Prepared Remarks of ABFA President on An Unsual Election
Thursday, December 15, 2016
The following are the prepared remarks shared by ABFA President Michael McAdams on December 8, 2016 at the RNG Conference in California.
Good morning. How are you all this morning? Great place right?
Let me start by thanking Johannes, David and the RNG team for the invitation to be with you this morning.
They have asked me to speak with you this morning about the new Washington, D.C., and what we might expect in the new Administration and the upcoming Congress. First of all, it’s been a long time since we had a government run by one party. However, I want to remind everyone the Senate is a ‘special place,’ just ask a Senator. So, the parliamentary procedures will still require quite a bit of maneuvering to get passage of new legislation in the world’s greatest debating institution.
My father once told me that the definition of politics was “what is the art of the possible.” I can think of no time in my 38 years in this business where anything feels possible. The changes are disruptive for sure, and are anything but the norm by design.
After watching the election unfold the last year and even the current events around the world, no one could stand in front of you this morning and suggest they know what is going to happen. So, what I intend to do is to identify some issues that are important to the industry in this room and the larger industry of biofuels. To do that, I propose we use a simple framework of opportunities and challenges, or more clearly in football parlance: offense and defense. My objective is for everyone to put your strategic thinking caps on and move away from black and white to “what is the art of the possible.” My ultimate objective at the end of the talk is to have everyone conclude: That makes sense, no reason to worry about anything at least until we know what the proposed boundaries of change may be.
First, I want to talk about going on offense to secure federal policy support that does not currently exist in the current law or regulatory structure. Second, I want to talk about what defense will be required to protect those things that could go wrong moving forward. Finally, I want to address those of you in the room looking to invest in this sector. I want to suggest that this industry is fundamental for the world moving forward and that many of the reasons that have led us to where we are here in the first place, have already been incorporated by governments, consumers, and businesses and are here to stay.
So, let me lay out some offensive options, which seem to exist as of this morning. Some of these options also could be viewed in a defensive context as well.
Let me start with the most obvious: Tax policy!
Since this is supposed to be the last week of the session, if is fair to assume all four of the tax credits for biofuels will expire at the end of this year. My sources have suggested no one in the Republican leadership on either side of the Capitol dome wants to do an extenders package as is the usual this time of year.
The general theme from the new Administration and Republican Congressional leadership is that we will take on tax reform writ large in one big bite next year, beginning in the first 100 days. It suggests to me that it give us an opportunity to reach out to the new Administration, Speaker Ryan, Chairmen Brady and Hatch to explain why these provisions represent new jobs and development opportunities in American for this sector. The importance of the alternative fuels credit, the biodiesel credit and renewable diesel and jet fuels credit, and the second generation credit for cellulosic and algae-based fuels at a time of 45 dollar crude is paramount. This is just plain common sense!
Although we have seen some quantitatively significant support for three of these in the past, the second generation credit has contributed almost nothing since very few gallons of qualifying fuels have been made to date. Last year was the biggest year for cellulosic fuels with over 200 million gallons, and next year is projected to be over 300 million. For a new Administration looking to create jobs, these credits represent a significant buy down for the cost of the fuels that producers manufacture. In addition, the non-food feedstocks from the biogas and cellulosic technologies will help to diversify the number of states who can contribute to the production of these 60% GHG reduction fuels. Clearly, this is one of the best opportunities to create new manufacturing jobs for rural America today.
Second big offensive option: Legislative and/or regulatory assistance and reform of the RFS program. Many companies have been frustrated waiting for EPA to approve new fuels, new technologies, and new feedstocks under the governance, and support of the RFS RIN programs. For instance, I have one member who has been waiting five years for his pathway approval. This is simply an area that needs more commitment of resources and an agency with a can do, lets solve it approach, rather than one of hiding in the weeds and hoping no one notices. As many of you know, I have been calling for pathway approvals to be expedited, intermediate feedstocks to be approved for use under the RFS even when not co-located, and an easier approach for approving feedstocks in places like land farms and wood mills. Why can’t we use mass balance instead of trying to account for every shred of biogenic material one molecule at a time. It simply drives up cost for the innovative industry.
Last but not least, we need to address the practice of how the cellulosic waiver credits are issued by EPA and how many. I would argue EPA’s practices of continuing to issue the same number of cellulosic waiver credits as the mandate requires undercuts the very fuels that Congress intended to inspire. How about EPA limits the numbers of waiver credits to the gallons that are not produced under the RVO. This is not rocket science. Call it common sense, but when you offer twice as many RINs by making the same number of credits as the RVO, you don’t encourage people to actually buy the fuels. Particularly when the percentage number is well below 1% compared to the 230 billion gallons of fuels we use in the USA.
Let’s now turn to defense.
First, tax is on the list again. It would be very possible since the extenders package is less than eight billion in a bill that seeks to repatriate two and a half trillion dollars of corporate money from offshore that we could get lost in the shuffle. We must begin immediately to tell the story of jobs in rural American and cleaner fuels for America writ large being created under the RFS 2 program and the need to be cost competitive, which is helped by the existing supporting biofuels tax credits.
Second, there are some in the oil industry that see this as the chance to repeal the entire RFS program. We simply cannot allow that to happen. I am happy to report Congressman Greg Walden was elected last week to chair the powerful Energy and Commerce Committee. He and his state of Oregon have been supportive of our fuels and we need to support him and his efforts moving forward.
Third, trade is an issue I simply want to put on the map. I say this because getting tough on trade may lead to a wide range of unintended changes we might have to navigate in the future.
Let me close with a word to the investors.
Biofuels is a global, federal, and state policy. Climate change is a recognized issue by most of the world, including over 60% of the American public, as being in some way related to human activity. Like it or not, as we move to nine billion people on the planet by 2050, this issue will become more important and challenging and will require more sustainable fuels. What I have observed in the Congress over the last four years with the advent of more traditional fossil-based production from fracking, was a reduction in concern over energy security and a raised importance of the sustainability contribution of fuels in the future. The major oil companies continue to balance the future requirements for sustainability while balancing the demand for their current products. This will not change. As for the environmental community, many of the longer term thinkers understand that approximately 30% of the world’s CO2 is generated in the distillate side of the transportation equation. This will require drop-in fuels or blends of fuels or CNG and LNG to reduce the emissions moving forward.
If we can address some of the pathway and feedstock issues I mentioned earlier, it will generate greater diversity across America in biofuels and holds potential to build many distributed fuels manufacturers around the country. These facilities will produce jet, heating oil and diesel to address this concern. So, my conclusion is this is a great bet for investing in the future and the biofuels industry generally.
Thank you I look forward to your questions.