Advanced fuel industry indirectly benefits from RFS waiver rejection

Source: Tiffany Stecker, E&E reporter • Posted: Tuesday, November 20, 2012

As corn ethanol supporters celebrated U.S. EPA’s decision to not change the required production level of biofuel gallons for next year, advanced and cellulosic biofuel companies also breathed a small sigh of relief.

EPA concluded Friday that ethanol production did not exacerbate the rise in corn prices due to the drought and that it would not grant a waiver. Arkansas Gov. Mike Beebe (D) and North Carolina Gov. Beverly Perdue (D) petitioned the agency in August to waive this year’s 13.2-billion-gallon mandate for ethanol under the federal renewable fuel standard, as well as next year’s requirement. EPA is expected to increase the required volume in 2013.

EPA’s decision does not directly affect advanced and cellulosic biofuel producers, which by definition must make fuels that emit at least 50 percent to 60 percent fewer greenhouse gases than fossil fuels over an entire life cycle. Conventional biofuels like corn ethanol need to only reach 20 percent greenhouse gas savings and are potentially less effective in mitigating climate change.

But the decision solidifies the agency’s support for a mandate that the advanced fuels industry sees as crucial in securing investment at a time when it’s most important.

“It sends a message to investors that there’s stability in the policy,” said Brent Erickson, executive vice president of industry group BIO’s Industrial and Environmental section.

By the end of the year, two companies, KiOR and INEOS New Planet Bioenergy, are expected to be the first two to make cellulosic biofuels on a commercial scale from southern yellow pine and municipal waste, respectively. At least three more facilities will open over the next two years, producing at least 25 million gallons per year each, with several more in the pipeline.

“I think this is really a turning point for advanced biofuels,” Erickson said.

Cellulosic biofuels, a subset of advanced biofuels, achieve greenhouse gas savings by converting nonfood organic material like agricultural waste, grasses, algae or household trash into fuel.

Did EPA miss an opportunity?

If now is the turning point for cellulosic fuels, it is a delayed one. In 2010, EPA finished the second version of the RFS with the expectation that by 2011, producers would be making 250 million gallons of cellulosic biofuels per year.

Up to now, no facility has proved that it can produce cellulosic fuels at a commercial level, and oil companies were being told to blend 250 million gallons that did not exist. Months later, EPA was required to dramatically revise that number down to 6.6 million gallons. One year later, the agency again changed the cellulosic requirement for 2012 from 500 million gallons to 8.65 million gallons

These revisions were made due to the agency’s ability to flexibly implement the RFS. On Friday, EPA opted not to use that flexibility, missing a chance to use the law to its full advantage, asserted Jeremy Martin, a senior scientist in the Clean Vehicles Program at the Union of Concerned Scientists.

“Putting aside the quantity, EPA should look for the opportunity to be flexible,” Martin said. “Policy would be stronger if it were flexible.”

EPA is going to need that flexibility again soon. The agency must set a target for cellulosic fuel that will probably be lower than the billion-gallon projection made in 2010.

Biodiesel boom

This determination could drive a large expansion of the mandates for other advanced biofuels that are not cellulosic but more widely available, like sugar cane ethanol from Brazil, soybean biodiesel and waste biodiesel, Martin said.

Given the slow development of cellulosic biofuels, the only way the country will be able to meet the RFS in coming years is by using past stockpiles of renewable fuel credits known as RINs, importing more ethanol from Brazil, or ramping up biodiesel production, said Scott Irwin, a professor in agricultural and consumer economics at the University of Illinois, Urbana-Champaign. Only about 2 percent of diesel burned in the United States is biodiesel.

“We can take from today’s decision that, unless Congress changes the RFS law, the EPA will continue to basically say, ‘If there’s the production capacity available that can meet the total RFS, we’re going to basically force the market to do that,'” Irwin said.