Abengoa warns legal reverse threatens to smother biofuel industry

Source: Ed Crooks, Financial Times • Posted: Monday, October 20, 2014

The US risks killing off its nascent advanced biofuels industry as soon as it is launched because of inadequate support from regulations, the chief executive of one of the sector’s leading companies has warned.

Abengoa of Spain is on Friday celebrating the opening in Kansas of its first commercial cellulosic ethanol plant, which will make fuel from agricultural waste such as corn cobs and straw.

 However, Manuel Sánchez Ortega, Abengoa’s chief executive, told the Financial Times that the US government’s reluctance to mandate increased use of ethanol threatened to stifle the industry’s development.

“They can kill the [cellulosic ethanol] industry if they follow the argument of the oil companies,” he said.

The Renewable Fuel Standard, first created in 2005, has mandated that a steadily increasing volume of ethanol and other biofuels should be used in US road fuels.

Last year, however, President Barack Obama’s administration moved to put a brake on the industry’s growth, cutting the mandated use of biofuels for the first time.

The oil industry and others have highlighted concerns about the “blend wall”: the maximum possible volume of biofuels that can be used, given that petrol with more than 10 per cent ethanol blended into it has not been approved for use in cars sold before 2001.

Mr Ortega said: “We have spent so much effort developing the technology, and now cellulosic ethanol is realistically available, it is difficult to understand the step they have taken.”

He added that Abengoa had committed to investing in the plant on the understanding that the renewable fuel standard would be there to support it.

The Kansas plant was built with the help of a $97m grant and a $132.4m loan guarantee from the US department of energy.

Ernest Moniz, the energy secretary, will attend the opening of the plant on Friday, along with Sam Brownback, governor of Kansas.

Cellulosic ethanol has been hailed as the solution to concerns about the first generation of biofuels made from products such as corn and sugar, because it does not compete with food supplies.

After decades of research and countless false starts, cellulosic ethanol is at last commercially viable, according to its backers.

Abengoa says its process, which could use municipal solid waste instead of agricultural waste, can compete with traditional US corn-based ethanol at any corn price above about $3.50 per bushel. US corn was about $3.50 this week, and has not been below $3 since 2006.

Its plant joins two similar facilities in Iowa: one opened by Poet of the US and Royal DSM of the Netherlands last month, and another from DuPont that is scheduled to open by the end of the year.

The cut in the RFS mandate announced last year for 2014 was only a proposal, and a final rule has still not yet been approved, giving ethanol producers hope that the final mandate could be higher.

Mr Ortega rejected the idea that regulators could create room for cellulosic ethanol to grow by taking market share from corn-based fuel, which Abengoa also produces.

“We have invested billions of dollars in this industry and it’s not the time to take that [support] away,” he said.

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