You may remember the buzz about country music legend Willie Nelson and his brand of renewable fuel, BioWillie. It made for a good story, (“His Car Smelling Like French Fries, Willie Nelson Sells Biodiesel”), but it didn’t amount to much. As best as I can tell, BioWillie is now being sold in a handful of filling stations in Hawaii but nowhere else.
No one is writing songs about the Renewable Energy Group but the Ames, Iowa-based firm has quietly become the leading North American producer of biodiesel. Yes, some French fry grease is involved–used cooking oil is one of the company’s inputs–but there’s a lot more to it than that. REG, as it’s known, makes biodiesel, which is mostly sold to trucks, from a variety of waste products, including inedible animal fats that are left over after companies like Tyson Foods and National Beef process cows and chickens, inedible corn oil and soybean oil.
This company, in other words, is a key player if you care about getting zero waste, energy security, carbon emissions and even food security, because its business provides added income to the ag/food industry. The company’s growing, too, largely by acquiring and reactivating dormant plants to meet increased demand: Its revenues were $85 million in 2008, $132 million in 2009, $216 million in 2010 and $824 million in 2011. Impressive.
I met recently with Daniel Oh, the president and CEO of Renewable Energy Group. The son of a Korean immigrant father and a mother from Illinois, Dan, who is 47, is an interesting albeit low-key guy. A native of Bloomington, Indiana, Dan graduated from West Point, and spent more than a decade in the army, serving in the first Gulf War with the 3rd infantry division and later as a paratrooper with the 82nd Airborne Division. He got an MBA from the University of Chicago, and worked at McKinsey & Co., Eli Lilly and agriculture consulting firm ABG Inc. before joining REG in 2006. He was named CEO last September.
REG has nine biodiesel plants, six in production and three partially completed, mostly in the midwest, because the industry grew up around the soybean and corn industry. Farmers have been big backers of biofuels because they want to extract more value from their crops. The company, which dates back to the late 1990s, has since then developed or acquired technologies that allow it to use a variety of feedstocks, depending on costs. “Your absolute biggest expense is feedstock,” Dan told me. “It can be 80 or 90 percent. We’re focused on waste and co-products first.”
As a result, he said, REG has been able to “motivate the collection of waste,” so that, for instance, fast-food restaurants organize to collect and sell their used cooking oil. “They’re in business to produce some other product, and we’re buying their waste,” he said.
Biofuels generate other benefits, too. REG’s biodiesel qualifies under EPA rules as an “advanced biofuel,” which means it must reduce greenhouse gas emissions by at least 50% when compared to petroleum-based diesel. (REG says its products reduce lifecycle GHG emissions by 57% to 86%, depending on the feedstocks. Animal fat feedstocks, as it happens, reduce emissions more because so much corn and soy must be grown to feed cows, pigs or chickens.) Biodiesel reduces the US’s oil imports. By generating revenues for farmers or meat processors, and eliminating waste, biodiesel supports rural economies and keeps food costs down.
All of this, alas, comes at a price: Federal support in the form of a Renewable Fuels Standard, a mandate imposed upon so-called “obligated parties,” which are mostly big oil companies, to buy renewable fuels, as defined by energy laws passed in 2005 and 2007. You won’t be surprised to hear that these are incredibly complicated pieces of legislation–the energy industry lawyers are surely doing well–but essentially they require that transportation fuel sold in the US contains a minimum volume of renewable fuels. For next year, for instance, EPA has proposed that oil industry be required to us 1.28 billion gallons for biomass-based diesel. (The controversial mandate for ethanol isn’t relevant here.)
The biodiesel program has been plagued recently by corruption. Small producers of biodiesel sold credits for fuel they never produced, the government has alleged, and a Maryland company known as Clean Green Fuel was convicted of fraud. Setting that aside, Renewable Energy Group and other biodiesel producers rely on two streams of revenue — one from the distributors and fleets thatburn their fuel, and the other from the “obligated parties” who buy the credits they get for producing the fuel.
“We make a gallon of energy and we make a gallon of compliance,” Dan says.
So the benefits of biofuels are being financed, effectively, by oil refiners like ExxonMobil, Chevron and ConocoPhillips and Valero who, presumably, pass those costs along to their customers. Does that make sense? That depends on how you value the benefits of biofuels.
As Dan says: “We really help with energy security. We really help with food security. We really help with emissions. And we really help with rural development.”
“The Renewable Fuel Standard is working as intended and delivering desired results,” he says.
Those who favor the mandates argue that, as oil prices rise over time, and the biofuels industry scales up even more, the Renewable Fuel Standard won’t be needed because the cleaner, domestic fuels will be able to compete on their own. That’s the theory, anyway The reality is that once an industry wins special benefits from the government — whether it’s production tax credits for wind and solar, or fossil fuel subsidies — it’s hard to take them away.