Advanced biofuels developers fear corn debate might ‘unravel’ their industry

Source: Amanda Peterka, E&E reporter • Posted: Friday, August 17, 2012

When U.S. EPA hands down its decision on whether or not to waive the federal ethanol mandate in response to the drought, the corn ethanol and livestock industries won’t be the only ones keeping a sharp eye on it.

The cellulosic biofuels sector and other advanced biofuels sectors — those that do not use corn as a feedstock — will also be watching closely. A waiver of the corn ethanol mandate, the fledgling industries worry, could send a signal to crucial investors that the government is not committed to growing domestic biofuels production.

Representatives from advanced industries say their connection to the success of traditional ethanol is something that has been missed by the public in the debate over the renewable fuel standard’s corn ethanol requirements.

“You can’t just say, ‘Gosh, I don’t like corn; let’s remove the corn mandate,'” said Brent Erikson, executive vice president in charge of the Industrial and Environmental Section at the Biotechnology Industry Organization. “That’s been missed by a lot of people. It’s a complex, interwoven system. It’s like your sweater: If you start pulling on one string, the whole thing unravels.”

Over the past several weeks, livestock industries and their lawmakers have stepped up their criticism of the renewable fuel standard, or RFS, which mandates that refiners this year blend 13.2 billion gallons of ethanol into the nation’s fuel supply. The mandate, they say, has put pressure on corn supplies that have been devastated by the drought.

This week, governors of two states officially petitioned EPA to provide at least a partial one-year waiver to the standard, citing severe economic harm caused by the resulting high corn prices.

The Renewable Fuels Association and other ethanol trade groups have warned that a waiver is premature and maintain that obligated parties — the refiners that are required to blend ethanol into gasoline — have enough ethanol and credits to comply with the standard.

For the most part, advanced biofuels industries have been watching the debate over corn ethanol from the sidelines. But two weeks ago, the major advanced biofuels and corn ethanol groups on Capitol Hill announced the formation of a group that will present a united front to rally support for the RFS.

The fate of cellulosic ethanol and other advanced biofuels is inextricably linked to that of corn ethanol, advanced biofuels industries say.

“Our success will be greater and faster on the back of a healthy conventional biofuels industry,” said Brooke Coleman, executive director of the Advanced Ethanol Council, which includes several of the major companies building commercial-scale cellulosic ethanol plants.

“What you’re seeing is a recognition that our guys are getting financing from existing players, bolting onto existing plants,” he said. “When you’re looking at the evolution of the industry, it’s not bifurcated” into conventional and advanced biofuels.

 Will investors get spooked?

Over the past year, several commercial cellulosic biofuel plants have begun construction, with KiOR Inc. and INEOS Bio expected to open the first facilities this year. Companies operating in the sector are exploring a variety of feedstocks, technologies and products to find the combinations that will prove to be viable commercially.

While a waiver of the ethanol mandate this year could take some of the pressure off the RFS and reduce calls to permanently change the statute, it could also have a negative effect for the future of advanced biofuels.

Coleman and other advanced biofuels players worry that any stepping back from the standard by EPA could be perceived by investors as a sign that the government won’t support the production of second- and third-generation biofuels when the going gets tough.

Key investors in cellulosic projects rely on the stability that the standard brings and the aggressive timeline it has laid out for these advanced biofuels.

The same is true for biodiesel, an advanced fuel industry that is further along than cellulosic ethanol, having produced more than 1 billion gallons last year out of feedstocks such as soybean oil, animal fats and used cooking oil.

“We’re concerned because we really feel that the RFS has been a success,” said Anne Steckel, vice president of federal affairs for the National Biodiesel Board. “Ethanol really kind of blazed the path and showed that investments work, that we can produce American fuels and reduce dependence on oil. It’s important to see that the industry is diversifying.”

Mary Rosenthal, executive director of the Algal Biomass Association, said that another concern is simply that advanced biofuels — like the algae-based fuels she represents — and ethanol get clumped together in one group in the public’s eye.

“One of the concerns is all biofuels get grouped together to a certain extent,” Rosenthal said. “For us, we focus specifically on algae; we’re really not in this debate because of the drought, but we are targeted as advanced biofuel, and you get pulled into these debates.”

While advocates for advanced biofuels say they haven’t yet seen investors shy away from projects, the price of renewable identification numbers (RINs), the 38-digit unique numbers tied to gallons of biofuel under the renewable fuel standard, has plunged in the past few weeks.

The price drop is directly related to all the dialogue over ethanol and the drought, according to one advanced biofuels advocate.

Already, the cellulosic ethanol sector is fighting several lawsuits filed by the oil industry against EPA over its standards for this year and last year. In the lawsuits, oil industry groups are requesting a waiver of those standards, alleging that EPA’s requirements effectively mandated that refiners blend nonexistent, or “phantom,” fuels into the nation’s fuel supply.

Last year, EPA required that refiners use 6.6 million gallons of cellulosic biofuel. This year, EPA has required that the country blend 8.65 million gallons of cellulosic biofuel into gasoline. Alternatively, refiners can purchase renewable fuel credits to meet the requirements.

According to EPA’s data, the only cellulosic biofuel that has been produced commercially in the country was about 20,000 gallons in April of this year.

“EPA’s unattainable and absurd mandate forces refiners to pay a penalty for failing to use biofuels that don’t even exist,” said Bob Greco, API’s director of downstream and industry operations. “The mandate is effectively an added tax on gasoline manufacturers that could ultimately burden consumers.

Coleman of the Advanced Ethanol Council said the drought has proved an opportune moment for the oil industry to step up criticism of the renewable fuel standard and cellulosic ethanol. Last week, API released an analysis that called the standard “an unworkable mandate” and urged EPA and Congress to look at whether permanent changes should be made.


The advanced biofuels groups are working on their own counterattack. On Aug. 3, they and the traditional corn ethanol groups announced the creation of the Biofuels Producers Coordinating Council to rally support for the renewable fuel standard.

“We’re up against well-funded and entrenched interests,” said Steckel of the National Biodiesel Board. “We have to remind the public why the RFS is really here.”

The council comprises Michael McAdams from the Advanced Biofuels Association, Coleman from the Advanced Ethanol Council, Rosenthal from the Algal Biomass Organization, Brian Jennings from the American Coalition for Ethanol, Erickson from the Biotechnology Industry Organization, Tom Buis from Growth Energy, Steckel from the National Biodiesel Board and Bob Dinneen from the Renewable Fuels Association (Greenwire, Aug. 15).

The council is a means of focusing the efforts and resources of the various groups, which have worked together in ad hoc ways before but not in a coordinated push.

“We know we’re going to get outspent by the oil companies, but we at least, when we spend a dollar, we want to make sure we spend it in the right place, make sure we are coordinated and avoid redundancies,” Coleman said.

While working with corn ethanol groups, individual advanced biofuel groups are also continuing awareness and education campaigns and pushing for the diversification of feedstocks and fuels.

“There is increased pressure because of the drought and the concern over food versus fuel and how the drought is affecting prices this year, food prices and fuel prices,” Rosenthal said.

“The key here is that’s why we need to ensure that we keep working on new technologies such as algae in order to have alternatives when we find ourselves faced with these types of challenging issues.”