Biofuel producers brace for major EPA changes as big lobby groups clash

Source: Tiffany Stecker, E&E reporter • Posted: Friday, November 8, 2013

U.S. EPA will soon release its proposed biofuel targets for 2014, and producers are anxiously waiting what could mean a sea change for the industry next year, and beyond.

If the renewable fuel standard (RFS) gallon amounts resemble the numbers in a leaked draft circulated last month that indicated a significant reduction for the corn ethanol and advanced biofuels targets, then it could mean a shift in strategy for the Advanced Biofuels Association (ABFA).

“We’re probably going to sharpen our message about how devastating the low numbers could be to the future of this industry,” said Michael McAdams, president of ABFA.

If the draft numbers are confirmed, advanced biofuels — fuels that emit at least 50 percent less greenhouse gases over the life cycle than fossil fuels — will be capped at 2.21 billion gallons in 2014. That’s a 41 percent cut from the 3.75 million gallons that EPA estimated for the industry when its final RFS rule was published in 2010. This would mark the first time EPA has drawn back volumes for advanced fuels and corn ethanol, not raised them.

If that’s the case, ABFA will be looking at a “full range of options,” including appeals to Congress to take action.

“I’ll look across the board, absolutely,” McAdams said.

In its final 2013 RFS volumes, EPA said that a scaleback in traditional renewable fuels in the future could be possible. Administrator Gina McCarthy, a vocal supporter of biofuels, said in a statement that the draft was premature and that the agency had not yet made a final decision.

Nevertheless, news of the draft spread quickly, and the markets took a hit. Prices of renewable identification numbers (RINs) — credits that oil companies can buy and trade in lieu of blending actual gallons of biofuels — increased more than fivefold for advanced biofuels. For corn ethanol, the price of RINs has more than quadrupled.

And the biofuels community is wondering if it can still count on the agency to protect the growth in the sector.

“I think all of us in the biofuels world, we’re hoping that EPA can use its existing authority to knock down the concerns surrounding the RFS, that they would do it in a way that would address the larger issues that have been discussed for the last year and a half,” added McAdams. “If this document that’s been leaked is the document that comes out, I would submit they haven’t done that.”

 A 15-year-old scheme gets a test

Born out of the 2007 Energy Independence and Security Act, the RFS is a 15-year plan to increase the nation’s biofuels production to 36 billion gallons by 2022.

The call to bring Congress into the picture is different from the vision of many of the players in the biofuels industry, who have long maintained that EPA — not lawmakers — should use its authority to make tweaks to the volumes. But if the agency’s actions don’t seem to match their support for biofuels, other options may be necessary, said McAdams.

Most legislative efforts to date have aimed to change or eliminate the mandatory blending requirements in the RFS for environmental or economic reasons. The House Energy and Commerce Committee held a series of hearings on the policy this year. Sens. Dianne Feinstein (D-Calif.) and Tom Coburn (R-Okla.) have said they plan to introduce a bill that would eliminate the corn ethanol portion of the RFS (E&E Daily, Oct. 30).

The advanced biofuels pool consists mainly of biodiesel and Brazilian sugar cane ethanol, which has a smaller greenhouse gas footprint than U.S. corn ethanol. Niche fuels, like cellulosic biofuels from wood, agricultural waste and household trash, as well as algae-based fuels, are also included.

After years of delays, 2014 could potentially be a big year for cellulosic fuels. Abengoa Bioenergy, POET-DSM Advanced Biofuels and DuPont expect to open plants with more than 20-million-gallon-per-year capacities next year. INEOS Bio began production this year at its 8-million-gallon-per-year waste-to-fuel facility in Florida. And KiOR, which does not make ethanol but does makes renewable diesel and gasoline from pine trees and qualifies as a cellulosic fuel, could make up to 15 million gallons next year (ClimateWire, Nov. 4).

“Don’t change the program at the legislative level, or you’re going to lose investment in the next 15 years,” warned Brooke Coleman, executive director of the Advanced Ethanol Council, which represents cellulosic ethanol producers and is partnered with the Renewable Fuels Association, the corn ethanol trade association.

The leaked draft has led the industry to question the administration’s backing on biofuels.

“To date, we’ve always had faith that the president was going to do the right thing,” said Coleman. “EPA has the flexibility to do what they want; we will try to get them to the right place, administratively.”

But low numbers and uncertainty could leave young companies scrambling for capital, industry groups said.

Cellulosic ethanol, which could make the bulk of cellulosic fuels, is intimately tied to corn ethanol. POET-DSM is an offshoot of POET, the second-largest ethanol producers in the country. DuPont Biofuels is part of a large corporation with activities in various agricultural sectors. Abengoa Bioenergy runs ethanol plants around the world. Although the leaked document gave cellulosics a big boost — 23 million gallons, compared with last year’s 6 million — it brought down the ordinary ethanol numbers to 13 billion gallons, 10 percent less than what is expected according to the statute.

Oil industry lobbies seek total repeal of RFS

“Basically, EPA would be asking us to strand our existing investments in order to support these second-generation fuels,” said Christopher Standlee, executive vice president of Abengoa Energy.

Low EPA numbers could change the company’s strategy and send development abroad, said Standlee. Brazil, with its ethanol-friendly policies, is looking especially attractive.

Biofuel trade groups see their efforts as a defense against the oil industry, which launched a substantial media campaign this summer to fully repeal the RFS. The campaign includes print, radio and television ads that blame the policy for promoting 15 percent ethanol fuel blends, which some say can cause damage to vehicle engines. API’s ads also allege that rising ethanol mandates lead to higher food prices, a claim that has united livestock and poultry producers against the RFS.

API has said it will continue to push for a repeal once the official 2014 numbers are released. API, as well as the American Fuel and Petrochemical Manufacturers, has sued EPA for its too-optimistic targets on cellulosic biofuel.

“EPA can only provide a Band-Aid solution by making one-year changes to the mandate,” said Carlton Carroll, a spokesman for API. The trade group has suggested that EPA maintain the overall renewable fuel requirement at 12.9 billion gallons, less than 10 percent of the total expected fuel supply. This would prevent a breach of the “blend wall,” an oversupply of ethanol that would require blenders to sell fuel with 15 percent or more ethanol (E15). E15 has been approved by EPA but is opposed by various automobile, boating and power tool organizations.

“Passing the blend wall could cause a drastic reduction in America’s fuel supply, possibly leading to dramatic fuel cost increases and fuel supply disruptions rippling adversely though the economy,” said Carroll, citing a recent study from NERA Consulting.

The push-back against the petroleum trade groups is what is streamlining DuPont Biofuels’ focus, said Jan Koninckx, the company’s global business director for biorefineries.

“Are we going to shift our strategy for one EPA decision? No,” said Koninckx, whose company will open a 30-million-gallon biorefinery late next year. “What we do see here is a difficult market for a powerful industry that is resisting innovation.”

What’s important, said Coleman, is that the industry remain on track with a common message.

“The industry has never been more unified,” he said. Last week, AEC, biotech organization BIO, and 37 members signed a letter to the White House on the issue.

“It’s never been easier to get 40 companies on a letter,” Coleman said.