With a wide range of stakeholders pushing back against U.S. EPA's renewable volume obligations proposal for 2014-2016, why is the biomass-based diesel industry largely positive about the agency's draft? During today's OnPoint, Dan Oh, CEO of the Renewable Energy Group, the country's largest biodiesel company, discusses the impact of the RVOs on long-term investments and the financial viability of his industry.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Dan Oh, CEO of the Renewable Energy Group, the country's largest biodiesel company. Dan, thanks for joining me.
Daniel Oh: Thanks for having us.
Monica Trauzzi: So, Dan, we've heard comments from the oil industry and the renewable fuel folks on this show about EPA's recently proposed renewable volume obligations for 2014 through 2016. The comments on the whole have been critical of what the agency did on the RVOs. Your industry, though, has a more positive take on those numbers. What kind of growth do you think the RVOs tee up for the biomass-based diesel?
Daniel Oh: From the biomass-based diesel, and even the advanced general category, I think there's a lot of promise in the numbers. So when we look at it, we've got a growth curve for D4 and a growth curve for D5. I think it's at least a 2 billion-gallon market in the near term, and significant growth after that. The industry simply has to perform, and we'll do that.
Monica Trauzzi: There were some questions about, you know, the 2017 numbers, and there were concerns that EPA did not give enough of a projection of what future numbers might look like and that that affects investments. How do you think the numbers that you all saw affect your long-term investments?
Daniel Oh: A couple things were primary in importance. One was showing a fundamental affirmation and acceptance of what we do, and the growth that's implicit and explicit in the numbers is there that tells the market that we're going to be growing over time. And what I appreciated was the EPA created the opportunity to grow the numbers in the future. So it's simply a proposal. One wouldn't expect them to be lower, and if we perform, I think they'll be higher.
Monica Trauzzi: Why do you think the agency felt perhaps more confident about your industry, you know, with some of the other, you know, cellulosic folks maybe not seeing the numbers that they wanted? What is it about what you guys are doing that made the industry give you positive numbers?
Daniel Oh: Yeah, in fairness to the other industries that are also generating high-quality fuel, ours has been at work for 20 years, so we have continuously and consistently delivered high-quality fuel. You've really seen that ramp up, even in times of uncertainty over the last few years, and I think the EPA gained confidence looking at how, even with a period of uncertainty, we could grow and is depending on that.
Monica Trauzzi: What's the outlook for renewable diesel production?
Daniel Oh: As you know, REG produces biodiesel and we produce renewable hydrocarbon diesel. So we have that full technology suite and produce that product. I think both fuels have a great future. You've got biodiesel, which is thriving and growing. You have renewable hydrocarbon diesel, which has specific and unique desired customer outlets, and there's a growing market for both products. And I think plenty of raw material too.
Monica Trauzzi: And do you think that sort of both are growing at the same pace?
Daniel Oh: It's easier to grow biodiesel. The cap ex per gallon is simpler. Distributed systems are simpler. At the same time, renewable hydrocarbon diesel is very powerful fuel and we'll be growing that too.
Monica Trauzzi: We saw several facilities going through bankruptcy over the last few years because of the lack of clarity and certainty on the RFS. Do you think this proposal is enough to give the industry the boost that it needs?
Daniel Oh: I think the proposal is enough to give confidence that continuing makes sense. And it also is not a proposal that is likely to heat up the market or bring in, you know, overconfident, overabundant investment too quickly. So it strikes a balance. Those that know what they're doing will be able to grow. Those that can hang on, I think, have a future.
Monica Trauzzi: This is, of course, just a draft, as you said. How are you expecting the agency will address some of the stakeholder concerns in its final rule and what are you watching for most closely?
Daniel Oh: Well, it is very complicated, not simply forecasting the fuel and the benefits, but also all the politics. In particular, we're going to be watching the advanced category, what's occurring with D4, what's occurring with D5, and we're supportive of corn ethanol. We want to see that grow as well, but primarily the advanced categories.
Monica Trauzzi: All right, we'll end it there. Thank you for coming on the show.
Daniel Oh: Thank you very much.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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