WASHINGTON — The Environmental Protection Agency should establish volumes for biodiesel and renewable diesel for 2022 and futures years no higher than actual production in 2021, according to the American Bakers Association.
The position in favor of freezing mandated volumes was proposed in comments submitted to the EPA in a 25-page letter by Lee Sanders, senior vice president of government relations and public affairs at the ABA, and Rasma I. Zvaners, vice president of regulatory and technical affairs.
The comments were submitted in response to the EPA’s proposed annual renewable fuel volumes under the federal Renewable Fuel Standard program, published in the Federal Register Dec. 21, 2021.
In December, the EPA proposed for 2022 the highest RVOs ever. The proposed total volume for 2022, at 20.77 billion gallons, exceeds by more than 3.5 billion gallons higher the volume of renewable fuels used in 2020. The proposed volume of advanced biofuel for 2022, which includes renewable diesel, was more than 1 billion gallons greater than the volume used in 2020. The EPA also proposed adding a 250-million-gallon “supplemental obligation” to the volumes proposed for 2022 and stated its intent to add another 250 million gallons in 2023.
If volumes for RFS biodiesel and renewable diesel are set higher than was produced in 2021, the ABA warned a vegetable oil crisis together with barer shelves and emptier plates will result.
“Such food shortage dangers have not been seen in the United States since World War II rationing,” the ABA said.
Going into 2022, edible oil markets have been highly volatile with strong prices and “availability disruption,” the ABA said. The group attributed the market volatility to a “huge surge in demand for soy, canola and other food ingredients by biofuel producers seeking to turn agricultural commodities into biodiesel and renewable diesel fuel for trucks.”
The group said soybean oil prices recently were double prices prevailing a year ago and at one point in recent months were triple year-earlier prices.
The EPA proposal to increase annual volumes of subsidized biofuels for 2022 will exacerbate already difficult market conditions, the bakers said.
“While ABA supports the Biden administration’s environmental agenda, the current RFS program is already eating up too large a portion of US soy oil and other commodity supplies to burn as vehicle fuel,” the ABA said. “Rather than subsidize use of food for fuel, EPA should be incentivizing cellulosic fuels from non-food feedstocks, as Congress directed in the RFS statute.”
The ABA described an asymmetrical positioning in the market for edible oils with biofuel producers on one side able to utilize any edible oil feedstock and mandated to purchase at any price and bakers on the other side with less flexibility in terms of specific edible oil choices and no mandate.
“Unlike biofuel producers that have multiple sources of fuel feedstocks, bakers cannot escape the supply crisis through substitution of ingredients or other strategies,” the ABA said. “As any baker knows, one oil cannot simply be substituted for another in most food product formulations. Food makers cannot simply shift from using canola and soy oils to other oils that may be found in greater supplies. Doing so would require an overhaul of multitudes of existing, beloved recipes and in many cases are simply not an option for a variety of reasons including functionality, taste and shelf-life considerations. Further, it would require significant investment in resources and staff time associated with reformulation, testing, changing labels, marketing and reintroduction, which could take months or even years, for each reformulated product.”
The letters included comments submitted by bakers describing “real world” challenges they are facing.
“If you made it through the pandemic and are somehow muddling through the major issues with labor shortages (and costs to your business), you still have the next catastrophe to deal with — ingredient/packaging shortages and costs,” one baker said. “We are experiencing ingredient/ packaging shortages and outs on a weekly basis.”
The ABA for months has been outspoken in its opposition to higher biodiesel volumes. In an October interview with Milling & Baking News, Robb Mackie, the group’s president and chief executive officer, expressed “extreme concern” about the prospect of bakers and other food companies competing with the biofuels sector for available supplies of edible oils.
“Some wholesale bakers will likely be unable to access soybean oil by the end of this year because they cannot compete in the marketplace and are unable to procure soy oil needs at any price,” Mr. MacKie said at the time.
After the EPA in December proposed the 3.5-billion-gallon RVO increase, the ABA in January provided testimony opposing the increase at a public hearing about the Renewable Fuel Standard.
“The EPA’s proposed increase in advanced biofuel required volume obligations could jeopardize the ability for our members to meet the constant demand of providing millions of baked goods to grocery stores, restaurants, and federal feeding programs,” Ms. Sanders said at the time.
In its Feb. 4 comments, the ABA emphasized the scope of the potential increase and pointed to potentially major consequences for the prospective balance of edible oil supply and demand over the course of 2022.
“The bottom-line implication of the RVO proposal is that soy oil usage for the production of biodiesel will rise from 9.1 billion lbs during 2021, to 12 billion to 13 billion lbs during 2022,” the ABA said. “The increase in soy oil use for the production of biodiesel, 2.9 billion to 3.9 billion lbs, is larger than the entire forecast inventory of soy oil at the end of the 2021/22 year (1.9 billion lbs).”
Government data demonstrate the reality of sharply higher edible oil prices, the ABA said. Citing figures from the US Department of Agriculture, the ABA said crude soybean oil prices rose from 29.7¢ in crop year 2019-20 to 59.9¢ in 2021. The price is forecast by the USDA to rise another 8.1¢ a lb in the current year.
“In other words, the price of soy oil will have experienced a 119% increase over the past two years to the highest level in at least 40 years,” the ABA said.
The ABA places the blame for higher edible oil prices and skewed market conditions squarely on the shoulders of government biodiesel policy.
“Put simply, government subsidies in the supply chain are warping demand for edible oil away from food production towards transportation fuels,” the ABA said. “The combination of a biodiesel blender’s tax credit of about $1/gallon, the LCFS credit (CA) of around $1.50/gallon and federal RFS/RIN credits of as much as $2/gallon adds a total program benefit of $4.50/gallon to transportation fuels. As a result, vegetable oil prices have skyrocketed, and food producers simply cannot compete for supply.”
The bakers said the EPA is obligated to redo its analysis of the impact of the use of renewable fuels mandated under the Clean Air Act. Under the requirement, the agency is obligated to examine the prospective impact on the price and supply of agricultural commodities and on food prices.
“The Draft Regulatory Impact Analysis (DRIA) prepared by EPA in this rulemaking used stale, outdated data that underestimates market prices by some 300%,” the ABA said. “Consequently, EPA’s analysis does not reflect the current supply crisis disrupting the edible oil market and did not alert EPA’s leadership to the important considerations that EPA must weigh in setting annual biofuel volumes. Accordingly, EPA must update the information in the record and reconsider the statutory factors in light of actual market conditions. In fact, the data that EPA used was so inaccurate and misleading that principles of good government require that EPA re-propose the annual volumes and afford a new round of public comment on the agency’s re-evaluation of the statutory factors.”
In its reanalysis, the ABA said the EPA “must acknowledge the struggles of the food production industry as it competes against EPA’s subsidized biofuel industry for food commodities.” With that acknowledgement, the EPA should adjust the final rule so that the biodiesel and renewable diesel volumes for 2022 and future years do not exceed actual production for 2021, the ABA said.