Washington, D.C. — Like many biodiesel producers, Jimmy Chiles is looking at using something other than soybean oil to make his fuel.
Soybean oil is now too expensive to use for biodiesel, and the government is proposing rules that would restrict the use of food crops such as soybeans to meet new mandates for biofuel usage.
So Chiles wants to use animal fats or waste restaurant grease in his family-owned biodiesel plant in Mississippi, but those products are far harder to find than soybean oil, and he still needs to find a supplier.
“The problem is that you have 150biodiesel plants that have already called all these guys. I’m not the first,” he said.
Other producers, such as Ames-based Renewable Energy Group Inc., say they have adequate supplies of fats or grease. But Jeff Stroburg, REG’s chairman, said the Environmental Protection Agency’s new rules will probably drive up the price of those alternative feedstocks, squeezing biodiesel margins further.
The rules could require producers to make at least 30 percent of their biodiesel from nonsoy sources, including fats, grease or the waste corn oil from ethanol plants. Forty percent of biodiesel is now being made from fats or grease, according to the National Biodiesel Board.
But the industry is in a deep slump, operating at half of last year’s production levels because of high soybean prices and new European Union duties that have cut off export sales. Fats and grease cost producers about one-fourth as much as soybean oil.
The EPA predicts that the number of biodiesel processors will shrink dramatically over the next decade and forecasts relatively modest growth in production levels because of the limitations on feedstocks. The agency estimates the industry will produce about 810 million gallons of biodiesel by 2022, an increase of just more than 100 million gallons from last year’s production.
Iowa should be the No. 1 producer in 2022, with an estimated 113 million gallons, according to the EPA, but that would be well short of Iowa’s current annual production capacity, which exceeds 300 million gallons. The agency sees the number of operating plants dropping from 176 last year to 35 by 2022.
“Going forward, producers will compete for feedstocks, and markets will consolidate,” the agency said in an analysis of its proposed rules.
“It’s hard to find a silver lining with biodiesel right now,” said Jim Duffield, an Agriculture Department economist who follows the industry. “They’ll get by, but these are going to be rough times.”
The EPA expects producers to use a combination of soybean oil and either fats or grease to meet the agency’s proposed rules for lowering greenhouse gas emissions. Soy biodiesel can’t meet the emission limits because of concerns that diverting U.S.-grown soybeans to fuel is contributing to global warming by promoting deforestation in Brazil to grow more soybeans there.
Cutting down trees releases carbon dioxide into the atmosphere.
Biodiesel that doesn’t meet the emission test won’t qualify toward the government’s annual usage mandates for biomass-based diesel, which includes biodiesel and a rival product called renewable diesel, a form of conventional diesel made from the same feedstocks as biodiesel. The 2007 energy law requires refiners to use 500 million gallons of biomass-based diesel this year and 1 billion gallons a year by 2012.
How much fat and grease biodiesel producers ultimately must use will depend in part on how the EPA finalizes the emission rules. The law requires biodiesel to reduce greenhouse gas emissions by 50 percent when compared with conventional diesel, but the EPA can lower the target to 40percent and is proposing to do so, which would allow plants to use more soybean oil.
According to the EPA’s calculations, soy diesel reduces emissions by only 22 percent because of the land-use issue. Biodiesel from fats and grease would easily exceed even the 50 percent threshold.
Biodiesel producers aren’t the only companies competing for fats and grease, however. Animal fats are widely used in pet food, for example.
Biodiesel plants will soon have another competitor in Tyson Foods, the nation’s largest meat processor. Tyson is building a plant in Louisiana with the Syntroleum Corp. that will produce up to 75 million gallons of renewable diesel and jet fuel using fats and greases provided by Tyson.
Tyson, which operates beef and pork slaughterhouses in Iowa, would not disclose how much fat the company sells to biodiesel producers.
Biodiesel producers must have special equipment to treat fats and grease with acid before they can be turned into biodiesel. REG this week announced plans to acquire three independent biodiesel plants that are already capable of using fats and grease as well as soybean oil.
By limiting the use of soybean oil in biodiesel production, the EPA rules are “not going to be good for the Midwest farmer who has been relying on this market for their soybean oil,” said Stroburg.
Corn oil could be a promising alternative feedstock for some biodiesel producers once ethanol plants are making money again and can afford to install the necessary equipment to remove the oil, said Robert Wisner, an economist with Iowa State University’s Ag Marketing Resource Center.
Chiles said he is talking to two other independent biodiesel producers in the South about going together to build a pre-treatment plant for fats and grease, if he can find a source for those products.
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“There’s only so much,” he said.
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