CALIFORNIA'S BIODIESEL INDUSTRY TRADE ASSOCIATION


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February 24th 2016

Capitol Plaza Ballroom

Sacramento





California's Biodiesel Industry

California currently has 8 biodiesel production plants, with 2 plants under construction, and major expansion underway at several of the state's largest plants. In 2014, instate production reached 25.96 million gallons, and we hope to see significantly increased volumes in 2015.




AB 1032 Goes Into Effect Jan 1st 2016
Tax Refunds Now Available for Dyed Blended Biodiesel


CBA was the proud sponsor of AB 1032, which passed the state legislature and was signed into law by Governor Brown this year and will be Implemented January 1st 2016. This very important new law corrects a long-standing tax problem affecting our industry, and we look forward to increased biodiesel sales now that this obstacle has been removed.

"Our industry estimates that the problem has been effectively preventing biodiesel from being blended into 15-30% of the diesel volume depending on how much dyed diesel that terminal is handling," said Harry Simpson, President of Crimson Renewable Energy and CBA board member. "The problem has affected every terminal and refinery rack in the state that is blending, or contemplating blending, biodiesel," he added.

Below is the text of a Special Notice, dated November 2015, from the California State Board of Equalization:

"Refund of Diesel Fuel Tax Paid Available to Suppliers of Dyed Blended Biodiesel Removed from the Rack"

"Effective January 1, 2016, licensed diesel fuel suppliers may claim a refund or credit for the excise tax they paid on the biodiesel portion of dyed blended biodiesel fuel removed from a terminal rack by the same supplier. Suppliers must be able to show that they paid the excise tax on the biodiesel fuel portion of the blended biodiesel. For more information on the legislation creating the change to allow a refund of the diesel fuel tax, download Assembly Bill 1032 (Stats. 2015, Ch. 481) at www.leginfo.ca.gov/bilinfo.html.

What Changed?

Current Diesel Fuel Tax Law does not provide for reimbursement of the excise tax-paid portion of the biodiesel fuel removed from the rack as dyed blended biodiesel. Therefore, suppliers who blend tax-paid biodiesel fuel with ex-tax diesel fuel that is removed as a dyed blended biodiesel, are unable to recover the excise tax from the customer and unable to seek reimbursement for the tax from the Board of Equalization.

Effective January 1, 2016, Revenue and Taxation Code section 60501(b) will allow a supplier to claim a refund or credit for the excise tax that was paid on the biodiesel portion of dyed blended biodiesel fuel. Suppliers may file a claim for refund using BOE-101, Claim for Refund or Credit.

How to Claim a Credit on Your Supplier Return

Instead of filing a refund claim, licensed diesel fuel suppliers may claim a credit on BOE-501-DD, Supplier of Diesel Fuel Tax Return, for tax-paid biodiesel blended with diesel fuel and removed as dyed blended biodiesel fuel. Suppliers may claim a credit only to the extent of the excise tax-paid biodiesel portion of the dyed blended biodiesel removed. For further information, see BOE-810-FTE, Instructions for Preparing Motor Fuels Schedules, or our Diesel Fuel Tax program webpage FAQs.

If you have any questions regarding dyed biodiesel fuel blends, you may contact the BOE through our website at www.boe.ca.gov/info/email.html. You can also call our Customer Service Center at 1-800-400-7115 (TTY:711). Customer service representatives are available to assist you weekdays from 8:00 a.m. to 5:00 p.m., (Pacific time), except state holidays."


CA Biofuels Cap & Trade Initiative Gains Momentum


The California Biofuels Cap & Trade Initiative, a proposal to allocate $210 million from Cap and Trade auction proceeds to low carbon biofuels, has built an impressive list of supporters since this exciting coalition effort was initiated by CBA in early 2014. We believe that the inclusion of $25 million from the Greenhouse Gas Reduction Funds (GGRF) for in-state biofuel facility expansion and the development of new plants in the Governor's 2016-17 budget is a result of the coalition's extensive and coordinated work in Sacramento toward this goal -- led by CBA lobbyist, Louie Brown.

The California Biofuels Cap & Trade Initiative coalition came together to make the case that low carbon fuels are available now and must be aggressively scaled up if Governor Brown's goal of reducing petroleum use in the state by 50 percent by 2030 is to be met.

An important element of the proposal includes not just concern about reaching the climate change goals of AB 32, but also that biofuel production and infrastructure should be encouraged in disadvantaged communities as put forth in SB 535. That law calls for stimulating employment and economic improvement in those communities as defined by CalEnviroScreen.

The funds would be split equally among three biofuel types (diesel alternatives, gasoline alternatives, and biogas/syngas) based upon stimulating (1) California-based biofuel production; (2) the low carbon intensity of biofuels, and (3) the benefits to disadvantaged California communities.

For further details and to add your organization's name as a signatory to the Biofuels Initiative, contact Russ Teall at rteall@biodico.com.










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Biodiesel Expert Explains
ADF Regulation at OPIS Conference



On December 10th, participants in OPIS' LCFS Conference in San Francisco learned about California;s newly adopted Alternative Diesel Fuel (ADF) Regulation from Lisa Mortenson, CEO of Community Fuels. As part of a presentation on biodiesel in California, Lisa discussed the ADF Regulation after first letting everyone know that she was sharing her personal views and that they should read the regulation to understand the requirements for their business operations. She announced that the California Air Resources Board (ARB) will be issuing a FAQ document soon for this regulations, which provides a framework for regulatory certainty for biodiesel going forward. (That document is now available at: http://www.arb.ca.gov/fuels/adf/adf.htm -- scroll down to What's New).

Lisa explained that ARB cannot simply take a global view of biodiesel's many significant emissions reductions, but must regulate the one pollutant they found to have slight increases. While the regulation's "In-use" requirements for NOx control don't become effective until January 1st, 2018, all those who touch biodiesel will be affected beginning January 1st, 2016, Lisa clarified.

January 1st, 2016 is when blends above B20 must go through the phase-in requirements of section 2293.5, including applying for a Stage 1 Pilot Program before they can be sold (and are subject to the requirements of the developmental fuel variance administered by the CDFA's Division of Measurement Standards). This is also the date when quarterly reporting begins for biodiesel producers, importers, and blenders, and recordkeeping requirements begin those entities as well as for biodiesel distributors and retailers of B20 and below, which is a Stage 3A fuel.

Importantly, Lisa, who is well known among her colleagues for her knowledge of and excellence in complying with the state's biodiesel regulations, said that the Stage 3A reporting will be simple because it's easy to collect the data. She called recordkeeping "no big deal," saying that businesses subject to California's Board of Equalization (BOE) and their auditing likely already have all the information needed.

Adding that beginning January 1st 2018, additional new Stage 3A reporting and recordkeeping requirements kick in that will require customized wording that discloses the method of NOx control on invoices down to the retail level, she said she believes our industry can come up with "smart wording" to use as a routine statement to comply with the regulation. She anticipates working with ARB staff to craft such language.

Again referring the audience to the text of the regulation, Lisa's slide presentation charted the NOx control levels put forth in the regulation, which she simplified as blend caps of B5 in summer and B10 in winter. B10 year-round will be allowed for provable dedicated and separate supplies of high cetane (56 or greater) biodiesel.

Lisa's presentation covered other key elements of the regulation, including retail and fleet exemptions, and the expected sunset date at the end of 2022. She talked about a number of questions that she had clarified with ARB staff, which will be included in the agency's FAQ document.

Ending her talk with a bang, Lisa declared that the next two years are a great time for obligated parties to blend biodiesel, and summed up by saying that the reason biodiesel is being regulated is because so much biodiesel is being used and the biodiesel industry is such a success in California.

The ADF Final Regulation Order and all other rulemaking documents for the regulation are available here: http://www.arb.ca.gov/regact/2015/adf2015/adf2015.htm.


ARB Workshop Clarifies
Biodiesel Pathway Issues
under New LCFS



The California Air Resources Board (ARB) began accepting requests for new pathways and the recertification of legacy pathways that qualify, via the Alternative Fuels Portal (AFP) on November 10th, shortly following the agency's November 6th workshop. The workshop on how to register and apply for pathways previewed the AFP, which includes the LCFS Reporting Tool and Credit Bank and Transfer System (LRT-CBTS). Under the new LCFS, which goes into effect on January 1, 2016, all pathways under the original LCFS will sunset on December 31st 2016, and new CI scores specific to each fuel must be calculated using the new CA-GREET 2.0 spreadsheet. Requests for pathway certifications are required by January 31st, 2016 to assure a new value by the end of 2016.

ARB has published draft guidance and FAQ documents, which are must-study documents for applicants, who need to first determine how their pathway is classified in the new two-tiered system. It's important to know that not all existing pathways are eligible for recertification. ARB's webpage providing Legacy and New Pathways Guidance Documents and Associated Links is here: http://www.arb.ca.gov/fuels/lcfs/fuelpathways/fuelpathways.htm.

The decision tree in Figure 2. "Navigating Re-certification" in the ARB's Draft Guidance Document for LCFS Pathway Re-certification ("legacy-11052015.pdf") is a reference for determining pathway schemes going forward based on past classifications. We hope the following information for biodiesel pathways, based on that information and some special factors discussed by ARB staff at the meeting, is helpful:

-- Legacy Method 1 UCO to Biodiesel from UCO: Because these biodiesel pathways under CA-GREET 1.8b are not listed in the new Tier 2 Lookup Table (Table 6 in section 95488(c)(4)(F) of the regulation), they are not eligible for re-certification. Applicants must request a new Tier 1 pathway and submit full documentation, including energy use and process parameters for biodiesel production and transport distance for feedstock and fuel.

-- Biodiesel from "no cook" UCO: Because biodiesel made from "no cook" UCO was a former legacy Method 1 but is not in the new Tier 1 Calculator of the CA-GREET 2.0, a Tier 2 application is required, and information to demonstrate that the feedstock uses the "no-cook" process must be provided. Applicants are requested to contact Anil Prahbu to discuss specifics of the application process, the use of CA-GREET 2.0-Tier 2, and whether a Tier 2 Method 2B application is appropriate. Anil Prabhu, Manager, Fuels Evaluation Section: Anil.Prabhu@arb.ca.gov (916) 445-9227.

-- Biodiesel from corn oil: The default wet corn oil CI of 28 is available for re-certification and for new applicants with a new Tier 1 application. To prove a lower CI, two years of actual data on energy use in drying for each ethanol source plant is now required, and each would be a different pathway. The default previously used to estimate energy use by natural gas-fired DGS dryers of "9,900 Btu/gal per gallon of ethanol produced" is no longer available.

-- An important change in the CA-GREET 2.0 model is that tallow and UCO pathways now account for the transport of feedstocks. Regarding the difficulty of knowing what UCO transportation distances to use when brokers are involved, ARB staff stated at the November 6th, 2015 public workshop that producers must secure that information and may use their averages if the UCO is collected within North America.

There will be no use of the new GREET 2.0. scores (including iLUC) until all scores have been recalculated. All certifications will be processed and released in batches by fuel type at the same time to ensure fairness in the marketplace. ARB intends to release new biodiesel pathways during the second quarter of 2016. The CIs of legacy pathways will remain in effect until the pathways are recertified or until January 1, 2017.

The workshop also discussed the use of third-party fuel pathway monitoring, verification, and voluntary sustainability certification in the program. The agency is requesting comments on these issues but has yet to issue any proposals. They plan to do so in early 2016.

NOTE: You are urged to read the text of the Final Regulation Order on ARB's Low Carbon Fuel Standard Rulemaking Website at http://www.arb.ca.gov/regact/2015/lcfs2015/lcfs2015.htm. Please consult ARB staff for definitive answers.

Staff presentations from the November 6th meeting and additional information can be found here: http://www.arb.ca.gov/fuels/lcfs/lcfs_meetings/lcfs_meetings.htm.




Air Resources Board Votes
to Readopt LCFS and Adopt ADF



Takes Major Steps Toward Much-Needed Regulatory Stability

On September 25th, the California Air Resources Board (ARB) voted to readopt the Low Carbon Fuel Standard (LCFS) and to adopt the state's first-ever regulation on the commercialization of alternative diesel fuels (ADF), under which biodiesel will be the first fuel to be regulated. Biodiesel will come into the ADF regulation as a Stage 3A fuel, having completed the requirements of Stages 1 and 2. Both regulations take effect January 1st, 2016 and constitute important benchmarks in the process of moving toward the regulatory certainty needed by California's biodiesel industry and the low carbon fuels sector.

Many years of concerted and coordinated efforts by CBA and the National Biodiesel Board have been invested to ensure biodiesel's accurate inclusion under LCFS and that the best possible ADF regulation was put in place.

Low Carbon Fuel Standard (LCFS)

Because the court in the POET, LLC v. California Air Resources Board case found inadequacies in ARB's compliance with the California Environmental Quality Act (CEQA) and the Administrative Procedures Act (APA), the LCFS had to be readopted. ARB staff took the opportunity to include clarifications and enhancements based on what they had learned in administering the regulation since its implementation in 2011. Importantly, ARB is sticking with the original LCFS goal of a 10% reduction in the carbon intensity of fuels by 2020. The regulation includes a new compliance curve to reach that goal, beginning with an immediate jump to 2% from the 1% level it has been held at for several years during the re-adoption process, then ramping up steeply from there.

The core elements of the program remain the same, but enhancements include cost containment through a price cap and Clearance Market; allowing fixed rail and electric and hydrogen forklifts to generate credits; and several refinery-related measures, including allowing them to generate credits for GHG emissions reduction projects.

Other key changes include a two-tiered system under which all new and existing CI scores must be calculated using the CA GREET 2.0 spreadsheet. GREET 2.0 has been updated using the latest science. This will result in pathways and CI scores specific to each fuel, a new requirement.

Conventionally produced first-generation fuels, such as biodiesel and starch- and sugar-based ethanol, fall under Tier 1. Tier 2 fuels are next-generation fuels, such as cellulosic alcohols. Tier 1 fuels produced using an innovative method, such as the use of low-CI process energy sources, may move into Tier 2. ARB will be conducting a GREET 2.0 workshop in October (TBD).

Updates to ILUC values include reductions for soy biodiesel to 29.1 g/MJ and canola biodiesel to 14.5 g/MJ and a new value for palm oil biodiesel of 71.4 g/MJ. Corn ethanol, sugar cane ethanol, and sorghum ethanol ILUC penalties are now reduced to 19.8 gCO2/MJ, 11.8 gCO2/MJ, and 19.4, respectively.

Alternative Diesel Fuels Regulation (ADF)

The actual implementation of the ADF regulation's in-use requirements for blends up to B20 do not begin until January 1st, 2018, but all producers, importers, and blenders in the state must begin quarterly reporting beginning January 1st, 2016. Recordkeeping requrements begin then as well for those entities and for distributors and retailers. January 1st, 2016 is when blends above B20 must go through the phase-in requirements of section 2293.5, including applying for a Stage 1 Pilot Program before they can be sold (and are subject to the requirements of the developmental fuel variance administered by the CDFA's Division of Measurement Standards).

Section 2293.8 of the regulation details Reporting and Recordkeeping requirements for blends up to B20, which enter the regulation as a Stage 3A fuel.

The ADF regulation modeled ARB's findings of biodiesel's emissions characteristics and took into account related offsetting factors -- factors in the commercial market that effectively offset NOx emissions, such as new technology diesel engines (NTDEs), fuels, and feedstocks -- to establish pollution control levels. These are the levels above which NOx mitigation will be required. Low blends of biodiesel may be used without mitigation, depending on the time of year (high or low ozone season) and feedstock saturation (as determined by ASTM specifications for cetane level).

Specifically, blends above these pollution control levels must employ an ARB-approved NOx additive or ADF fuel formulation (or qualify for an exemption) beginning January 1st, 2018:

  • High saturation feedstock (cetane of 56 or greater): B10 year round.
  • Low saturation feedstock (cetane lower than 56): B10 in low ozone season - November 1st to March 31st.
  • Low saturation feedstock (cetane lower than 56): B5 in high ozone season - April 1st to October 31st.

  • The regulation provides for the use of blends up to B20 in fleets and retail under several exemptions, which include requirements related to the percentage of light and medium duty and/or heavy duty vehicles with NOx neutral technologies (such as NTDEs) allowed.

    A program review by ARB staff will be completed by the end of 2019. It will determine the program's efficacy and will take into account offsetting factors and any other factors that may affect biodiesel's NOx emissions.

    A sunset provision will kick in when 90% of all heavy duty vehicle miles in the state are being traveled with NTDEs, which is expected to occur by the end of 2022, according to ARB staff.

    ###
    All those affected are especially encouraged to read the text of the regulations (listed below) and related documents..

    LCFS Docs: http://www.arb.ca.gov/regact/2015/lcfs2015/lcfs2015.htm
    The LCFS regulation proposed text, incorporating all 15-day changes (PDF - 877K).

    ADF Docs: http://www.arb.ca.gov/regact/2015/adf2015/adf2015.htm
    The ADF regulation proposed text, incorporating all 15-day changes (PDF - 316K)




    CALIFORNIA ENERGY COMMISSION (CEC): AB 118 FUNDING

    The Lead Commissioner Report version of the 2015-2016 Investment Plan Update for the Alternative and Renewable Fuel and Vehicle Technology Program was adopted at an Energy Commission Business Meeting on April 8th. The new plan allocates $20 million for all biofuels production with no infrastructure investment funding offered. For more information: http://www.energy.ca.gov/2014-ALT-01/documents/.




    STATE WATER BOARD: UNDERGROUND STORAGE TANK ISSUES

    The State Water Board has sent out a notice to underground storage tank owners and operators announcing that new revised federal UST regulations were issued on July 15th, 2015. According to the document, the Water Board is reviewing the federal regulations to see if new California statute and regulations are in order. The notice says that a switch in fuels to a blend above B20 would require the owner to notify the CUPA 30 days prior and that owners/operators must demonstrate compatibility for as long as the substance is stored.




    FEDERAL ISSUES

    Last year saw positive developments at the federal level, including a favorable Renewable Fuel Standard (RFS) rule and a two-year retroactive reinstatement of the $1-per-gallon blenders tax credit.


    Biodiesel is an advanced biofuel made from waste or virgin vegetable oils or animal fats. It is a sustainable, cleaner-burning, diesel fuel replacement that meets strict quality specifications. Biodiesel derived from waste can reduce greenhouse gas emissions up to 86%.