	use	on	an	energy	

equivalent	basis	by	2020.		Biofuels	is	expected	to	be	a	significant	contributor	towards	reaching

that	goal	but	other	renewable	fuels	sources	such	as	electric	cars,	etc.	also	count	towards	the	

goal.		Recently,	a	proposal	from	the	European	Commission	suggested	placing	limits	on	the	

percentage	of	biofuels	production	that	could	be	sourced	from	food	feed stock	sources.		The	

proposed	limit	set	the	maximum	level	of	biofuels	production	to	5.5	percent	of	transportation	

fuels	use	on	an	energy	equivalent	basis.		Considering	recent	production	history,	WAEES	analysis	

finds	this	5.5	percent	limit	may	be	close	to	the	economically	attainable	level	as	illustrated	

below.		In	reaching	this	level	of	production,	WAEES	assumes	that	roughly	75%	of	the	biofuels	

production	will	be	biodiesel	based,	and	25%	will	be	ethanol	based.		The	stacked	bar	chart	below	

shows	the	implied	EU	biodiesel	production	by	feed stock	type	and	imports.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

201020112012201320142015
WAEES, Copyright 2014, All Rights Reserved Page 15

Figure	11.		EU	Biofuels	Targets	and	Attained	Levels	

(Share	of	Total	Fuel	Use,	Energy	Equivalent	Basis)

Figure	12.		EU	Biodiesel	Production	and	Imports

0%

2%

4%

6%

8%

10%

12%

200620072008200920102011201220132014201520162017201820192020

Stated	Goal Attained	Level

0

2

4

6

8

10

12

14

16

2006200720082009201020112012201320142015

Billion	Liters

Rapeseed	oil Soybean	oil Palm	oil Sunflower	oil

Waste	veg	oil Animal	Fats Imports
WAEES, Copyright 2014, All Rights Reserved Page 16

Argentina 

Argentina’s	recent	announcement	of	a	10%	blend	requirement	for	biodiesel	was	in	response	to	

trade	barriers	put	in	place	by	the	EU	to	limit	Argentine	biodiesel	exports	and	the	abundant	

supply	of	soybean	oil.		This	analysis	assumes	that	Argentina	will	still	have	access	to	the	EU	

market	although	possibly	at	a	reduced	level.		Significantly,	this	analysis	also	assumes	that	

Argentina	does	not	have	an	approved	pathway	for	its	biodiesel	to	qualify	for	D4	RIN’s	in	the	US	

market.		Without	the	$1.00	blenders’	credit	and	with	a	less	binding	blend	wall,	incentives	to	

import	Argentine	biodiesel	for	D6	RINs are	limited.		With	an	approved	pathway	for	Argentine	

biodiesel	to	qualify	for	D4	RIN’s, US	biodiesel	imports	would	increase.

Brazil 

On	the	biodiesel	side,	this	analysis	continues	to	assume	that	Brazil	largely	produces	biodiesel	to	

meet	its	5%	blending	mandate.		No	growth	in	this	mandate	is	assumed	although	Brazil’s	

biodiesel	industry	continues	to	lobby	heavily	for	it.		With	falling	feed stock	prices,	they	may	gain	

additional	leverage.		Only	negligible	exports	of	biodiesel	from	Brazil	are	expected.

More	importantly,	the	sugarcane	ethanol	industry	in	Brazil	has	been	carefully	watching	

developments	in	the	US	advanced	fuels	market.		In	addition,	California	clean	air	policies	

enforced	by	the	California	Air	Resources	Board	(CARB)	suggests	a	system	of carbon	credit	

pricing	that	strongly	favors	sugarcane	ethanol	use	in	order	to	meet	compliance.		In	this	analysis,	

The	CARB	policy	is	assumed	to	set	a	floor	for	sugarcane	ethanol	imports.		This	floor	is	assumed	

to	be	140	million	gallons	in	2014	and	200	million	gallons	in	2015.		Depending	on	the	economics	

of	importing	sugarcane	ethanol	and the	value	of	the	advanced	RIN,	the	WAEES	model	would	

simulate	sugarcane	ethanol	imports	significantly	above	these	requirements.		(Notably,	at	

current	ethanol	prices	in	Brazil	and	the	cost	of	transportation	from	Brazil	it	is	unlikely	that	the	

US	would	import	significant	amounts	of	sugarcane	ethanol	to	displace	conventional	starch	

based	ethanol	production to	meet	the	implied	starch	based	ethanol	mandate.)

The	competitiveness	of	sugarcane	ethanol	is	very	important	to	the	biodiesel	industry	because	it	

is	currently	the	only	other	advance	biofuel	that	has	enough	volume	to	fill	the	US	advanced	

mandate.		However,	the	US	ethanol	blend	wall	causes	sugarcane	ethanol	to	compete	directly	

with	starch	based	ethanol	in	filling	limited	demand.		Pushing	through	the	blend	wall	forces	

ethanol	prices	lower	in	order	to	attract	consumer	demand	in	flex	fuel	vehicles.		This	increases	

the	conventional	RIN	price	in	order	to	maintain	profitability	in	the	US	starch	based	ethanol	

industry.		Biodiesel	qualifies	as	an	advanced	fuel	and	additional	production	does	not	create	

additional	problems	with	the	ethanol	blend	wall or	increase	conventional	RIN	prices.		

		
WAEES, Copyright 2014, All Rights Reserved Page 17

Biodiesel	Industry	Developments

One	of	the	most	important	developments	in	the	biodiesel	industry	over	the	past	few	years	is	

the	increasing	diversification	of	feed	stocks	used	to	produce	biodiesel.		Many	of	these	new	feed	

stocks	are	less	expensive	than	virgin	oils	significantly	reducing	the	cost	of	producing	biodiesel	

even	after	accounting	for	additional	pretreatment	costs	associated	with	these	higher	free	fatty	

acid	feed	stocks.		The	table	below	illustrates	that	based	on	historical	data for	marketing	years	

2010/11	through	2012/13,	the	average	cost	per	gallon	of	methyl	ester	biodiesel	production	has	

been	reduced	by	over	20	cents	per	gallon	because	of	increasing	use	of	these	lower	cost	feed	

stocks.		This	represents	a	real	shift	outward	of	the	supply	curve	for	the	biodiesel	industry.

Looking	forward	for	the	next few	years,	two	of	these	feed stocks	with	the	most	promising	

sources	of	growth are	the	previously	mentioned	corn	oil	extracted	from	distillers’	grains	and	the

increasing	recovery	of	yellow	grease.		The	next	best	commercial	use	of	these	products	is	as	an	

energy	enhancer	in	animal	feeds.		With	corn	prices	falling	and	a	glut	of	oil	and animal	fat	feed	

stocks	already	available	in	this	market,	biodiesel	production	is	a	viable	option	for	these	feed	

stocks.		 The	conservative	nature	of	the	assumptions	used	for	corn	oil	in	this	analysis	have	

already	been	pointed	out,	but	key	players	in	the	rendering	business	have	suggested	that	the	

estimates	used	here	for	the	supply	of	yellow	grease	and	other	animal	fats	are	also	conservative.		

In	part,	this	criticism	rests	on	the	fact	that	these	by-product	markets	are	not	well	tracked	and	in	

fact	coverage	has	declined	in	recent	years.		In	addition,	many	smaller	businesses	that	produce	

yellow	grease	as	a	by-product	of	their	business	do	not	report	this	production	and	may	pay	for	

disposal	of	this	product	in	the	local	landfill.

Biodiesel Processing Costs and Returns

Oct/Sep Marketing Year 10/11 11/12 12/13 13/14 14/15 15/16

Dollars Per Gallon

Returns Using Soybean Oil as a Feedstock

Biodiesel Value 4.83 4.75 4.58 3.87 3.77 3.80

Glycerin Value 0.08 0.08 0.08 0.08 0.08 0.08

Soyoil Cost -4.10 -3.92 -3.63 -3.45 -3.28 -3.32

Other Operating Costs -0.38 -0.38 -0.38 -0.39 -0.39 -0.39

Capacity Cost Adjustment* 0.00 0.00 0.05 0.05 0.05 0.05

Net Operating Return 0.43 0.53 0.69 0.16 0.22 0.22

Returns Using Weighted Average Feedstock Costs**

Biodiesel Value 4.83 4.75 4.58 3.87 3.77 3.80

Glycerin Value 0.08 0.08 0.08 0.08 0.08 0.08

Weighted Avg of Feedstocks Used -3.83 -3.73 -3.34 -3.22 -3.09 -3.12

Weighted Avg of Other Operating Costs -0.41 -0.41 -0.42 -0.41 -0.41 -0.41

Capacity Cost Adjustment* 0.00 0.00 0.05 0.05 0.05 0.05

Net Operating Return 0.67 0.70 0.95 0.37 0.39 0.39

*Positive values indicate a reduction in cost due to higher capacity utilization

** Weights are based on actual feedstocks used for methyl ester biodiesel production
WAEES, Copyright 2014, All Rights Reserved Page 18

Although	there	are	many	new	potential	feed stocks	for	biodiesel	production,	the	focus	of	this	

analysis	remains	on	the	fats	and	vegetable	oils	sources	that	are	commercially	available	and	

have	been	utilized	in	the	production	of	biodiesel	historically.		Examples	include	animal	fats	and	

yellow	greases,	soybean	oil,	canola	oil,	distillers	corn	oil	recovered	from	dry	grind	ethanol	

plants,	and	camelina	oil.		Palm	oil	and	its	derivatives	are	not	considered	as	potential	feed stocks	

for	U.S.	biodiesel	given	EPA’s	proposed	rule	that	that	they	do not	meet	the	thresholds	for	GHG	

reductions.		All	of	the	feed stock	options	considered	in	this	economic	analysis	are	RFS2	

approved	pathways.

Although	not	part	of	this	analysis,	other	new	feed stock	sources	could	prove	to	be	equally	

important	to	future	biodiesel	growth.		The	current	market	has	sent	numerous	price	signals	to	

invest	in	new	technologies	and	methods	to	increase	raw	material	supplies.		Investment	in	new,	

non-edible	raw	materials	sources	such	as	algae,	field	pennycress,	jatropha,	mustard,	and	

halophytes	continues	at	an	aggressive	rate.	

US	Biofuels	Policy	Assumptions

The statuary	volume	obligations for	the	advance	mandate	are	imposed	in	2014	and	2015	and	

the	biodiesel	mandate	is	raised	from	1.28	billion	gallons	to	1.7	billion	gallons	in	2014	and	from	

1.28	billion	gallon	to	2.1	billion	gallons	in	2015.		The	implied	starch	ethanol	mandate	is	

increased	from	13.01	billion	gallons	to	13.5	billion	gallons.	The	assumptions	are	compared	with	

the	statutory	levels	in	the	Biodiesel	Scenario	Assumptions	table	below.

Finally,	another	important	assumption is	that	the	biodiesel	blenders’	credit of	$1	per	gallon was

not	extended	beyond	its expiration	date	at	the	end	of	2013.		

Marketing Year versus Calendar Year 

The	WAEES	biofuels	models	are	developed	on	a	marketing	year	basis	rather	than	a	calendar	

year	basis.		Calendar	year	biodiesel	mandates	are	converted	to	a	marketing	year	basis	and	

compliance	with	biofuels	mandates	is	enforced	by	the	model	on	a	marketing	year	basis	rather	

than	a	calendar	year	basis.		Unlike	fiscal	years,	marketing	years	always	designate	the	starting	

year	and	ending	year.		This	means	that	the	2011/2012	marketing	year	(abbreviated	11/12)	for	

ethanol	refers	to	the	Sept	2011	through	August	2012	period.		Marketing	year	2012/13	would	

most	closely	correspond	to	calendar	year	2013.	The	reason	the	model	is	designed	in	this	way	is	

because	this	aligns	the	biofuels	feed	stock	demands	with	the	crop	marketing	years.		

Unfortunately,	this	does	not	allow	for	the	specific	calendar	year	comparisons.
WAEES, Copyright 2014, All Rights Reserved Page 19

Scenario	Results

In	any	biofuels	analysis	the	most	critical	aspect	is	how	the	model	enforces	the	volume	

obligations.		The table	entitled,	“U.S.	Biofuel	RINs	Tracking”	presents	a	detailed	accounting	of	

how	the	model	balances	each	of	the	volume	obligations	within	the	RFS.		Note	that	the	table	is	

reported	on	a	Sep/Aug	Marketing	year	rather	than	a	calendar	year	which	most	closely	

corresponds	to	the	largest	biofuel	feed	stock	marketing	year	(corn).		The	2014	calendar	year	

would	most	closely	correspond	to	the	13/14 marketing	year	since	the	first	8	months	of	2014	

would	be	included	in	the	13/14	marketing	year.		However,	note	that	the	compliance	with	the	

volume	obligations	is	enforced	on	a	marketing year which	in	the	case	of	the	13/14	marketing	

year,	uses	4/12	of	the	2013	volume	obligation	and	8/12	of	the	2014	volume	obligation.		

Therefore	the	advanced	biofuels	mandate	for	the	13/14	marketing	year	is	slightly	lower	at	

3.417	billion	gallons	compared	with	the	calendar	year	2014	statutory	level	of	3.75	billion	

gallons.

Biodiesel	Scenario	Assumptions

Calendar	Year 2013 2014 2015

billion	gallons

Statutory	Mandates

Renewable	Fuels	Total 16.550 18.150 20.500

		Of	which:

		Advanced	Biofuels 2.750 3.750 5.500

					Of	which:

					Biodiesel 1.000 1.000 1.000

					Cellulosic 1.000 1.750 3.000

					Undesignated 0.250 0.500 1.000

		Implied	Starch	Ethanol	Mandate 13.800 14.400 15.000

Scenario

Renewable	Fuels	Total 16.550 16.760 19.000

		Of	which:

		Advanced	Biofuels 2.750 3.750 5.500

					Of	which:

					Biodiesel 1.280 1.700 2.100

					Cellulosic 0.014 0.017 0.030

					Undesignated 0.816 1.183 2.320

		Implied	Starch	Ethanol	Mandate 13.800 13.010 13.500
WAEES, Copyright 2014, All Rights Reserved Page 20

In	the	Biodiesel	RFS	RINs	section	of	the	table,	biofuel	RINs	are	presented	on	an	as	produced	

basis	(“wet	gallon	basis”).		These	biodiesel	RINs	are	multiplied	by	1.5	to	express	them	in	an	

ethanol	RIN	equivalent	basis	under	the	Advanced	RFS	RINs	section	of	the	table.	The	line	labeled	

use	for	biodiesel	compliance	shows	the	number	of	“wet	gallon”	RINs	used	for	compliance	with	

the	biodiesel	volume	obligation.		Note	that	the	RIN	prices	at	the	bottom	of	the	table	are	on	an	

ethanol	equivalent	RIN	basis.

The	table	also presents	the	values	for	RINs	carryover.		The	final	historical	data	on	each	type	of	

RINs	is	not	well	documented	on	a	monthly	basis.		Unfortunately,	this	makes	establishing RIN	

stocks	on	a	marketing	year	particularly	difficult.		The	carryover	RIN	values	from	2012	to	2013	

are	marketing	year	approximations	to	the	calendar	year	RINs	carryover	reported	in	EPA’s	

documentation	on	the	2013	Final	Rule.		The	transparency	of	the	RINs	data	could	be	greatly	

enhanced	with	supply	and	demand	tables	for	each	RIN	type	capturing	the	current	month	and	

historical	monthly	data	including	revisions	and	tracking	the	age	of	the	RINs.		Values	for	

marketing	year’s	13/14	through	15/16	are	projections	from	the	WAEES	model.

The	principle	driver	of	future	advanced	biofuels	production	is	the	statutory	increase	in	the	

advanced	biofuels	volume	obligation.		Since	cellulosic	ethanol	production	levels	are	expected	to	

remain	at	low	levels,	the	advanced	mandate	must	be	filled	by	biodiesel	or	sugarcane	ethanol.			

In	marketing	year	13/14	(corresponding	to	calendar	year	2014),	biodiesel	production	expands	

beyond	its	increased	volume	obligation	in	order	to	meet	the	overall	advanced	biofuels	volume	

obligation (see	Figure	13).		This	is	also	true	in	marketing	years	14/15	and	15/16.		The	excess	

biodiesel	RIN	production	is	utilized to	meet	the	advanced	mandate	and	there	biodiesel	and	

advanced	RIN	prices	are	the	same.		Importantly,	this	implies	that	the	advanced biofuel	volume	

obligation	is	driving	the	market	and	that	biodiesel	production	would	have	increased to	the	

same	level	without	an	increase	in	the	biodiesel	volume	obligation.		Note	that	sugarcane	ethanol	

imports	also	expand	to	help	fill	the	mandate	resulting	in	higher	conventional	RIN	prices	as	

ethanol	prices	must	fall	to	increase	consumption	of	high ethanol	blends.		Due	to	ample	feed

stock	supplies	for	biodiesel	in	2014	and	the	blend	wall,	sugarcane	ethanol	imports	do	not	

aggressively	expand.		But	as	ethanol	pushes	through	the	blend	wall	in	14/15,	sugarcane	ethanol	

imports	increase	more	relative	to	biodiesel.		The	impact	of	increased pressure	on	the	ethanol	

blend	wall	is	evident	through	the	increase	in	conventional	RIN	prices.				

In	Brazil	sugarcane	ethanol	prices	in	2015	are	projected	to	be	$2.31	per	gallon	FOB	port	or	

about	$2.52	on	an	FOB	US	gulf	basis	(assuming	a	21	cent	per	gallon	transportation	cost).		This	

compares	with	a calendar	year	approximate biodiesel	price	on	an	advance	ethanol	RIN	

equivalent	basis	of	2.51	($3.77	biodiesel	plant	price/1.5).		Within	the	WAEES	model,	the	least	

expensive	source	of	advanced	RINs	is	utilized	to	fill	the	advanced	mandate.		The	WAEES	model	

also	includes	a	model	for	advance	sorghum	ethanol	which	although	there	is	existing	capacity,	
WAEES, Copyright 2014, All Rights Reserved Page 21

has	not	yet	generated	significant	volumes	in	a	commercial	sense.		With	the	full	advanced	

mandate	in	place,	advanced	RIN	prices	are	high	enough	to	incentive	production	at	these	

facilities.

Biodiesel	RIN	prices	increase	in	marketing	year	13/14	partially	to	offset	the	loss	of	the	$1	

blenders	credit	but	also	because	of	the	decline	in	diesel	prices.		With	the	significant	reduction	in	

feed stock	prices	and	with	the	industry	absorbing	tighter	margins,	the	increase	in	RIN	prices	is	5	

cents	per	gallon.		In	14/15,	RIN	prices	increase	by	28	cents	per	gallon.		The	primary	reason	is	

that	the	biodiesel	price	falls relative	to	#2	diesel	prices	in	order	to	incentivize	additional	

biodiesel	consumption.		The	ratio	of	biodiesel	retail	prices	to	#2	diesel	retail	prices	drops	from	

0.61	in	2013/14	to	0.55	in	2014/15	and	2015/16	which	is	considerably	lower	than	the	energy	

value	of	biodiesel	relative	to	#2	diesel.		This	reflects	potential	infrastructure	issues	with	higher	

biodiesel	distribution.		In	addition, #2	diesel	retail	prices are	lower	in	14/15	and	biodiesel	

processing	margins	expand	to	incentivize	additional	production.		

Figure	13.		Biodiesel	RIN	Price

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

10/11 11/12 12/13 13/14 14/15 15/16

Dollars	Per	Gallon
WAEES, Copyright 2014, All Rights Reserved Page 22

U.S. Biofuel RINs Tracking

Sept/Aug Marketing Year 10/11 11/12 12/13 13/14 14/15 15/16

change from sce

Renewable Fuel Standard (reduced) 13,609 14,783 16,100 16,690 18,253 19,000

 Advanced biofuels Million Gallons 1,209 1,783 2,500 3,417 4,917 5,500

 Cellulosic ethanol (waived) Million Gallons 0 0 12 16 26 50

 Biodiesel Million Gallons 750 933 1,187 1,560 1,967 2,100

Biodiesel RFS RINs

 Production Million RIN Gallons 720 1,130 1,286 1,797 2,175 2,273

 Carry In Million RIN Gallons 56 26 223 256 125 0

 Use for biodiesel compliance Million RIN Gallons 750 933 1,187 1,560 1,967 2,100

 Unused for this mandate Million RIN Gallons 26 223 322 493 333 173

 of which, carry out Million RIN Gallons 26 223 256 125 0 0

 of which, demoted to advanced RINs Million RIN Gallons 0 0 66 368 333 173

Advanced RFS RINs

 Production Million RIN Gallons 1,122 2,027 2,499 3,128 4,728 5,500

 Biodiesel (in ethanol gallons) Million RIN Gallons 1,081 1,695 1,928 2,696 3,262 3,410

 Cellulosic Million RIN Gallons 0 0 12 16 26 50

 Other Advanced Total Million RIN Gallons 41 332 559 416 1,441 2,040

 Sorghum Advanced Ethanol Million RIN Gallons 0 0 0 18 61 117

 Domestic Sugarcane Ethanol Million RIN Gallons 0 0 0 20 0 0

 Sugarcane Ethanol Imports Million RIN Gallons 41 332 559 378 1,380 1,923

 Butanol Million RIN Gallons 0 0 0 0 0 0

 Carry In Million RIN Gallons 382 295 539 477 188 0

 Use for advanced compliance Million RIN Gallons 1,209 1,783 2,500 3,417 4,917 5,500

 Unused for this mandate Million RIN Gallons 295 539 538 188 0 0

 of which, carry out Million RIN Gallons 295 539 477 188 0 0

 of which, demoted to conventional RINs Million RIN Gallons 0 0 61 0 0 0

Total RFS RINs

 Production Million RIN Gallons 14,075 14,652 14,856 16,503 17,749 19,016

 Biodiesel (in ethanol gallons) Million RIN Gallons 1,081 1,695 1,928 2,696 3,262 3,410

 Cellulosic Million RIN Gallons 0 0 12 16 26 50

 Other Advanced Million RIN Gallons 41 332 559 416 1,441 2,040

 Conventional Million RIN Gallons 12,953 12,625 12,356 13,355 13,021 13,516

 Carry In Million RIN Gallons 2,222 2,743 2,589 1,319 1,112 608

 Use for total compliance Million RIN Gallons 13,609 14,783 16,100 16,690 18,253 19,000

 Unused for this mandate Million RIN Gallons 2,688 2,612 1,345 1,112 608 624

 of which, carry out Million RIN Gallons 2,743 2,589 1,319 1,112 608 624

 of which, expired Million RIN Gallons -55 22 26 0 0 0

RIN value Dollars Per RIN

 Biodiesel RIN Dollars Per RIN 1.12 1.29 0.80 0.85 1.13 1.18

 Advanced RIN Dollars Per RIN 0.18 0.61 0.68 0.85 1.13 1.18

 Conventional RIN Dollars Per RIN 0.02 0.02 0.49 0.34 0.41 0.41
WAEES, Copyright 2014, All Rights Reserved Page 23

The	U.S.	Biodiesel	Supply	and	Use	table	presents the	detailed	supply	and	demand	information	

for	both	methyl	ester	and	renewable diesel	production.		The	data	contained	in	this	table	

includes	only	biodiesel	qualifying	for	D4	RIN	generation,	so	biodiesel	produced	specifically	for	

D5	and	D6	RIN	generation	is	excluded.		Since	this	primarily	affects	biodiesel	produced	in	

calendar	year	2013,	this	is	the	primary	difference	between	this	table	and	the	following	calendar	

year	table.		

Renewable	biodiesel	production	data	relies	primarily	on	the	EMTS	dataset	for	historical	data	

and	industry	input	looking	forward.		The	relatively	small	number	of renewable	diesel	plants	in	

the	US	makes	obtaining	specific	cost	of	production	information	particularly	sensitive.		At	this	

time,	renewable	diesel	production	and	imports	is	treated	as	an	exogenous	assumption	with	

assumed	responsiveness	to	profitability.

As the	table	illustrates,	there	has	been	considerable	diversification	in	feed stock	sources	with	

soybean	oil	being	displaced	by	corn	oil,	yellow,	grease	and	other	fats	and	oils.		Comparing	the	

net	operating	returns	from	soybean	oil	with	the	weighted	average	net	operating	return	across	

all	feed stocks	shows	an	average	increase	of	over	20	cents	per	gallon	over	marketing	years	

10/11	through	12/13	with	the	feed stock	diversification.	Looking	forward,	this	advantage	

continues.		

Brazil	Ethanol	Supply	and	Demand

Calendar	Year Units 2010 2011 2012 2013 2014 2015

Supply

		Beginning	Stocks Mil	Liters 4,048 5,916 6,891 7,094 6,691 6,898

		Production Mil	Liters 27,965 22,893 23,509 26,572 28,034 29,470

		Imports Mil	Liters 76 1,136 554 200 784 1,215

	Total	Supply Mil	Liters 32,089 29,945 30,954 33,866 35,509 37,583

Domestic	Consumption Mil	Liters 24,267 21,090 20,805 23,775 25,549 25,169

Exports Mil	Liters 1,906 1,964 3,055 3,400 3,061 5,618

Ending	Stocks Mil	Liters 5,916 6,891 7,094 6,691 6,898 6,796

Prices

		Anhydrous	ethanol Reals/Liter 1.05 1.45 1.26 1.32 1.36 1.38

		Hydrous	ethanol Reals/Liter 0.91 1.21 1.11 1.16 1.20 1.22

		Anhydrous	ethanol US	$/Gallon 2.26 3.28 2.43 2.29 2.31 2.31

		Hydrous	ethanol US	$/Gallon 1.96 2.75 2.15 2.02 2.04 2.04
WAEES, Copyright 2014, All Rights Reserved Page 24

In	a	new	addition	to	biodiesel	margin	calculations,	data	from	2013	versus	2012	production	

allowed	the	calculation	of	the	cost	advantage	for	methyl	ester	production	of	running	plants	at	

over	70%	of	capacity	compared	with	running	at	48%	of	capacity.		The	net	cost	advantage	

attained	by	spreading	variable	management	costs	and	other	costs	over	more	gallons	was	5	

cents	per	gallon	with	even	greater	savings	when	fixed	costs	were	considered.		This	5	cents	was	

included	as	a	reduction	in	costs	in	the	12/13	marketing	year	because	biodiesel	plants	

responsible	for	90%	of	2013	production	operated	at	over	70%	of	operating	capacity.		This	

reduction	in	costs	is	continued	in	the	future	because	the	volume	obligations	in	scenario	would	

keep	plants	operating	above	70%	of	capacity.

The	increase	in	biodiesel	production	driven	by	the	increase	advanced	volume	obligation	results	

in	an	increase	in	feed stock	demand	with	soybean	oil	supplying about	70%	of	the	feed stock	

increase	and	distillers’	corn	oil	and	other	fats	and	oils	supplying	the	remaining	30% relative	to	

2012/13	levels.		Soybean	oil	supplies	much	of	the	increase	to	meet	expanded	production	

because	it	is	the	most	available	oil.		Stronger	biodiesel	prices	incentivize	higher	production	but	

also	bid	up	feed stock	prices	offsetting	some	of	the	expansion	in	profit	margins.		Margins	are	

further	enhanced	by	lower	average	costs	with	biodiesel	plants running	above	70%	capacity.		

Renewable	diesel	also	expands	as	some	plants	reopen	and	imports	expand.		These	changes	are	

largely	assumption	based	given	current	plant	facilities	that	have	operated	in	the	past.		The	

analysis	assumes	no	new	construction.

The	ratio	of	retail	biodiesel	prices	with	respect	to	#2	diesel	prices	remains	low	with	respect	to	

the	energy	value	of	biodiesel	relative	to	#2	diesel.		With	the higher	use	of	biodiesel	in	2013	as	

evidence	of	improving	distribution	infrastructure,	there	could	be	opportunities	for	this	ratio	to	

improve	in	the	future	increasing	the	competitiveness	of	the	biodiesel	industry	although	this	is	

not	considered in	this	analysis.		
WAEES, Copyright 2014, All Rights Reserved Page 25

U.S. Biodiesel Supply and Use

Oct/Sep Marketing Year 10/11 11/12 12/13 13/14 14/15 15/16

change from sce

Policy - MY Approximation

 Biodiesel Mandate Million Gallons 750 933 1,187 1,560 1,967 2,100

 Biodiesel Blenders Tax Credit Dollars Per Gallon 1.00 1.00 1.00 0.25 0.00 0.00

Supply

Total Production Million Gallons 771 1,207 1,324 1,832 2,253 2,355

 Renewable Diesel Production & Net Imports* Million Gallons 48 89 187 337 391 391

 Methyl Ester Production Million Gallons 723 1,119 1,138 1,494 1,861 1,964

 By Feedstock

 Soybean Oil Million Gallons 355 632 597 823 1,096 1,183

 Corn Oil Million Gallons 34 75 119 243 269 285

 Canola Oil Million Gallons 84 125 57 88 155 148

 Other Fats and Oils Million Gallons 250 286 364 340 342 348

 Inedible Tallow Million Gallons 44 52 60 48 42 45

 Lard & White Grease Million Gallons 77 57 67 64 65 65

 Yellow Grease Million Gallons 52 81 108 144 153 157

 Brown Grease Million Gallons 20 35 35 30 28 27

 Poultry Fat Million Gallons 27 25 20 20 20 20

 Other Million Gallons 31 37 73 34 34 34

Disappearance** Million Gallons 681 1,111 1,237 1,769 2,153 2,268

Net Exports (methyl esters) Million Gallons 51 77 39 34 78 82

Ending Stocks Million Gallons 68 86 135 163 184 190

Fuel Prices & Ratios

#2 Diesel, Refiner Sales Dollars Per Gallon 2.87 3.09 3.07 2.83 2.72 2.69

#2 Diesel, Retail Dollars Per Gallon 3.66 3.93 3.96 3.84 3.74 3.73

Biodiesel, FOB Plant, Iowa Dollars Per Gallon 4.83 4.75 4.58 3.87 3.77 3.80

Biodiesel, Retail Price Equivalent Dollars Per Gallon 2.15 1.81 2.38 2.35 2.06 2.04

Ratio of Biodiesel Retail Price to #2 Diesel Retail Price Ratio 0.59 0.46 0.60 0.61 0.55 0.55

Methyl Ester Process Costs and Returns - Soybean Oil Feedstock

Biodiesel Value Dollars Per Gallon 4.83 4.75 4.58 3.87 3.77 3.80

Glycerin Value Dollars Per Gallon 0.08 0.08 0.08 0.08 0.08 0.08

Soyoil Cost Dollars Per Gallon -4.10 -3.92 -3.63 -3.45 -3.28 -3.32

Other Operating Costs Dollars Per Gallon -0.38 -0.38 -0.38 -0.39 -0.39 -0.39

Capacity Cost Adjustment*** Dollars Per Gallon 0.00 0.00 0.05 0.05 0.05 0.05

Net Operating Return Dollars Per Gallon 0.43 0.53 0.69 0.16 0.22 0.22

Methyl Ester Process Costs and Returns - Weighted Avg Feedstock

Biodiesel Value Dollars Per Gallon 4.83 4.75 4.58 3.87 3.77 3.80

Glycerin Value Dollars Per Gallon 0.08 0.08 0.08 0.08 0.08 0.08

Weighted Avg of Feedstocks Used Dollars Per Gallon -3.83 -3.73 -3.34 -3.22 -3.09 -3.12

Weighted Avg of Other Operating Costs Dollars Per Gallon -0.41 -0.41 -0.42 -0.41 -0.41 -0.41

Capacity Cost Adjustment*** Dollars Per Gallon 0.00 0.00 0.05 0.05 0.05 0.05

Net Operating Return Dollars Per Gallon 0.67 0.70 0.95 0.37 0.39 0.39

* Includes only the renewable diesel eligible for D4 RINs based on data reported by EPA in the EMTS Dataset

** Disappearance data adjusted from EIA numbers to make supply and demand balance

*** Positive values indicate a reduction in cost due to higher capacity utilization
WAEES, Copyright 2014, All Rights Reserved Page 26

As	mentioned	earlier,	a	crude	calendar	year	approximation	of	the	biodiesel	supply	and	use	can	

be	made	by	converting	the	marketing	year	data	to	calendar	year	data	for	the	projection	period.		

Historical	data	based	on	calendar	year	data	is	aligned	through	2013	as	closely	as	possible.		The	

calendar	year	table	below	also	includes	all	biodiesel	production	whether	for	D4,	D5,	or	D6	RINs.	

Calendar	year	2013	demonstrates	the	biodiesel	industry’s	ability	to	respond	and	deliver	

significantly	higher	production	levels	not	only	to	fill	the	biodiesel	volume	obligation	but	also	the	

advanced	and	conventional	biodiesel	volume	obligations.				

The	calendar	year	approximation	shows	the	large	increase	in	biodiesel	production	occurring	

over	2014	and	2015.		All	of	the	production	in	2014	and	2015	is	eligible	for	D4	RINs.		Note	the	

continued	growth	in	methyl	ester	production	of	about	300	million	gallons	per	year.		Biodiesel	

plant	prices	fall	from	$4.74	per	gallon	in	2013	to	$3.84	per	gallon	in	2014	and	$3.77	per	gallon

in	2015.		The	fall	in	biodiesel	plant	prices	reflects	lower	feed	stock	prices	and	the	ability	of	the	

industry	to	absorb	tighter	biodiesel	processing	margins	with	the	loss	of	the	$1	per	gallon	

blender’s	credit.

Figure	14.		Biodiesel	Production	and	Imports	

(Calendar	Year)

0

500

1,000

1,500

2,000

2,500

3,000

201020112012201320142015

Million	Gallons

Methyl	Ester	Production Renewable	Diesel	Production

Methyl	Ester	Imports Renewable	Diesel	Imports
WAEES, Copyright 2014, All Rights Reserved Page 27

Figure	15.		Biodiesel	Plant	Price

U.S. Biodiesel and Renewable Diesel Supply and Use

Calendar Year Approximation 2010 2011 2012 2013 2014 2015

change from sce

Policy

 Biodiesel Mandate Million Gallons 650 800 1,000 1,280 1,700 2,100

 Biodiesel Blenders Tax Credit Dollars Per Gallon 1.00 1.00 1.00 1.00 0.00 0.00

Supply Million Gallons 417 1,134 1,215 1,946 2,322 2,630

 Beginning Stocks Million Gallons 29 68 86 135 180 206

 Total Production Million Gallons 365 1,029 1,053 1,392 1,806 2,107

 Methyl Ester Production Million Gallons 343 967 991 1,291 1,586 1,887

 Renewable Diesel Production** Million Gallons 21 62 62 101 220 220

 Methyl Ester Imports Million Gallons 24 37 36 147 165 146

 Renewable Diesel Imports** Million Gallons 0 0 40 271 171 171

Disappearance Million Gallons 240 972 952 1,586 1,906 2,179

 Methyl Ester Use Million Gallons 219 911 850 1,214 1,514 1,788

 Renewable Diesel Use** Million Gallons 21 62 102 372 391 391

Exports Million Gallons 109 76 128 180 210 225

Ending Stocks* Million Gallons 68 86 135 180 206 226

Fuel Prices & Ratios

#2 Diesel, Refiner Sales Dollars Per Gallon 2.21 3.03 3.11 2.94 2.79 2.70

#2 Diesel, Retail Dollars Per Gallon 2.99 3.84 3.97 3.93 3.80 3.72

Biodiesel, FOB Plant, Iowa Dollars Per Gallon 3.45 5.17 4.45 4.74 3.84 3.77

* Disappearance data adjusted from EIA numbers to make supply and demand balance

** Includes all biodiesel whether eligible for D4, D5, or D6 RINs.

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

2010 2011 2012 2013 2014 2015

Dollars	Per	Gallon
WAEES, Copyright 2014, All Rights Reserved Page 28

Despite	significantly	increased	use	for	biodiesel	production,	feed stock	prices	continue	to	

decline	from	recent	levels	with	soybean	oil	prices	averaging	10-20	percent	lower	than	the	levels	

experienced	during marketing	years	10/11	– 12/13.		In	marketing	year	14/15,	4.2	billion	pounds	

more	soybean	oil	is	used	for	biodiesel	which	is	reallocated	by	the	model from	a	combination	of	

reduced	net	exports, less	domestic	food	consumption	and	lower	stocks.		More	demand	for	

soybean	oil	increases	soybean	crush	and	also	increases	soybean	meal	production	resulting	in	

lower	soybean	meal	prices.

Figure	16.		Feed	Stock	Prices

0

10

20

30

40

50

60

10/11 11/12 12/13 13/14 14/15 15/16

Cents	Per	Pound

Soybean	Oil Yellow	Grease
WAEES, Copyright 2014, All Rights Reserved Page 29

With	the	soybean	to	corn	price	ratio	favoring	planting	more	soybeans	in	2014,	the	US	is	

expected	to	increase	soybean	area	just	before	large	South	American	soybean	crops	hit	the	

market	in	April	and	May	of	2014.		With	average	growing	conditions,	US	soybean	prices	are	

expected	to	fall	dramatically	in	2014/15	as	US	supplies	combined	with	South	American	supplies	

flood	the	market.		Soybean	meal	and	soybean	oil	markets	feel	the	pressure	of	increased	

supplies	as	international	export	competition	increases.		

Stronger	soybean	oil	prices	are	the	primary	motivator	for	stronger	soybean	farm	prices through	

increased crush	demand.		Most	of	the	increase	in	crush	is	met	through	higher	soybean	

production	so	the	impact	on	international	trade	and	ending	stocks	is	minimal.		

U.S. Soybean Products Supply and Utilization

Oct/Sep Marketing Year Units 10/11 11/12 12/13 13/14 14/15 15/16

change from sce

Soybean Meal

 Supply 1000 Short Tons 39,731 41,591 40,425 40,978 43,813 45,421

 Beginning Stocks 1000 Short Tons 302 350 300 275 304 355

 Production 1000 Short Tons 39,251 41,025 39,875 40,538 43,344 44,900

 Imports 1000 Short Tons 179 216 250 165 165 165

 Domestic Use 1000 Short Tons 30,278 31,548 29,100 29,801 32,113 33,184

 Exports 1000 Short Tons 9,104 9,743 11,050 10,873 11,345 11,871

 Total Use 1000 Short Tons 39,381 41,291 40,150 40,674 43,458 45,055

 Ending Stocks 1000 Short Tons 350 300 275 304 355 366

 Price, 48% Protein, Decatur Dollars Per Short Ton 345.52 393.53 468.11 422.05 318.44 298.66

Soybean Oil

 Supply Million Pounds 22,452 22,315 22,565 21,832 23,907 24,773

 Beginning Stocks Million Pounds 3,406 2,425 2,540 1,705 1,500 1,401

 Production Million Pounds 18,888 19,740 19,820 19,927 21,307 22,072

 Imports Million Pounds 159 149 205 200 1,100 1,300

 Domestic Use Million Pounds 16,794 18,311 18,660 19,510 21,979 22,748

 Biodiesel Million Pounds 2,737 4,870 4,600 6,340 8,442 9,108

 Food and Other Million Pounds 14,057 13,441 14,060 13,170 13,537 13,641

 Exports Million Pounds 3,233 1,464 2,200 822 528 638

 Total Use Million Pounds 20,027 19,775 20,860 20,332 22,507 23,387

 Ending Stocks Million Pounds 2,425 2,540 1,705 1,500 1,401 1,386

 Price, Decatur Cents Per Pound 53.20 51.90 47.13 44.79 42.64 43.05
WAEES, Copyright 2014, All Rights Reserved Page 30

The	increase	in	the	ethanol	volume	obligation	in	2015	results	in	increased	ethanol	production	

from	corn,	but	more	importantly,	higher	sugarcane	ethanol	imports	force	increased	use	of	

ethanol	in	flex	fuel	vehicles.		To	stimulate	flex	fuel	consumption,	retail	ethanol	prices	fall	

relative	to	unleaded	gasoline	prices	while	wholesale	ethanol	prices	increase	to	incentivize	more	

ethanol	production.		The	result	is	higher	conventional	RIN	prices.	

U.S. Soybean Supply and Utilization

Sept/Aug Marketing Year Units 10/11 11/12 12/13 13/14 14/15 15/16

change from sce

Area

 Planted Area Million Acres 77.4 75.0 77.2 76.5 79.4 80.1

 Harvested Area Million Acres 76.6 73.8 76.2 75.7 78.6 79.3

 Harvested Area % of Planted Percent 99.0% 98.3% 98.7% 98.9% 98.9% 98.9%

Yield Bushels Per Acre 43.5 41.9 39.8 43.0 44.9 46.3

Supply Million Bushels 3,495 3,325 3,239 3,413 3,691 3,898

 Beginning Stocks Million Bushels 151 215 169 141 145 217

 Production Million Bushels 3,329 3,094 3,034 3,258 3,531 3,667

 Imports Million Bushels 14 16 36 15 15 15

Domestic Use Million Bushels 1,778 1,790 1,779 1,817 1,954 2,025

 Crush Million Bushels 1,648 1,703 1,689 1,707 1,826 1,891

 Seed, Residual Million Bushels 130 87 90 109 129 134

Exports Million Bushels 1,501 1,365 1,320 1,452 1,520 1,650

Total Use Million Bushels 3,280 3,155 3,098 3,269 3,474 3,675

Ending Stocks Million Bushels 215 169 141 145 217 223

Prices, Ratios, and Margins

 Farm Price Dollars Per Bushel 11.30 12.50 14.40 12.98 10.23 9.97

 Illinois Processor Price Dollars Per Bushel 13.14 13.74 15.12 13.65 10.82 10.55

 Soybean-To-Corn Price Ratio Ratio 2.18 2.01 2.09 2.85 2.48 2.46

 Crushing Margin Dollars Per Bushel 1.19 1.76 1.47 1.60 1.72 1.56

Returns

 Gross Market Returns Dollars Per Acre 491.06 524.14 573.55 558.66 459.73 461.26

 Variable Expenses Dollars Per Acre 134.01 138.94 150.94 152.80 152.18 152.98

 Market Returns over Variable Costs Dollars Per Acre 357.05 385.20 422.60 405.86 307.55 308.28

Government Subsidies

 Loan Deficiency Payments Dollars Per Acre 0.00 0.00 0.00 0.00 0.00 0.00

 Counter Cyclical Payments Dollars Per Base Acre 0.00 0.00 0.00 0.00 0.00 0.00

 Direct Payments Dollars Per Base Acre 11.56 11.56 11.56 11.56 0.00 0.00
WAEES, Copyright 2014, All Rights Reserved Page 31

Since	the	increase	in	the	implied	starch	mandate	is	minimal	and	doesn’t	occur	until	2015,	the	

impact	on	US	corn	supply	and	use	are	primarily	through	competition	from	the	soybean	sector.		

Stronger	soybean	prices	relative	to	corn	bid	more	crop	area	into	soybeans	at	the	expense	of	

corn.		Corn	prices	strengthen	from	reduced	corn	area	and	stronger	demand	from	ethanol.

U.S. Ethanol Supply and Use

Sep/Aug Marketing Year 10/11 11/12 12/13 13/14 14/15 15/16

change from sce

Policy

 Starch Based Mandate (MY Approximation) Million Gallons 12,400 13,000 13,600 13,273 13,337 13,500

Crude Oil Prices

West Texas Intermediate Price Dollars Per Barrel 92.84 102.09 97.10 97.00 94.65 93.65

Refiners Acquisition Price Dollars Per Barrel 94.16 110.35 101.58 100.29 97.91 96.89

Motor Gasoline Use Million Gallons 135,769 134,078 133,280 133,329 133,956 133,989

Supply Million Gallons 14,583 14,858 14,207 15,162 16,596 17,755

 Beginning Stocks Million Gallons 730 761 806 713 860 883

 Production Million Gallons 13,811 13,765 12,842 14,071 14,356 14,948

 From Corn Million Gallons 13,636 13,637 12,714 13,934 14,188 14,680

 From Other Feedstocks Million Gallons 175 128 116 121 142 218

 Celllulosic Million Gallons 0 0 12 16 26 50

 Imports Million Gallons 41 332 559 378 1,380 1,923

Disappearance Million Gallons 12,994 12,957 12,927 13,787 14,487 15,606

 Low Level Blends Million Gallons 12,868 12,775 12,747 13,108 13,116 12,950

 Flex Fuel Vehicles Million Gallons 127 183 180 679 1,371 2,656

Exports Million Gallons 827 1,095 567 515 1,225 1,233

Ending Stocks Million Gallons 761 806 713 860 883 915

Fuel Prices & Ratios

 Unl. Gasoline, FOB Omaha Dollars Per Gallon 2.73 2.91 2.95 2.89 2.77 2.68

 Unleaded Gasoline, Retail Dollars Per Gallon 3.28 3.58 3.61 3.52 3.38 3.29

 Ethanol, FOB Omaha Dollars Per Gallon 2.56 2.46 2.50 1.94 1.82 1.81

 Ethanol, Retail Price Equivalent Dollars Per Gallon 2.64 2.97 3.15 2.23 2.02 2.02

 Ratio of Retail Prices: Ethanol to Unleaded Gasoline Ratio 0.81 0.83 0.87 0.63 0.60 0.61
WAEES, Copyright 2014, All Rights Reserved Page 32

Compliance	Costs

In	2012/13,	the	cost	of	complying	with	the	biofuels	volume	obligations	was	$8.6	billion	in	part	

because	the	blend	wall	drove	up	the	price	of	conventional	RINs.		Keeping	the	statutory	volume	

obligations	for	advanced	biofuels	in	2014	and	2015	has	some	impact	on	compliance	costs.	In	

2013/14,	total	compliance	costs	fall	because	the	conventional	RIN	price	falls	with	a	lower	

conventional	ethanol	volume	obligation.	 While	the	cost	of	biodiesel	RIN	compliance	increases	

U.S. Corn Supply and Utilization

Sep/Aug Marketing Year Units 10/11 11/12 12/13 13/14 14/15 15/16

change from sce

Area

 Planted Area Million Acres 88.2 91.9 97.2 95.3 91.7 89.2

 Harvested Area Million Acres 81.4 84.0 87.4 87.2 83.2 80.9

 Harvested Area % of Planted Percent 92.4% 91.4% 89.9% 91.5% 90.7% 90.6%

Yield Bushels Per Acre 152.8 147.2 123.4 160.4 167.4 172.0

Supply Million Bushels 14,182 13,517 11,932 14,837 15,591 15,832

 Beginning Stocks Million Bushels 1,708 1,128 989 824 1,642 1,899

 Production Million Bushels 12,447 12,360 10,780 13,989 13,924 13,907

 Imports Million Bushels 28 29 162 25 25 25

Domestic Use Million Bushels 11,225 10,985 10,377 11,838 11,846 12,028

 Feed, Residual Million Bushels 4,799 4,557 4,333 5,309 5,220 5,230

 Fuel Alcohol Million Bushels 5,019 5,000 4,648 5,074 5,148 5,308

 HFCS Million Bushels 521 513 491 516 525 529

 Seed Million Bushels 23 25 25 23 23 23

 Food, Other Million Bushels 863 890 880 915 931 939

 Glucose and Dextrose Million Bushels 272 297 282 290 294 296

 Starch Million Bushels 258 254 247 280 285 288

 Beverage Alcohol Million Bushels 135 137 140 140 142 144

 Cereals and Other Million Bushels 197 203 210 205 209 212

Exports Million Bushels 1,830 1,543 731 1,358 1,845 1,929

Total Use Million Bushels 13,055 12,528 11,108 13,196 13,692 13,958

Ending Stocks Million Bushels 1,128 989 824 1,642 1,899 1,874

Prices and Ratios

 Farm Price Dollars Per Bushel 5.18 6.22 6.89 4.56 4.12 4.05

 Soybean-to-Corn Price Ratio Ratio 2.18 2.01 2.09 2.85 2.48 2.46

Returns

 Gross Market Returns Dollars Per Acre 791.63 915.32 850.09 730.49 689.84 695.91

 Variable Expenses Dollars Per Acre 289.37 335.26 353.99 349.89 338.20 333.50

 Market Returns over Variable Costs Dollars Per Acre 502.26 580.06 496.10 380.61 351.64 362.41

Government Subsidies

 Loan Deficiency Payments Dollars Per Acre 0.00 0.00 0.00 0.00 0.00 0.00

 Counter Cyclical Payments Dollars Per Base Acre 0.00 0.00 0.00 0.00 0.00 0.00

 Direct Payments Dollars Per Base Acre 24.40 24.40 24.40 24.40 0.00 0.00
WAEES, Copyright 2014, All Rights Reserved Page 33

by	743	million	dollars in	2013/14,	the	per	unit	cost	increase	is	relatively	small	at	5	cents	per	

gallon.		With	an	additional	increase	in	the	advance	mandate	of	1.5	billion	gallons	in	2014/15,	

the	cost	of	compliance	for	biodiesel	increases	by	1.4	billion	gallons.		Conventional ethanol	

compliance	costs	also	increase	in	2014/15	as	ethanol	pushes	through	the	blend	wall	and	retail	

ethanol	prices	fall	while	wholesale	ethanol	prices	increase.			

RIN	Compliance	Costs

Marketing	Year 2012/13 2013/14 2014/15 2015/16

Biofuels	Volume	Obligations	(Marketing	Year	Basis)

		Advanced 2,500 3,417 4,917 5,500

		Biodiesel 1,187 1,560 1,967 2,100

		Implied	Conventional	(Starch	Based	Ethanol) 13,600 13,273 13,337 13,500

Production	Used	for	Compliance

		Biodiesel 1,928 2,696 3,262 3,410

		Other	Advanced 571 432 1,467 2,090

		Conventional	Ethanol 12,356 13,273 13,021 13,516

RIN	Stocks	Used	for	Compliance

		Advanced 1 289 188 0

		Conventional	Ethanol 1,244 0 316 0

RIN	Prices

		Biodiesel 0.80 0.85 1.13 1.18

		Advanced 0.68 0.85 1.13 1.18

		Conventional 0.49 0.34 0.41 0.41

Cost	of	RIN	Compliance

		Biodiesel 1,548 2,291 3,701 4,011

		Advanced 390 613 1,877 2,459

		Conventional 6,681 4,483 5,532 5,608

Total	Cost 8,619 7,387 11,110 12,078

million	gallons

million	ethanol	gallons

million	ethanol	gallons

dollars	per	gallon

million	dollars
WAEES, Copyright 2014, All Rights Reserved Page 34

Key	Scenario Sensitivities

The	results	of	this	analysis	are	sensitive	to	the	underlying	assumptions.		The	most	critical	

assumptions	affecting	the	analysis	are	listed	below	with	some	guidance	on	the	potential	impact	

of	changes	in	the	assumption.

Crude	oil and	derivate prices

Biofuels	compete	with	petroleum	derived	fuels	at	the	retail	price	level.		Lower	petroleum	prices	

make	biofuels	less	competitive	and	ceteris	paribus	result	in	higher	RIN	prices	to	insure	enough	

biofuel	production	to	meet	volume	obligations.		A	$10	per	barrel	decline	in	the	price	of	crude	

oil	results	in	a	change	of	about	24	cents	in	wholesale	gasoline	and	diesel	prices,	ceteris	paribus.		

The	fall	in	retail	ethanol	prices	per	gallon	is	slightly	smaller	since	the	energy	content	per	gallon	

is	lower,	but	in	most	cases	the	corresponding	fall	is	in	the	range	of	14	to	19	cents	per	gallon	

resulting	in	a	corresponding	increase	in	RIN	values to	ensure	the	same	level	of	ethanol	

production	to	meet	mandated	levels.		

Penetration	of	the	Blend	Wall

The	blend	wall	is	a	barrier	roughly	equal	to	10	percent	of	motor	gasoline	demand.		Lower	

gasoline	demand	results	in	a	lower	blend	wall.		Since	gasoline	use	is	tied	to	the	overall	

performance	of	the	US	economy,	stronger	economic	growth	can	boost	the	overall	demand	for	

motor	gasoline	and	increase	the	opportunity	for	blending.		If	the	implied	ethanol	mandate	is	

lower	than	the	blend	wall,	increased	use	of	sugarcane	ethanol	can	occur	depending	on	the	

relative	price	of	Brazilian	sugarcane	ethanol	versus	biodiesel	and	the	value	of	the	advance	RIN.

Since	becoming	law,	the	Energy	Independence	and	Security	Act,	always	envisioned	ethanol	

penetrating	the	blend	wall as	cellulosic	ethanol	developed	on	top	of	conventional	corn	ethanol.		

The	production	of	this	ethanol	would	require	infrastructure	development	including	high	blend	

ethanol	pumps	and	flex	fuel	vehicles.		Ethanol	pricing	relative	to	unleaded	gasoline	would	have	

to	be	competitive	to	incentivize	consumers	to	use	ethanol.		How	much	lower	ethanol	prices	

need	to	be	versus	unleaded	gasoline	is	the	subject	of	considerable	debate.		In	this	analysis	we	

assumed	that	the	ratio	of	retail	prices	of	ethanol	and	unleaded	gasoline	would	need	to	be	

around	0.6	in	order	to	stimulate	consumer	use.		However,	the	infrastructure	to	deliver	high	

ethanol	blends	still	does	not	exist	in	the	areas	of	highest	motor	gasoline	demand	despite	

significant	incentives	to	build	the	infrastructure.		The	incentives	to	build	the	infrastructure	are	

strongly	influenced	by	the	level	of	the	volume	obligation	set	by	EPA.

Feed	Stock	Availability	and	Costs	

The	quantity	and	availability	of	feed	stocks	for	biodiesel	production	continues	to	grow.		Leading	

that	growth	in	feed	stocks	is	distillers’	corn	oil	and	yellow	grease.		The	primary	competition	for	

these	two	feed	stocks	is	animal	feed which	utilizes	these	ingredients	as	an	energy	source.		With	
WAEES, Copyright 2014, All Rights Reserved Page 35

falling	corn	prices,	energy	prices	are	becoming	increasingly	cheaper potentially	making	corn	oil	

even	more	attractive	for	biodiesel	versus	feed	use.		

In	the	case	of yellow	grease,	the	situation	is	different	in	that	the	supply	of	yellow	grease	is	not	

well	established.		There	may	be	considerably	more	yellow	grease	available	than	reflected	in	

current	data.		Recent	problems	with	thefts	of	yellow	grease	reported in	Render’s	Magazine	

have	suggested	that	its	value	is	increasing and	producers	of	yellow	grease	are	beginning	to	

understand	its	value	as	a	by-product	rather	than	a	waste	with	incurring	costs for	disposal.		In	

addition, recent	trade	barriers	in	the	EU	have	resulted	in	significant	declines	in	inedible	tallow	

and	yellow	grease	exports.		

Global	Biofuels	Policy

The	adherence	of	foreign	government	to	their	stated biofuel	mandates	and	targets	has	been	

closely	tied	to	the	cost	of	their	biofuels	program	relative	to	the	price	of	petroleum	fuel,	their	

perception	of	environmental	benefits, and	perceptions	regarding	food	versus	fuel.		Some	

countries	such	as	Argentina	have	viewed	biofuels	as	another	mechanism	to	create	value	added	

jobs	in	their	country	exporting	refined	products	rather	than	raw	materials.		Others	have	utilized	

the	program	to	support	their	domestic	agriculture	by	creating	another	source	of	demand.

The	largest	players	continue	to	be	the	EU,	Brazil	and	Argentina.		The	behavior	of	the	EU	with	

respect	to	limiting	imports demonstrates	their	desire	that	their	biofuels	program	be	a	domestic	

industry.		Import	restrictions	and	tariffs	could	create	additional	trade	anomalies	resulting	in	

increased	exports	of	biofuels	to	the	US from	countries	traditionally	serving	the	EU	market.		

While	Brazil	has	historically	focused	on	domestic	consumption	for	its	biofuels	program,	

increasing	attention	has	been	given	to	exports,	especially	sugarcane	ethanol	exports.		Brazil	has	

the	ability	to	expand	its	sugarcane	area	aggressively	if	it	perceived	opportunities	in	

international	markets.		Brazil’s	ability	to	compete	in	the	ethanol	market	is	significantly	affected	

by	the	price	of	sugar,	its	exchange	rate,	and	its	own	domestic	ethanol	blend	requirements.		

Argentina	has	traditionally	focused	on	export	markets	for	its	biodiesel	production.		Argentina’s	

biodiesel	industry	includes	very	large	plants	which	are	very	competitive.		In	addition,	

Argentina’s	differential	export	tariffs	favor	the	biodiesel	industry	with	lower	export	tariffs	on	

process	products	than	raw	materials.		If	Argentina	were	to	have	an	approved	pathway	allowing	

their	production	to	capture	D4	RINs,	significant	biodiesel	exports	to	the	US	could	be	expected.			
WAEES, Copyright 2014, All Rights Reserved Page 36

Appendix	A – Overview	of	the	WAEES	Modeling	System
WAEES, Copyright 2014, All Rights Reserved Page 37

The	WAEES	partial	equilibrium	modeling	system	is	made	up	of	a	set	of	global	econometric	

models	emulating	the	behavior	of	the	global	agricultural	sector.		The	partial	equilibrium	models

can	be	broken	down	into	crops, livestock and	biofuels components	encompassing	feed	grains,	

food	grains,	cotton,	sugar,	oilseeds,	ethanol,	biodiesel,	beef,	pork,	and	poultry.		

The	WAEES	models	cover	42	countries/regions	with	an	additional	12	regional	aggregates	

including	the	world	total.		WAEES	follows	USDA’s	reported	data	coverage	which	may	mean	that	

a	zero	is	reported	for	a	particular	commodity	which	USDA	does	not	cover	or	has	discontinued	

covering.		USDA	currently	covers	at	least	90	percent	of	global	production;	therefore,	the	

countries	which	are	omitted	represent	a	small portion	of	total	global	production.		Specifically	

the	WAEES	model	includes	Canada,	Mexico,	the	United	States,	Caribbean	and	Central	America,	

Argentina,	Brazil,	Bolivia,	Chile,	Paraguay,	Uruguay,	Other	South	America,	the	European	Union	

28,	Other	Europe,	Russia,	Ukraine,	Uzbekistan,	Other	Former	Soviet	Union,	Saudi	Arabia,	

Turkey,	Other	Middle	East,	China,	Japan,	South	Korea,	Taiwan,	Other	East	Asia,	India,	Pakistan,	

Other	South	Asia,	Indonesia,	Malaysia,	Myanmar,	Philippines,	Thailand,	Vietnam,	Other	

Southeast	Asia,	Australia,	Other	Oceania,	Egypt,	Other	North	Africa,	Kenya,	South	Africa,	and	

WAEES Partial Equilibrium Models

Global Crops Module

• Feed Grains

• Corn

• Sorghum

• Barley

• Food Grains

• Wheat

• Rice

• Cotton

• Sugar

• Oilseeds, Meals & Oils

• Soybeans

• Sunflowers

• Rapeseed

• Palm Oil

Global Livestock Module

• Live Animals

• Cattle

• Hogs

• Meat

• Beef

• Pork

• Poultry

Biofuels Module

• Ethanol

• Biodiesel

• Over 20,000 equations in 

the system

Quasi-Trend Models • Dairy

• Milk

• Cheese

• Butter

• Non Fat Dry Milk

Recursive Models

• Exchange Rates

• Partial US Macro

• US Farm Income

• PPI/Cost of Prod

Global Vegetables 

Module

• Broccoli

• Carrots

• Cauliflower

• Cucumbers

• Lettuce

• Melons

• Onions

• Peppers, Chili

• Peppers, Sweet

• Spinach

• Sweet Corn

• Tomatoes

• Watermelons

• Other Melons
WAEES, Copyright 2014, All Rights Reserved Page 38

Other	Sub-Saharan	Africa.		WAEES	also	reports	projections	on	crop	area,	yield	and	production	

for	each	of	the	EU-28	countries.				

Partial	Equilibrium	Models

Each	partial	equilibrium	module is	broken	down	into	commodities	with	a	system	of	structural	

equations	capturing	the	supply	and	demand	components for	each	of	them.		The	drivers	of	these	

equations	are	theoretically	derived	based	upon	the	behavioral postulates	from	economic	

theory of	profit	maximization	by	the	market	participants	and	utility	maximization	by	consumers	

subject	to	various	domestic	and	international	trade	policies.		The	diagram	below	illustrates	the	

inter-linkages	of	the	crops	and	livestock	model.		In	the	diagram,	the	blue	boxes	represent	the	

key	drivers	(conditioning	assumptions)	of	the	agricultural	sector	including	income,	population,	

culture,	inflation,	exchange	rates,	domestic	and	trade	policy,	technology	and	input	costs.		The	

green	boxes	are	an	aggregate	approximation	of	the	crops	sector.		As	relevant,	each	box	

represents	an	equation	for	each	commodity	covered.		For	example,	there	are	specific	feed	

demand	equations	for	corn,	sorghum,	barley,	soybean	meal,	sunflower	meal,	etc.		The	pink	

boxes	are	an	aggregate	approximation (within	the	diagram) of	the detailed livestock	sector

model encompassing	beef,	pork	and	broilers.	The	diagram	illustrates	how	income,	population,	

WAEES Regions follow the USDA Regions

North America

Central America & 

Caribbean

South America

European Union

Former Soviet Union

Middle East

Other Europe

North Africa

South Asia

Southeast Asia

East Asia

Sub-Saharan Africa Oceania
WAEES, Copyright 2014, All Rights Reserved Page 39

and	other	factors	drive	food	demand	for	crops	and	meats.		Crude	oil	prices	(and	policies)	drive	

the	demand	for	biofuels.		As	demand	increases,	crop	prices	increase	providing	an	incentive	for	

production	expansion.		Technology	growth	drives	yield	expansion	providing	much	of	the	

needed	production.		Crop	area	may	also	grow	to	meet	demand	needs	although	in	developed	

countries	this	often	amounts	to	tradeoffs	among	crops.		Ultimately	supply	and	demand	are

balanced via	commodity	prices.		If	demand	is	stronger	than	supply,	commodity	prices	increase	

until	demand	growth	is	slowed	and	supply	growth	is	increases	enough	for	supply	and	demand	

to	balance.

The	WAEES	partial	equilibrium	models	solve	iteratively	to	find	equilibrium	by	balancing	global	

supply	and	demand.		This	occurs	at	the	individual	country	level	for	each	commodity.		Most	

countries	are	at	least	somewhat	open	to	trade	albeit	with	tariffs.		The	trade	diagram	below	

illustrates	conceptually	how	global	supply	and	demands	are	balanced	within	a	“global”	price	

equilibrium	solution.		Typically	a	large	exporting	country	is	chosen	as	the	residual	supplier	for	

the	world.		The	choice	of	this	country	does	not	affect	the	solution.		The	commodity	price	in	the	

residual	supplying	country	is	solved	for	by	assuming	an	initial	level	of	exports.		This	price	is	then	

transferred	to	other	countries	through	trade	barriers,	transportation	costs,	and	exchange	rates.	

Partial Equilibrium Modeling System

(Conceptual Framework Representation for One Country)

Crop Feed Demand

Crop Food Demand

Per Capita Income 

& Distribution 

Other Crop Demand

Population

Age Distribution & 

Health Concerns

Cultural Tastes & 

Preferences

Meat Food Demand

Biofuels Demand

Fuel

Fertilizer

Chemical

Machinery

Crop 

Prices

Area 

Harvested

Yield

Seed

Land

Transport

Labor

Interest

Crop Cost 

of 

Production

Veterinary

Feed

Meat 

Prices

Market 

Animals

Livestock 

Cost of 

Production

Breeding 

Herd

Government 

Policy

Technology

Inflation

Exchange Rates Conditioning Assumptions

Crop Supply & Demand

Livestock Supply & Demand
WAEES, Copyright 2014, All Rights Reserved Page 40

Based	on	a	given	price	level,	each	country	determines	how	much	it	is	willing	to	supply	or	

demand	at	that	price	and	subsequent	how	it	wants	to	import	or	export.		Occasionally	a	country	

has	tariffs	high	enough	that	no	trade	will	occur	or	only	a	fixed	amount	of	trade	will	occur	at	the	

lower	tariff	level.		Note	that	in	those	countries	internal	prices	may	not	reflect	the	world	level	of	

prices	because	supply	and	demand	must	be	balanced	from	domestic	sources.		After	the	supply	

and	demand	in	each	country	is	determined	and	the	implied	trade	position,	these	trade	

positions	are	summed	to	find	the	new	level	of	exports	for	the	residual	supplying	country	

replacing	the	initial	assumption.		The	process	then	repeats	itself	until	prices	adjust	to	balance	

global	supply	and	demand.		For	example,	if	the	sum	of	trade	across	all	other	countries	is	lower	

than	the	initial	starting	assumption	for	the	residual	supplying	country,	the	price	level	in	the	

residual	supplying	country	will	fall	to	balance	supply	and	demand.		This	lower	price	level	will	

then	get	transferred	to	all	other	countries	affecting	their	supply	and	demand	and	ultimately	net	

trade	positions	and	of	course	replace	the	exports	again	in	the	residual	supplying	country.		This	

process	continues	until	global	supply	and	demand	balance.

How do partial equilibrium models solve for a 

global supply and equilibrium price?

Begins with an assumed 

export level for a large 

exporting country such as the 

US and solves for the 

commodity price level. This 

country is known as the 

residual supplier. Note that 

the choice of the country as a 

residual supplier does not 

affect the model solution.

Port price in other countries is 

linked to the residual supplying 

country’s port price adjusting for 

trade barriers, transport costs, and 

exchange rates if the country is 

open to trade

Exchange 

Rates

Trade Barriers

Transport Cost

Farm prices in each country are 

linked to the port prices to 

determine how much will be 

supplied and how much will be 

demanded. The net trade position 

is then determined by subtracting 

supply from demand. 

Whether the country 

allows it’s net trade 

position to be market 

determined (subject to 

tariffs, transport, etc.) 

or specifies the level of 

trade, it’s net trade 

position is determined. 

Some countries may be 

net importers while 

other countries may be 

net exporters.

Some countries restrict trade to a 

fixed level of imports or exports or 

choose not to trade at all in certain 

commodities. In these countries, 

prices are disconnected from 

world prices if the trade barriers 

are binding.

The initial assumption 

for exports is replaced 

by the sum of the net 

trade positions across 

all countries which 

will total to a new 

level of exports for the 

residual supplying 

country.
WAEES, Copyright 2014, All Rights Reserved Page 41

An	Example	of	the	US	Partial	Equilibrium	Model	for	the	Biofuels	Sector		

Within	the	WAEES	model,	the	US	ethanol	and	biodiesel	sectors	are set	up	as	partial	equilibrium	

models with	supply	and	demand	equations	and	an	endogenous	ethanol	and	biodiesel	price.		

The	structure	of	the	model	has	its	roots	in	the	ethanol	specifications	documented	by	John	

Kruse,	Patrick	Westhoff,	Seth	Meyer,	and	Wyatt	Thompson	in	a	2007	journal	article	in

AgBioForum	entitled,	“Economic	impacts	of	not	extending	biofuel	subsidies.”				With	the	second	

Renewable	Fuel	Standard,	these	original	specifications	have	been	updated	to	reflect	the	

hierarchical	system	of	mandates.		The	biofuels	mandates	require	compliance	with	each	specific	

mandate	type	including	biodiesel,	cellulosic,	advanced	and	the	overall	renewable	fuel	mandate.		

The	rational	for	different	mandates	in	the	legislation	was	to	encourage	biofuel	producers	to	

move	towards	feed	stocks	that	provided	the	greatest	level	of	greenhouse	gas	(GHG)	reductions	

compared	with	conventional	petroleum.		The	term	“advanced	biofuels”	was	used	to	describe	

biofuels	that	reduced	GHG	emissions	by	at	least	50	percent	compared	with	a	20	percent	

reduction	requirement	for	conventional	feed	stocks.			Cellulosic	derived	biofuels	must	reduce	

GHG	emissions	by	60	percent.		Compliance	with	the	mandates	by	the	obligated	parties	is	

enforced	by	the	EPA	through	as	system	of	Renewal	Identification	Numbers	(RINS)	assigned	to	

each	type	of	biofuel	produced.		Obligated	parties	must	demonstrated	that	they	have	met	their	

assigned	obligations	through	the	number	of	RINS	they	have	for	each	type	of	fuel.	Theoretically	

there	could	be	a	specific	RIN	value	for	each	type	of	mandate	– cellulosic,	biodiesel, advanced,	

and	conventional,	if	each	mandate	was	binding.		Mandates	are	binding	when	the	market	is	

forced	by	policy	to	produce	more	than	what	normal	economic	conditions	would	suggest.			The	

advanced	biofuels	are	typically	more	expensive	to	produce	than	conventional	biofuels	resulting	

in	those	mandates	being	more	binding	than	conventional	biofuels	mandates.		Therefore	RIN	

values	(or	prices)	are	typically	significantly	higher	for	advanced	biofuels	than	conventional	

biofuels.
WAEES, Copyright 2014, All Rights Reserved Page 42

A	detailed	diagram	of	the	US	biofuels	models	is	presented	below.		The	demand	for	biofuels	is	

largely	mandate	driven.	However,	if	crude	oil	price	edge	higher	it	is	possible	for	ethanol	

demand	to	be	driven	by	market	forces	although	the	blend	wall	presents	another	hurtle.		The	

supply	of	biofuels	is	driven	by	the	profit	margins	of	the	biofuel	plants.		Profit	margins	are	

derived	by	subtracting	the	cost	of	the	feed	stocks	and	other	variable	costs	of	production	from	

Conventional	

Mandate

Hierarchical RINS Modeling

Cellulosic	

Mandate

Biodiesel	

Mandate

Advanced	

Mandate

• Theoretically	there	can	be	4	different	RIN	prices	

specific	to	each	mandate	if	all	the	mandates	are	

binding.	

• Mandates	are	binding	when	the	market	is	forced	by	

policy	to	produce	more	than	what	normal	economic	

conditions	would	suggest.		

• Given	the	hierarchy	of	the	mandates,	it	must	be	the	

case	that	RIN	values	for	biodiesel	are	greater	than	or	

equal	to	advanced	RIN	values	and	advanced	RIN	

values	must	be	greater	than	or	equal	to	conventional	

RINS.		This	is	because	biodiesel	RINS	can	be	used	as	

advanced	RINS	and	advanced	RINS	can	be	used	as	

conventional	RINS.		(This	process	is	referred	to	as	

demotion.)

• Biodiesel	RINS	can	have	the	same	value	as	advanced	

RINS	if	the	biodiesel	mandate	is	less	binding	than	the	

advanced	mandate.

US Biofuels Mandates in 2022

Implied	Conventional	

Mandate

15	billion	 gallons

Renewable	Fuel	Mandate

36	billion	 gallons

Specific	Advanced	

Mandate

21	billion	 gallons

Biodiesel	Mandate

1	billion	 gallons

Cellulosic	Mandate

16	billion	 gallons

Unspecified	Other	

Advanced	Mandate

4	billion	 gallons

• EPA	has	waived	the	cellulosic	mandate	in	2011	and	2012	because	

cellulosic	biofuels	are	still	very	expensive	to	produce.		

• While	the	cellulosic	mandates	has	been	waived,	the	overall	advanced	

mandate	continues	to	be	retained	forcing	more	demand	for	other	

advanced	fuel	feed	stocks	such	as	biodiesel	and	sugarcane	ethanol.
WAEES, Copyright 2014, All Rights Reserved Page 43

the	valued	of	the	products.		In	the	case	of	ethanol,	the	value	of	the	ethanol	plus	the	value	of	

the	byproducts	including	corn	oil	and	distiller’s	grains	form	the	gross	returns.		The	cost	of	

ethanol	is	composed	of	the	feed	stock	cost,	primarily	corn,	and	the	other	inputs.				In	the	case	of	

biodiesel,	the value	of	biodiesel	and	the	byproduct	glycerin	form	the	gross	returns.	The	cost	of	

producing	biodiesel	is	composed	of	the	feed	stock	costs	such	as	vegetable	oils,	waste	oils,	corn	

oil	and	other	inputs.		The	respective	margins	for	ethanol	and	biodiesel	drive	capacity	expansion	

in	the	longer	term	and	capacity	utilization	in	the	short	term	for	each	sector.		Equilibrium	

between	biodiesel	supply	and	demand	is	found	by	solving	for	the	biodiesel	price.		

US Biofuels Partial Equilibrium Models

High Blend

Use

Total

Supply

Ethanol 

Production

Ending 

Stocks

Low Blend

Use Exports

Ethanol

Price

Imports Beginning

Stocks

Exports

Total

Supply

Biodiesel 

Production

Ending 

Stocks Fuel Use

Biodiesel

Price

Imports Beginning

Stocks

Corn Ethanol Biodiesel

Capacity Capacity 

Utilization Capacity Capacity 

Utilization

Conventional Market Mandate

Biodiesel 

Mandate Market

Glycerin 

Production Distillers’ Grains 

Production

Corn Oil 

Production

Processing 

Margin

Ethanol 

Price Corn Price

Processing 

Margins

Biodiesel 

Price

#2 Diesel 

Price

Glycerin 

Price

Feed Stock 

Prices

Technology

DDG Price

Corn Oil 

Price

Other Costs

Unleaded 

Gasoline 

Price

Crude Oil 

Price

Conventional 

RIN Price

Biodiesel RIN 

Price

Advanced 

RIN Price

Brazil Ethanol 

Price

Brazil Ethanol 

Supply

World Sugar 

Price

Brazil Ethanol 

Demand

Cellulosic RIN 

Price

Sorghum 

Ethanol
WAEES, Copyright 2014, All Rights Reserved Page 44

The	WAEES	Global	Modeling	Process

Forecast	Assumptions

WAEES	begins	each	semi-annual	forecast	by	developing	a	set	of	conditioning	assumptions	that	

will	be	used	for	the	forecast.		These	assumptions	include	the	critical	domestic	and	trade	policies	

affecting	agriculture	and	biofuels	in	each	country;	macroeconomic	conditions	such	as	per	capita	

income	growth,	population	growth,	inflation	rates,	and	exchange	rates;	technology	

assumptions	such	as	crop	yield	growth;	and	key	cost	of	production	drivers	such	as	interest	

rates,	petroleum	prices,	wage	rates,	and	other	trends in	tastes	and	preferences.		Infrastructure	

constraints	and	land	area	expansion	assumptions	are	also	outlined	in	this	process.		These	

assumptions	are	direct	inputs	into	the	WAEES	global	agricultural	partial	equilibrium	models.		

Historical	Data

The	second	step	in	the	process	is	updating	all	historical	data	to	the	latest	numbers.			A	large	

portion	of	the	historical	supply	and	demand	data	is	drawn	from	USDA’s	Production,	Supply,	and	

Disposition	(PSD)	database.		Historical	data	on	crop	area,	yield,	and	production	for	each	of	the	

EU-28	countries	is	taken	from	Eurostat	and	supplemented	with	data	from	each	of	the	country	

Ministries	of	Agriculture	as	needed.		Some	historical	data	such	as	sugarcane	and	sugar	beet	

area	harvested	is	taken	from	FAOSTAT,	but	the	data	is reviewed	for	consistency	prior	to	being	

used	in	the	models.		Historical	data	on	commodity	prices	are	taken	from	a	variety	of	sources	

including	the	respective	Ministries	of	Agriculture	(or	equivalent)	in	each	country,	USDA,	

Agroanalysis,	FAO,	etc.		Historical	government	policy	information	is	gathered	from	USDA	Gain	

Reports,	the	WTO,	OECD,	FAO,	and	the	respective	Ministries	of	Agriculture	(or	equivalent)	in	

each	country.

The	timing	of	historical	data	releases	determines	when	the	WAEES	forecasts	are	completed.		

The	critical	updates	for	PSD’s	global	livestock	data	occur	in	April	and	October.		The	global	crops	

data	is	updated	more	frequently	throughout	the	year.		Since	the	size	of	the	southern	

hemisphere	crops	are	generally	available	in	April/May	and	the	size	of plantings	in	the	northern	

hemisphere	crops	are	generally	known,	WAEES	conducts	the	first	of	the	semiannual	forecasts	

over	the	month	of	May	targeting	the	beginning	of	June	for	release	of	the	forecast	numbers.		

The	second	forecast	is	typically	done	over	the month	of	November	targeting	the	beginning	of	

December	for	a	release	of	the	forecast	numbers.		At	this	time	of	the	year,	the	northern	

hemisphere	crop	sizes	and	the	southern	hemisphere	plantings	are	generally	known.

Model	Development	and	Equation	Updates

The	WAEES	global	partial	equilibrium	models	are	in	a	constant	state	of	review	to	ensure	that	

the	equation	are	performing	adequately,	the	model	structure	is	adapted	to	changes	in	the	
WAEES, Copyright 2014, All Rights Reserved Page 45

marketplace,	changes	in	data	sources	are	captured,	and	new	coverage	is	added as	necessary.		

While	WAEES	does	not	keep	an	exact	count	on	the	number	of	equations	in	the	system,	it	now	

exceeds	20,000	equations.		The	performance	of	the	behavioral	equations	within	the	system	are	

continuously	monitored	within	the	system	based	on	their	percent	root	mean	square	errors,	

consistency	with	market	behavior,	and	their	recent	pattern	of	historical	errors.		Prior	to	each	

forecast,	the	equations	are	reviewed	and	replaced	as	needed.

Model	Calibration	and	Adjustment

After	the	historical	data	has	been	updated,	each	equation	is	recalibrated	to	the	updated	

historical	data.		After	reviewing	the	equation	performance	as	per	the	description	above,	the	

model	adjustment	factors	are	set	for	the	first	forecast	year.		These	adjustments	are	set	based	

on	a	weighted	average	of	the	equations	errors	over	the	previous	3-5	years	in	the	model.		In	

99.5%	of	the	equations	this	adjustment	factor	is	held	constant	over	the	forecast	horizon	of	

2013	through	2030.		There	are	a	few	equations,	particularly	in	the	livestock	sector,	where	

adjustments	are	used	to	generate	the	livestock	cycles.		

Generating	the	forecast

After	capturing	the	forecast	assumptions,	updating	the	historical	data,	reviewing	the	model	

equations,	and	calibrating	the	model,	the	model	is	then	solved	to	generate	a	global	forecast	of	

commodity	prices	that	balances	supply	and	demand	within	each	country	and	around	the	world.		

Since	the	commodities	are	highly	interrelated	within	the	model	sometimes	the	forecast	

assumptions	generate	unexpected	results	and/or	push	the	model	into	a	region	outside	the	

experience	based	on	historical	data.		The	global	solution	is	carefully	reviewed	and	the	equation	

results	are	evaluated	based	on	direction	and	magnitude	of	response,	and	if	necessary,	the	

model	equations	are	adjusted	and	the	model	is	re-solved	for	a	new	global	solution.		These	

corrections	are	usually	small	or	not	needed,	but	some	scenarios	can	push	the	model	into	

untested	ranges.

Reporting	the	Forecast	Results

Each	model	with	the	WAEES	global	modelling	system	includes	a	master	data	block	capturing	the	

historical	and	forecast	data.		These	data	blocks	are	combined	from	the	various	models	and	used	

to	generate	a	standard	set	of	world	tables	and	country	supply	and	demand	tables	for	each	

commodity.		Currently	these	tables	are	reported	in	one	Excel	file	with	and	index	including	

hyperlinks	that	facilitate	location	of	the	different	table	types.		WAEES	creates	a	set	of	

PowerPoint	slides	summarizing	the	forecast	and/or	changes	from	the	previous	forecast.		Finally,	

a	written	report	is	generated	documenting	the	key	assumptions,	results,	and	key	sensitivities	

for	the	forecast.
COMMENTS OF THE NATIONAL BIODIESEL BOARD ON THE

2014 STANDARDS FOR THE RENEWABLE FUEL STANDARD PROGRAM,

Proposed Rule, 78 Fed. Reg. 71,732 (Nov. 29, 2013)

Docket ID EPA‐HQ‐OAR‐2013‐0479

and on the

NOTICE OF RECEIPT OF PETITIONS FOR A WAIVER OF THE

RENEWABLE FUEL STANDARD,

78 Fed. Reg. 71,607 (Nov. 29, 2013)

Docket ID EPA‐HQ‐OAR‐2013‐0747

Attachment 13
Page 1 

Summary of Response to: 

“Economic Impacts Resulting from Implementation of RFS2 Program” by NERA 

Economic Consulting, on behalf of the American Petroleum Institute, October 2012 

David W. DeRamus, Ph.D. 

Bates White Economic Consulting 

Prepared for the National Biodiesel Board 

September 17, 2013 

In October 2012, NERA published a report concluding that the Renewable Fuel 

Standards (RFS2) would cause significant harm to the U.S. economy by 2015. 

According to NERA, the RFS2 volume mandates would be greater than the amount of 

feasible U.S. biofuel demand by 2013,1

 which (according to NERA) would cause the 

U.S. economy to enter a “death spiral,”2 as refiners restrict the amount of refined 

petroleum supplies (especially diesel) to comply with a shortage of RINs, dramatically 

increase prices (especially for diesel), and shutter refinery capacity. According to 

NERA, in 2015 alone, the RFS2 will result in a $770 billion decline in U.S. GDP. 

The results of the NERA study are based on four flawed assumptions. First, NERA 

incorrectly assumes that the EPA has no meaningful flexibility in setting the total annual 

biofuel volumes under RFS2 – even in the face of severe harm to the U.S. economy. 

Second, NERA incorrectly assumes that the approximately 10% “blend wall” imposes 

an insurmountable constraint on U.S. biofuel consumption after 2013, despite significant 

opportunities for increased penetration of E15, E85, and biodiesel, particularly in 

response to significant price increases or binding supply constraints. Third, NERA 

assumes that there would be no other significant changes in the markets for biofuels, 

petroleum products, or RINs in the face of these predicted dramatic price increases and 

supply constraints. Fourth, NERA assumes that eliminating the RFS2 requirements 

would have no negative impact on U.S. GDP, even though the RFS2 program has 

played an important role in the recent growth of the U.S. biofuels industry, and is 

expected to play an increasingly important role in stimulating additional investment in 

advanced biofuel technology and production capacity. 

 

1

 The NERA Report adopts this result obtained in a “Phase 1” report prepared by Charles River 

Associates, also for the American Petroleum Institute. 

2

 NERA Report, p. 2.; Figure 1, p. 3. 
Page 2 

With regard to NERA’s first flawed assumption, the EPA has significant flexibility in 

administering the RFS2 program (including the establishment of the RIN program) and 

in setting annual volume targets (RVOs and percentages) for each category of biofuels. 

In particularly, the EPA has the authority to waive, in whole or in part, the RFS2 

volumes mandated by Congress, if there is inadequate domestic supply, or if the RFS2 

volumes were to “severely harm the economy.”3 Since 2010, the EPA has repeatedly 

exercised its waiver authority with respect to the cellulosic biofuel mandate. In fact, the 

EPA has demonstrated broad flexibility in how it administers the RFS2 program more 

generally. For example, the EPA has increased the required biodiesel volumes above 

the level initially mandated by Congress, in line with demonstrated market capacity to 

both supply and consume this increased amount of biodiesel.4

 Most recently, the EPA 

announced that it would extend the annual compliance period, allowing obligated parties 

to achieve compliance for 2013 by June 30, 2014, which allows them to better optimize 

their use of RIN credits in any given year (given the RIN carryover provisions 

established by the EPA, and given the market prices for RINs). In addition, the EPA 

has also explicitly stated that it will use its statutory “flexibilities” to address potential 

future limits in the amount of biofuels that the market can accommodate.5

With regard to NERA’s second flawed assumption, the assumed 10% “blend wall” is by 

no means a “hard-and-fast” technological constraint (and thus, it is not in fact a “wall”), 

but rather a gray line resulting from EPA’s own regulatory policies. For example, in 

2010, EPA ruled that E15 was allowed to be used in model year 2007 and later lightduty vehicles (cars and light-duty trucks), and in 2011, the EPA extended the use of E15 

to model year 2001 – 2006 light-duty vehicles. Thus, as the vehicle fleet ages with each 

passing year, and as E15 is increasingly incorporated into the U.S. fuel supply, the 

“blend wall” will be increasingly pushed back. Further, much of the economic harm 

predicted by NERA is a result of reduced diesel supply and increased diesel prices 

predicted by its model. Biodiesel, however, is far from being constrained by either 

supply or demand limitations. Biodiesel is currently well below NERA’s assumed diesel 

“blend wall” of 5% (in the form of B5 penetration), and there is a broad consensus that 

the use of biodiesel is not limited to B5 (whether with respect to distribution 

infrastructure or engine performance). Thus, given the current excess biodiesel 

capacity well above the RFS2 mandates, there are significant unexploited opportunities 

to further increase biodiesel production and consumption, which can further help push 

 

3

 42 USC § 7545(o)(2)(7)(A)(i).

4

 The EIA recently reported that biodiesel production reached a record 89,000 bbl/d in June 2013 (nearly 

1.4 billion gallons on an annual basis). See: http://www.eia.gov/forecasts/steo/report/renew_co2.cfm. 

5

 See, e.g., http://thehill.com/blogs/regwatch/energyenvironment/315761-epa-calls-for-mixing-165-billiongallons-of-biofuel-with-gas-in-2013; see also: 

http://www.epa.gov/otaq/fuels/renewablefuels/documents/420f13042.pdf. 
Page 3 

back the “blend wall” – particularly since each additional biodiesel RIN credit is 

equivalent to 1.5 conventional RIN credits. 

With regard to NERA’s third flawed assumption, NERA assumes that there would be no 

significant change in technology, investment, consumer demand, or trade in response to 

the dramatic price increases and supply constraints that its model predicts (assuming, 

for the sake of argument, that the EPA were to ignore its statutory obligations to grant 

waivers in the face of such adverse economic effects). For example, if the supply of 

gasoline were truly limited by the availability of RIN credits (as NERA’s model predicts), 

one would expect the price of E85 to decline precipitously, and the demand for E85 to 

increase (since E85 generates substantially more RIN credits than E10); likewise, one 

would expect there to be a rapid increase in the roll-out of E15. With rapidly escalating 

RIN prices predicted by NERA’s model, one would also expect additional advanced 

biofuel capacity to be brought on line – much of which becomes economic at prices well 

below those predicted by NERA – which would generate additional RIN credits faster 

than the use of conventional ethanol.6

 NERA’s modeling approach to “holding 

everything else constant” in the event of the assumed price increases and supply 

constraints is simply unrealistically simplistic in the context of this rapidly changing 

industry. 

With regard to NERA’s fourth flawed assumption, eliminating the RFS2 volume 

requirements will undermine the further development of the U.S. biofuels industry, which 

has been an important contributor to U.S. GDP growth. The RFS2 program was 

designed to provide “volume certainty” to potential investors in advanced biofuels in 

particular; and, via tradeable markets for RINs, to provide market-based signals to 

incentivize that investment. To date, the EPA has carefully – and flexibly – 

administered the RFS2 program to accommodate capacity constraints, compliance 

costs, and other market realities, which has contributed to the expansion of biofuels 

production and the development of an increasingly liquid RIN market. Eliminating the 

RFS2 volume requirements would undermine investor confidence in the biofuels and 

RIN markets more generally, and thereby itself bring about a reduction in U.S. GDP and 

household incomes. 

 

6

 Each gallon of biodiesel, cellulosic biofuels, biobutanol, or non-ester renewable diesel is equivalent to 

more than 1 RIN of conventional ethanol. 
Page 1 

Summary of Response to: 

“Economic Impacts Resulting from Implementation of RFS2 Program” by NERA 

Economic Consulting, on behalf of the American Petroleum Institute, October 2012 

David W. DeRamus, Ph.D. 

Bates White Economic Consulting 

Presentation to the Environmental Protection Agency 

on behalf of the National Biodiesel Board 

December 5, 2013 

The focus of my remarks is a NERA report asserting that RFS2 will cause significant 

economic harm by 2015. According to NERA, RFS2 will cause the U.S. economy to 

enter a “death spiral,” driven by RIN shortages, dramatic fuel price increases, and 

refinery capacity closures. NERA predicted that RFS2 will result in RIN prices of $10 – 

14/gallon in 2013, and over $100 by 2015; that the price of diesel fuel will be $12/gallon 

by 2015; and that U.S. GDP will decline by $770 billion in 2015 alone. 

NERA’s fear-mongering is based on fundamentally flawed assumptions, and its “death 

spiral” forecasts are flatly contradicted by current data. U.S. fuel prices in late 2013 are 

roughly the same as in early 2011; RIN prices are $0.20/gallon, with some near 

historical lows; and petroleum refining margins are high, while capacity is expanding. 

Retail fuel prices are driven almost entirely by crude oil prices and petroleum refinery 

capacity, and none of the data suggest that RFS2 has caused any meaningful change 

to this relationship. If anything, the data suggest that biofuels have led to lower retail 

fuel prices by providing a competitive constraint on petroleum prices. With respect to 

biodiesel, the available supply and demand are far in excess of EPA’s 2014 and 2015 

volume targets of 1.28 billion gallons: current biodiesel production capacity is double 

EPA’s volume target, and current biodiesel blending rates of less than 5% are a small 

fraction of what is currently feasible. 

The most salient flaw of the NERA study is its incorrect assumption that the EPA has no 

meaningful flexibility in setting biofuel volumes. One hardly needs a sophisticated 

forecasting model to know that imposing a binding constraint on fuel production or 

consumption will result in massive U.S. economic harm. The EPA, however, has 

significant statutory flexibility in administering the RFS2 program, including establishing 

the specifics of the RIN trading program, annual volume targets, and compliance 

periods. The EPA has repeatedly exercised this flexibility since the inception of RFS2, 
Page 2 

and I have no doubt it will continue to exercise such flexibility, particularly in the unlikely 

event that the mandated biofuel volumes or RIN prices were to even begin to show any 

signs of actual economic harm. 

The NERA study also suffers from the flawed assumption that the 10% “blend wall” 

would be an insurmountable constraint on biofuel consumption, even in the face of 

significant RIN or fuel price increases. NERA further assumes no change in technology, 

investment, or demand, even in the face of the dramatic price increases and supply 

constraints that its model predicts. If the supply of gasoline were truly limited by the 

availability of RIN credits, one would expect a precipitous decline in the price of E85, 

increased demand for E85, and increased demand for advanced biofuels that generate 

more RIN credits per gallon. NERA’s modeling approach to “holding everything else 

constant” in the event of large assumed price increases and supply constraints is simply 

unrealistic in the context of this rapidly changing industry. 

Ironically, NERA’s “death spiral” is largely a result of its predictions of reduced diesel 

supply and increased diesel prices. Biodiesel, however, is far from being constrained 

by either supply or demand limitations. Biodiesel penetration is currently well below 5%; 

there is broad consensus that the use of biodiesel is not limited to B5, whether with 

respect to distribution or engine performance; B20 is increasingly available, does not 

require engine modification, and provides similar performance as petroleum diesel; 

biodiesel can be produced from a variety of feedstocks; and biodiesel is available 

throughout the U.S. Thus, given the large excess biodiesel capacity well above the 

2014 and 2015 RFS2 mandates, there are significant unexploited opportunities to 

further increase biodiesel production and consumption, which can further help push 

back the assumed “blend wall,” particularly since each additional gallon of biodiesel 

generates 1.5 RIN credits. 

Further reducing or eliminating the RFS2 volumes would undermine the important policy 

goals of EPA and Congress, as well as undermine the entire U.S. biofuels industry, 

which has been an important contributor to U.S. employment and GDP growth. Such 

actions would significantly dampen the pace of investment and technological innovation 

in this important sector of the economy, precisely when many of these innovations are 

reaching commercial feasibility.