Abengoa’s Standlee says EPA ‘out of step’ with DOE, USDA on ethanol

Source: By Monica Trauzzi, E&E • Posted: Thursday, June 25, 2015

Last fall, Abengoa opened one of the United States’ first commercial-scale cellulosic ethanol facilities. How does U.S. EPA’s recent proposal for 2014-2016 renewable fuel volume obligations impact the outlook for this facility? During today’s OnPoint, Christopher Standlee, executive vice president of institutional relationships and governmental affairs at Abengoa Bioenergy, discusses the climate for investments in cellulosic ethanol and talks about his company’s plans to expand its international business in the cellulosic space.

Click here to watch today’s OnPoint.

Monica Trauzzi: Hello and welcome to OnPoint. I’m Monica Trauzzi. With me today is Christopher Standlee, executive vice president of institutional relationships and governmental affairs at Abengoa Bioenergy. Chris, thank you for joining me.

Christopher Standlee: Thank you, Monica. I’m very happy to be here.

Monica Trauzzi: Chris, last fall Abengoa opened one of the first commercial-scale cellulosic ethanol plants in the country in Kansas. How does EPA’s recent proposal for 2014-2016 volume obligations impact the outlook for this facility?

Christopher Standlee: Frankly, the rule doesn’t have a huge impact on facilities that have already been built. What it has a primary impact on is the future development of the industry, and the ability of companies like ours, who have invested hundreds of millions of dollars in developing these technologies to implement those technologies and build out the industry even further. Certainly the rule was very disappointing from that standpoint, and we’re frustrated with the EPA’s interpretation of the statute, to say the least.

But our Hugoton facility is operational. We’re in the final stages of optimization and commissioning to get to full-scale production. We expect to have good markets for the product. We have a great location. We are a tremendous economic boom to that particular rural corner of Kansas, so that facility is going to do just fine. It’s really the future of the industry that the EPA is impacting.

Monica Trauzzi: We had CEO Javier Garoz on the show back in 2013, and at the time, we had talked about the difficulty that the cellulosic industry was having in securing and holding onto investors. How would you describe the investment climate right now?

Christopher Standlee: Certainly the leak of the proposal that EPA made in November of 2013 did significant damage, probably the most damage to the interest of the investment community in advanced biofuels. That has really been probably the most significant impact. I think it’s been stated that in 2014, largely as a result of the EPA’s announcement, 80 percent of the ethanol facilities that were operating in the United States reduced their production, and a full six out of 10, 60 percent actually shut down for some period during 2014.

And I think that was largely a result of — and that’s existing production, but it’s also from the standpoint of finding investors, it’s made it much more difficult to find investors. Investors want policy certainty. They want market certainty. They want a reasonable expectation of a return on their investment. And when a policy is implemented in the fashion that makes it unclear where it’s going in the future, then that chills investment.

Monica Trauzzi: So you’re going to be testifying in Kansas City at EPA’s hearing on the proposal later this week. What message will you be delivering to the agency?

Christopher Standlee: I think generally that we do not think that the current proposal from the EPA is a proper implementation of the law, as Congress intended and as it was passed. The EPA has certainly — the law … written very broadly with a lot of flexibility. The EPA has specific authority to modify volumes in the event of a lack of available domestic supply or severe economic harm. Those are the two reasons. And the rationale that they’ve chosen to implement these changes simply does not fit those two statutory authorized rationales, so we think that’s where they’re gone wrong.

Monica Trauzzi: Here in Washington this week, you’re participating in the Department of Energy’s bioenergy conference, which is exploring a range of topics on the opportunities that exist for biofuels in the U.S. Does DOE’s message on the biofuels match up with EPA’s numbers and regulations?

Christopher Standlee: I think that’s one of the surprising things. In the past, we have considered EPA to be a strong supporter. As a matter of fact, they were sued by the petroleum industry, and they get sued by the petroleum industry every year. But, recently, they were sued by the petroleum industry, and the court of appeals, the D.C. Circuit Court of Appeals, told the EPA they could not put their thumb on the scales to inflate realistically expected volumes of biofuels that might be produced in order to incent the further production.

So EPA, in the past, has been a supporter of biofuels and the concepts. I think due to a concern perhaps over pricing, perhaps over impact on gasoline prices, I think that was how this initially started within EPA of becoming concerned about maybe ratcheting back, maybe being conservative or ultra, or too conservative in their expectations and their implementation of the law. So I think that’s probably where it started.

And then it’s very interesting that EPA has since then come out with a paper just in the last few weeks that says that, well, in fact, you know, higher RIN pricing in the implementation of the RFS standards, we really don’t believe that had any impact on consumer pricing of gasoline. So it’s interesting that they’ve done that. In short, they’re out of step — the EPA is out of step right now with both the DOE and the USDA. DOE is very forthcoming and very — a very strong believer in potential future options for biofuels.

They have — not only do they have ongoing loan programs and other types of programs to develop both technologies and major projects, but they most recently came out with a program they call the Optima program, which is an attempt to explore the possibility of a broad coalition that would jointly optimize both fuels within our marketplace and automobile engines at the same time, as a group, so that we don’t have to worry about this whole chicken-and-egg issue.

You know, which comes first, the fuel or the automobile engine that can maximize the potential of that fuel. In this particular case, DOE is working very hard to come up with a broad coalition that will allow us to move forward on both fronts at the same time, and I think that’s very positive for biofuels. There is no doubt that most of the automobile manufacturers, particularly their engineers, are very interested in moving forward with higher-octane fuels that can be achieved with higher ethanol blends, even 25 or 30 percent ethanol.

Monica Trauzzi: If EPA proceeds with this proposal, the blend wall and all related numbers, will Abengoa file suit against the agency?

Christopher Standlee: I can’t say what Abengoa will do. I think it is — I think it’s likely that EPA will be sued. I think it’s likely that they’ll be sued by the petroleum industry. I think it’s also likely that they’ll be sued by the ethanol industry if they don’t change their proposal. I truly believe that they have gone outside their statutory authority in this particular case.

Monica Trauzzi: It sounds like a potential lawsuit. [Laughter]. How would you characterize then that the outlook for ethanol in the United States, taking into account what DOE is doing and what EPA is doing?

Christopher Standlee: There are pluses and minuses, and I think I’m a glass-half-full kind of guy. So on the positive side, we have a lot of things going on in the U.S. that are very positive. Again, strong support from the Department of Energy and the USDA. We have programs like California’s Low Carbon Fuel Standard Program. Again, not a perfect program. We don’t agree with all of the science, but nonetheless, it recognizes the benefits of low-carbon fuels, and recognizes the need to improve our environment by switching from petroleum, which is obviously a non-renewable high-carbon fuel to a renewable low-carbon alternative.

So we have those great opportunities here in the United States. We still have development incentives. There are other things within Congress, tax incentives, that get renewed on an annual basis, sometimes maybe, but we don’t know for sure. At the same time around the world, there are other opportunities. And Abengoa has a presence on all three major biofuels-producing continents, and we’re looking at where our most effective development will be.

Monica Trauzzi: Brazil. Awesome. Yeah.

Christopher Standlee: Brazil is certainly a strong contender. We have — Brazil has its own unique scenario. They have a mandated market. At the same time on the opposite side of that, they control gasoline prices, and they’re artificially low. But there’s talk about either increasing the gasoline prices or imposing a tax on gasoline. That would change the Brazil market overnight and make that a very attractive place.

We’ve already announced that we have in development a project in Brazil collocated with one of our existing sugar cane plants. One of the reasons for that is that the switch from manual harvesting to mechanical harvesting has — and no longer burning fields for multiple reasons, but that has increased the availability of biomass that is already owned by the biofuel producer.

Typically biofuel producers in Brazil own sugar cane refineries, biofuel refineries, and own the cane fields themselves, completely vertically integrated. So when you get to the position of having a lot of excess biomass available, and just laying it on the ground after you harvest now that’s not burned off as it used to be, that is a tremendous volume of free feedstock in a country that mandates the use of at least 27 percent ethanol in their fuel supply.

So a great opportunity there. We’re looking at a facility — in developing a facility in France also with — by virtue of the fact that France has passed a biofuel incentive law, and by also virtue of the fact that we have a facility in France that could take advantage of that, and seek some benefits or reap some benefits from the collocated biomass facility.

Monica Trauzzi: All right. We’re going to end it right there. A lot of dynamics at play. Thank you for coming on the show.

Christopher Standlee: Thanks, Monica. I appreciate it.

Monica Trauzzi: And thanks for watching. We’ll see you back here tomorrow.