Photo: David Maung. A research associate takes a sample of algae being cultivated for biofuel research at the Sapphire Energy Inc. facility in San Diego, California, U.S., on Monday, March 26, 2012. Sapphire Energy cultivates algae to create crude oil that can be processed in existing refineries into jet fuel, diesel and gasoline. Photographer: David Maung/Bloomberg

WASHINGTON – The trade group representing advanced biofuels created from algae, animal fat and non-edible plant materials on Wednesday broke with producers of traditional corn-based ethanol to call for sweeping changes to the nation’s biofuels mandates.

The Advanced Biofuels Association’s decision to back a legislative overhaul of the renewable fuel standard, or RFS, marks a major shift in strategy for the diverse industry supporters of that 10-year-old policy, who have long stuck together lobbying Congress to maintain the mandates.

The biofuels group’s approach provides ammunition to oil industry foes of the federal renewable fuel standard. It also creates an opening for the policy’s critics to undo quotas for traditional corn-based ethanol while preserving mandates for next-generation biofuels.

That approach has been endorsed by environmentalists and a broad array of lawmakers, including Sen. Dianne Feinstein, D-Calif.

“I don’t think there’s any greater indictment of the RFS,” said Scott Faber, vice president of governmental affairs for the Environmental Working Group.

“Now we know that RFS has failed the industry it was designed to help build,” Faber said, adding that the move represents “a real departure” for the Advanced Biofuels Association. He said it is “a public recognition that the RFS is so badly broken that the industry the legislation was designed to develop has now thrown in the towel and asked Congress for help.”

Reason for the strategy

Advanced Biofuels Association President Michael McAdams laid out the group’s legislative wish list in a speech in Washington, signaling that the sector sees its best hope for preserving a federal mandate for next-generation renewable fuels means distancing itself from the conventional corn-based ethanol that fulfills most of the mandate.

McAdams said the standard is not equally helpful to all biofuels sectors.

“The current RFS simply doesn’t work as well for companies trying to move cutting-edge technology from a demonstration plant to commercial scale,” he said.

The renewable fuel standard obligates refiners to add steadily increasing amounts of ethanol and other alternatives into the nation’s transportation fuel supply – up to 36 billion gallons in 2022, with the amount of traditional corn-based renewable fuel essentially capped at 15 billion gallons. Although Congress set out the basic framework in 2005 and then updated it again two years later, it is up to the Environmental Protection Agency to establish annual quotas for the biofuels mandated under the law, including traditional renewable fuel, advanced biofuels that aren’t derived from corn starch, biodiesel and cellulosic biofuel.

The law does not require cellulosic and advanced biofuel targets for years after 2022, instead directing the EPA to set any quotas based on a review of the program and its environmental and economic benefits.

McAdams said the uncertainty about the program’s life span discourages investment in advanced biofuels; his group wants Congress to extend mandates for advanced and cellulosic fuels beyond 2022.

The Advanced Biofuels Association also wants Congress to force the oil industry to buy and blend actual cellulosic fuel instead of giving it a chance to buy waivers to get around the quotas. The group also is asking lawmakers to index cellulosic fuel compliance credits to the price of oil, insulating producers from drops in crude prices.

Most of the opposition to the RFS – whether from the oil industry, environmentalists or anti-poverty groups – is aimed at the requirements for traditional renewable fuels typically made with corn.

Compromise possible

Until recently, the American Petroleum Institute maintained a repeal-only approach to the RFS, though some refiners have quietly signaled they could back more modest reforms that would preserve a path for cellulosic and other advanced biofuels while scaling back or completely undoing the requirement for traditional renewable fuels.

Bob Greco, API’s downstream director, told reporters the Advanced Biofuels Association’s endorsement of RFS changes “further narrows the coalition of people who support this RFS.”

“It’s basically the corn growers and the corn ethanol manufacturers at this point,” Greco said.

Some analysts suggested that the Advanced Biofuels Association’s endorsement of legislative changes would lift the chances of congressional action on the RFS, though it is unclear how much.

The move provoked swift rebukes from conventional renewable fuel supporters. Growth Energy CEO Tom Buis said a bid by Congress to rewrite the renewable fuel standard “will create further uncertainty for the industry.”

“This is a shortsighted proposal that would set the entire renewable fuels industry on the path to a rollback of the RFS,” Buis said.

A bid to stay relevant?

The Advanced Biofuels Association’s push for legislative changes may represent a bid to stay relevant in the RFS debate, said Michael McKenna, a GOP strategist and energy lobbyist.

Any congressional compromise on the RFS is likely to involve both corn and oil interests, he said, noting that refiners are broadly expected to continue using ethanol as an inexpensive octane booster for gasoline, with or without a federal mandate.

“Most refiners understand that if a deal is going to be made, it’s going to be a deal with the corn guys, not the advanced guys,” he said. “Eventually the corn guys and refiners are going to overcome the personalities involved … and make a deal.”