The dangerous decline of profits in biomass based diesel industry

The EPA by setting RVOs (renewable fuel obligations) too low has created a financial crisis in the biodiesel industry for biodiesel plants, farmers and used cooking oil collectors.

What is an RVO?

RVO is a renewable fuel obligation. The EPA sets RVOs, annual targets for the amount of renewable fuels that must comprise the US fuel supply. Refiners comply by blending renewable fuels (biodiesel, renewable diesel) into regular diesel.

What is a RIN?

A RIN is a number that represents a quantity of renewable fuel (usually one gallon) that has been produced or imported. Refiners comply with RVO obligations by producing and blending sufficient renewable fuels volumes OR they purchase RIN credits from other producers to meet their EPA obligations. The price of a RIN dramatically affects the prices received by biofuel producers. Those prices in turn affect used cooking oil collectors and farmers who produce the feedstocks purchased by biofuel producers. RIN credit affect profits throughout the industry.

The Price of RINs is Falling

The price of a RIN fell 45% for biomass based diesel and ethanol in the first 5 months of 2024. (EIA Biomass Magazine). This has caused 2 biodiesel plants to close and profits to plunge among collectors of used cooking oil and farmers who produce the feedstock.

What is the problem?

The problem is the EPA set RVO quotas that were artificially low and did not reflect the potential for the rapid growth of biofuels in the USA.

The low RVO quotas cause an oversupply of RIN credits which drops the price of RINs. Lower prices for RINs lowers profits for biomass based diesel producers and the farmers and used cooking oil collectors that supply their feed stock.

What should the EPA do?

If it wants to continue to grow the biomass based diesel market, the EPA needs to revise the RVOs upward for 2024 and 2025. 

Congress is starting to urge them to do that as two biodiesel plants have already ceased operations. Congressional representatives from farm states are particularly concerned.

Complications for the EPA

While much of this problem is due to the low RVO volumes set by the EPA, another related issue is looming. Virgin palm oil from East Asia is coming into the US disguised as used cooking oil. This palm oil harvesting destroys agricultural and forest land and is not the low carbon intensity fuel that true used cooking oil is. This is a growing scandal that has caught fire in Europe and is coming to the U.S. Estimates are that one third of used cooking oil in Europe is fraudulently labeled palm oil. Allowing this type of fraud to continue subsidizes deforestation and provides profits to the Chinese Community Party.