U.S. Biodiesel to Benefit From LCFS

STREATOR, Ill. (DTN) -- The U.S. Department of Agriculture expects California's Low Carbon Fuel Standard and the potential removal of import restrictions by the European Union to boost sales of biodiesel in both the United States and Europe.

The USDA offered its outlook Thursday in a report entitled, "Biofuel Use in International Markets: The Importance of Trade," which reviewed the potential for ethanol and biodiesel industries domestically and globally.

The LCFS is a regulation designed to reduce by 10% the average lifecycle carbon intensity of the motor gasoline and diesel transportation fuel pool, including all petroleum and nonpetroleum components, sold for consumption in California by 2020.

Biodiesel has a lower carbon-intensity score than starch-based ethanol under the LCFS.

"The net result is that the LCFS favors biodiesel," USDA said.

The Transatlantic Trade and Investment Partnership, a potential free-trade agreement currently being negotiated between the U.S. and EU, would have an impact on biodiesel exports, the report said.

"The EU currently implements antidumping duties on imports of U.S. ethanol and biodiesel," USDA said. "Removing these duties would reopen what was once the largest export market for U.S. biofuels."

Those duties were put in place following a trade practice known as "splash and dash," in which biodiesel, including imported biodiesel, would be blended in the U.S. with a small amount of diesel to qualify for a blender's tax credit that paid $1 gallon and then exported to the EU. Once there, the purveyors would often receive additional subsidies.

Splash and dash ended in 2009 when the U.S. Emergency Economic Stabilization Act of 2008 made the reshipment of imported biodiesel illegal and the World Trade Organization ruled that these exports were unfair to the EU.

If EU duties are removed U.S. biofuel production would increase. When implementing antidumping duties however, "the EU [had] taken steps to limit imports of biofuels that are produced from first-generation methods," USDA said.

The current EU proposal would reduce the blending target for first-generation biofuels from 10% to 7% of total transportation fuels.

U.S. trade in biodiesel was small before 2007. From 2007 to 2012, and continuing to 2012, the U.S. was a net exporter of biodiesel. Much of the increase in U.S. production in 2007 and 2008 was not consumed within the U.S.

The U.S. exported large amounts of biodiesel to other countries during the latter part of the period, although the leading destination varied year to year. In 2011, India was the top destination, accounting for 18% of all U.S. biodiesel exports, while Norway topped the list in 2012 with a 20% share. In 2013, Malaysia with a 17% share of U.S. biodiesel exports was the top destination.

Canada has been a primary export market for U.S. biodiesel, while also exporting biodiesel to the U.S. In 2013, U.S. biodiesel imports hit a record high with Argentina the top supplier to the U.S.

(BM/CZ)

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