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Oleochemical Industry Fears Loss Of Key Raw Material To Biodiesel

Trade association blames federal government for dismissing domestic industry concerns

by Glenn Hess
November 19, 2012 | A version of this story appeared in Volume 90, Issue 47

Credit: Shutterstock
A federal mandate for higher biodiesel production could further shrink supplies of tallow, a by-product of beef processing.
Photo of cows
Credit: Shutterstock
A federal mandate for higher biodiesel production could further shrink supplies of tallow, a by-product of beef processing.

The Environmental Protection Agency’s recent decision to increase the amount of biomass-based diesel that must be blended into the U.S. fuel supply in 2013 under the Renewable Fuel Standard is creating more headaches for the makers of soap and detergent products.

The steady growth of the biodiesel industry over the past decade has already curtailed supplies and raised prices of animal fats such as beef tallow, say officials at the American Cleaning Institute (ACI), a trade association that represents both cleaning-product companies and oleochemical makers.

For more than 100 years, the oleochemical industry has turned animal fats into fatty acids, fatty alcohols, and other chemicals that are widely used to manufacture soaps, detergents, and personal care products. But since 2004, federal policymakers have increasingly driven and subsidized the diversion of animal fats to biofuel production through tax credit supports and guaranteed markets under the Renewable Fuel Standard, explains ACI President Ernie Rosenberg.

“We regret that once again, EPA has dismissed the concerns of the domestic oleochemical industry relating to the Renewable Fuel Standard’s impact on the price and availability of animal fats,” Rosenberg says.

The American Jobs Creation Act of 2004 included a $1.00 per gal tax credit to create incentives for the production and use of biodiesel by making renewable fuel competitive with conventional diesel fuel. The subsidy aimed to boost profits, help existing biorefineries remain solvent, and create a financial climate that would encourage the construction of new plants.

The credit for biodiesel production expired at the end of 2011 along with a group of other tax breaks that Congress generally renews each year. It’s unclear whether lawmakers will reinstate the targeted tax breaks during the postelection lame-duck session.

The Renewable Fuel Standard was created by Congress in 2005 to ensure that transportation fuel sold in the U.S. contains a minimum volume of biofuel in order to reduce air pollution and greenhouse gas emissions. Two years later, lawmakers expanded the biofuels blending mandate to include diesel fuel, in addition to gasoline.

The Energy Independence & Security Act of 2007 required biodiesel to be included in U.S. diesel fuel markets beginning in 2010. The level was initially set at 800 million gal in 2011 and was increased to 1 billion gal in 2012. EPA has the discretion to set the volume higher on an annual basis, depending on environmental, market, and energy-related factors.

In September, EPA announced that it would boost the biodiesel volume requirement to 1.28 billion gal in 2013. “This action, which meets goals designated by Congress, is another step that strengthens America’s energy security by reducing dependence on foreign oil,” EPA Administrator Lisa P. Jackson said when announcing the increase.

Biodiesel remains the only advanced biofuel in commercial production across the country. EPA estimates that biomass-based diesel reduces greenhouse gas emissions by more than 50% when compared with petroleum diesel.

Biodiesel producers lobbied the Obama Administration to raise the target for next year to continue growth in the industry, which in 2011 produced a record 1.1 billion gal of the renewable fuel made mostly from soybean oil but also from recycled cooking oil and animal fats.

“This was an incredibly important decision, and the Obama Administration got it right,” says Joe Jobe, chief executive officer of the National Biodiesel Board, the industry’s trade association. “It will allow biodiesel plants across the country to invest and expand, creating thousands of jobs,” he says. “At the same time, it sends a strong signal that the U.S. is standing firm behind its commitment to producing clean, American-made energy to strengthen our energy security and break our dependence on petroleum.”

But oleochemical producers are concerned that a further increase in biodiesel production will tighten the tallow supply, which will put upward pressure on pricing for the key raw material. The supply of animal fats is inelastic; livestock production is geared to food supply, not fuel, says Dennis Griesing, principal at DCG Public Affairs and a lobbyist for ACI.

Before Congress began creating a demand for biofuels in the mid-2000s, Griesing notes, tallow cost about 13 to 16 cents per lb. Earlier this month, tallow was trading for 39 cents per lb, compared with 47 cents per lb for soybean oil. “So long as tallow tracks lower than soybean oil, it will be the price-preferred raw material. That’s the problem,” Griesing says.

Another factor affecting tallow availability is the drought that gripped much of the U.S. this year. Faced with shortages of feed, water, and healthy pastureland, many ranchers sent their cattle herds to slaughter earlier than usual. “So the cows had less fat on them and therefore less tallow,” Griesing says. “This is going to have an impact on supply.”

The biofuel industry has grown rapidly, driven by government support. SOURCE: National Biodiesel Board
Line graph shows that the biofuel industry has grown rapidly.
The biofuel industry has grown rapidly, driven by government support. SOURCE: National Biodiesel Board

ACI has pressed EPA to limit the use of animal fats for biofuel production. But in its final rule on the 2013 biodiesel requirement, EPA says it does not have the authority to prevent feedstocks that meet the statutory definition of renewable biomass from being used in the production of renewable fuel. “The choice of which feedstocks will be used to produce biomass-based diesel will be determined by the market,” the agency says in the final rule, which was published in the Federal Register on Sept. 27.

EPA says it agrees with ACI that an increase in the use of animal fats to produce biofuel could raise the price of those fats or reduce their availability for the production of oleochemicals. “Such circumstances could in turn compel the oleochemical industry to use a greater fraction of alternative feedstock sources such as cottonseed oil,” the agency says. “However, there could be sufficient sources of other feedstocks to produce 1.28 billion gal of biomass-based diesel without using any animal fats.”

EPA estimates that about 600 million gal of the 1.28 billion-gal biodiesel requirement will be produced using soybean oil as the feedstock, and 270 million to 380 million gal will be made from recycled cooking oil and animal fats.

Moreover, the agency notes that the price of animal fat is dependent on general demand for the material, which is only in part affected by its potential use as a biofuel feedstock. As a result, EPA says, it does not believe that oleochemical production “will be significantly impacted by the potential use of rendered fats as a biofuel feedstock if some portion of the 280 million-gal increase in the biomass-based diesel standard is produced from rendered fats.”

Griesing says EPA has been “a little dismissive” of the oleochemical industry. The price and availability of tallow “is a twofold concern, and I don’t think they gave it reasonable consideration,” he remarks. “Maybe market conditions aren’t their concern, but it will be if we begin to lose an industry.”

Palm oil, which is produced in Southeast Asia, can substitute for tallow as a feedstock. But switching to palm oil would not be a simple matter for personal care product companies. “If they reformulate, they would have to go through the process of obtaining approvals by the Food & Drug Administration,” Griesing notes. “And once they make that conversion, it’s not likely that they would go back. That would be a significant shift.”

If palm oil gets a foothold in the U.S., oleochemical makers are worried that foreign-government-supported enterprises in Indonesia and Malaysia would start manufacturing the chemicals, too. Not only would U.S. oleochemical producers be put out of business, Griesing warns, but affected consumer product manufacturing could shift overseas as well. “Then what happens to the 25,000 jobs the oleochemical industry supports in this country?” he asks.

ACI’s Rosenberg says EPA has sent a clear message that this issue must be resolved by Congress. The use of animal fats for oleochemical production has historically allowed the U.S. industry to compete in the global market by providing a cost-competitive raw material. But that raw material edge “is now being profoundly eroded,” he says. “While biofuels have an important place in our energy future, their success should not come at the expense of established industries which happen to share a raw material stock.”

ACI has been trying to find congressional sponsors for legislation that would remove animal fats from any biofuel tax credit scheme and from the list of approved biomass under the Renewable Fuel Standard program. “We want to take animal fats out of both of those market-distorting schemes and leave it to the free market,” Griesing says. “Equity is all we want on this issue.”

But with Congress facing crucial year-end deadlines on major budget and tax issues, the oleochemical industry will likely have to wait until 2013 to find an opportunity to advance its legislative agenda.

“We’ve had a lot of sympathy on Capitol Hill, but I don’t think anybody has focused on this,” Griesing tells C&EN. “Members of both parties understand our concerns. We’ll just have to see what happens.”


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