Biofuel Changes Threaten Advanced Fuel Development: Producers

Source: By Brian Dabbs, Bloomberg BNA • Posted: Wednesday, March 15, 2017

A biofuel legislative overhaul will exact particular damage on cellulosic and other advanced fuels despite lawmaker contentions to the contrary, advanced fuel producers say as overhaul negotiations begin to take shape.

Those producers are urging Congress to leave the current renewable fuel standard intact to safeguard the development of cellulosic fuels, which are derived from the often-wasted, non-edible parts of plants such as corn.

But House leadership is pressing lawmakers to push overhaul legislation forward, and a bill introduced in recent days (H.R. 1315) has more than 40 House members from both sides of the aisle on board.

That bill—who chief sponsors include Bob Goodlatte (R-Va.), Jim Costa (D-Calif.), Steve Womack (R-Ark.) and Peter Welch (D-Vt.)—would require the Environmental Protection Agency to set cellulosic biofuels at current production levels, while eliminating traditional corn-based ethanol requirements and capping the amount of total ethanol blended into U.S. transportation fuel at 10 percent.

The sponsors are seeking swift action, but the RFS is a controversial program that often pits corn-state representatives against other industries, such as petroleum and livestock. Past attempts to modify the program have failed, and experts generally view the Senate—where lawmakers from ethanol states carry considerable clout—as a firewall against changes.

A Litany of RFS Complaints

Critics of the biofuel mandate say it raises corn prices for consumers, retailers and livestock producers. Environmental groups are also increasingly criticizing the program, saying that corn-based ethanol does not reduce greenhouse gas emissions.

The RFS program, which was made law in 2005 and expanded in 2007, sets annually increasing biofuel quotas. The goal of the program was to decrease hydrocarbon emissions and reduce dependence on foreign oil. Nearly all transportation gasoline in the U.S. now contains 10 percent ethanol.

The EPA announced in recent months that refiners need to mix 19.28 billion gallons of renewable fuel into the U.S. gasoline and diesel supply in 2017, including up to 15 billion gallons of traditional, corn-based ethanol. The EPA must still, however, finalize those figures.

Refiners and importers must blend biofuels or purchase biofuel credits, known as Renewable Identification Numbers, to comply with the mandate.

Cellulosic Jeopardy: Producers

Proponents of cellulosic and other so-called “next generation” fuels say that unlike corn ethanol, advanced biofuels have extremely low greenhouse gas emissions and generally do not use feedstocks that could otherwise be used for food.

The newly introduced bill, along with other legislative ideas that incorporate an aggregate biofuel cap, directs the EPA to set cellulosic standards based on recent production, which is far short of the levels Congress prescribed in statute.

“[The Renewable Fuel Standard] sets the market as designed,” Brooke Coleman, executive director of the Advanced Biofuels Business Council, told Bloomberg BNA, referring specifically to the cellulosic market. “Re-engineering it to reflect the market is the equivalent of neutering the RFS.”

The current proposed 2017 quota for cellulosic biofuels is 311 million gallons, which is dramatically below the 5.5-billion-gallon threshold outlined by Congress. But the 311 million figure is more than nine times 2014 levels, and Coleman said those quotas largely reflect actual production levels.

An EPA proposal based on current production would, therefore, act as a de facto cap on cellulosic production, Coleman said. “If you’re coming on next year with a new production facility, than you wouldn’t get counted. Each expected rule would leave new production coming online in the dark,” he said. “The purpose of the standard to drive the market and increase production levels.”

A new, DuPont Industrial Biosciences cellulosic production facility, meanwhile, is set to begin producing its first fuel in months, Jan Koninckx, global business director for biofuels at the company, told Bloomberg BNA. “We are also actively engaged in defending the Renewable Fuel Standard and look to policymakers and regulators to enact the RFS as was originally envisioned,” he said.

Investment Concerns

Uncertainty in the biofuel market, drawn primarily from the EPA’s failure to issue RFS quotas from 2014-2016, forced a substantial amount of cellulosic investment overseas, James Greenwood, president Biotechnology Innovation Organization and a former member of Congress, told a House Agriculture subcommittee March 9.

Confidence in the cellulosic market had returned in recent months until news reports shed light on an apparent plan to change the compliance structure of the biofuel mandate in late February, Greenwood told the subcommittee.

“What’s necessary is stability. The investors invested in this program and in these plants on the basis of a promise Congress made when it passed the law originally,” Greenwood said. “The most important thing Congress needs to do is nothing. Leave the RFS alone.” That lost investment is going to cellulosic production in China and Brazil, Coleman said.

House Members Beg to Differ

The mandate, however, is laden with pitfalls, and changes are necessary to bring stability back to corn prices, some lawmakers say.

A spokeswoman for Welch said he supports advanced cellulosic biofuels and aims to secure a “strong outcome” for those products in pending changes to the law.

“There is a lot of uncertainty in this market. The way to create more certainty in the market is to push more investment towards cellulosic and advanced biofuel,” she said.