Biofuels group roils RFS debate, throws support to reform 

Source: Amanda Peterka, E&E reporter • Posted: Thursday, March 12, 2015

The Advanced Biofuels Association threw its support today to efforts to reform the renewable fuel standard, a major shift for the industry that has furiously fought to block legislative changes to a landmark law that mandates use of a set volume of renewable fuel.

Michael McAdams, the ABFA president, told a biofuel industry audience in Washington, D.C., the group would back efforts to extend the RFS program beyond 2022 and to remove a “loophole” that allows refiners to buy credits rather than actual gallons of cellulosic biofuel.

The standard as it’s written has become “one of the greatest obstacles to continued development of the advanced and cellulosic biofuels industry,” McAdams said.

“It has become clear that statutory changes need to be made to the RFS,” he told the Advanced Biofuels Leadership Conference. “And that is why the members of ABFA are now calling on Congress to pass legislative fixes that will solve these problems.”

The ABFA’s shift will likely change the dynamic for RFS reform on Capitol Hill, but it’s unclear how much support the group might generate.

Other trade groups representing advanced biofuels today doubled down on their effort to block RFS changes.

“We don’t believe that going back to Capitol Hill is the way to solve our problems,” said Brooke Coleman, executive director of the Advanced Ethanol Council.

Congress passed the RFS in 2007 to promote the use of conventional corn ethanol and advanced biofuels. Through the standard, U.S. EPA sets annual levels of renewable fuels and advanced biofuels that refiners must blend into petroleum fuels or purchase paper credits. EPA also sets targets for two advanced subsets: cellulosic biofuels made from plant-based materials such as agricultural waste and biodiesel made from soybean oil, animal fats and used cooking grease.

RFS boosters say that the standard promotes energy security and reduces greenhouse gas emissions from transportation fuel.

But the RFS has come under increasing scrutiny in recent years, beginning with the 2012 drought that fueled skyrocketing corn prices. Opponents say that it forces more corn ethanol into the fuel system than is feasible and that the advanced biofuels industry has failed to develop as quickly as Congress envisioned in 2007.

The oil industry has been especially vocal about its dislike for the RFS and has pushed Congress to repeal the policy. EPA added fuel to that fire in late 2013 when it proposed for the first time to ratchet down the requirements for both ethanol and advanced biofuels.

EPA never finalized its proposal, but biofuels producers say the agency’s failure to act on the annual mandate has left the industry in limbo.

Advanced biofuels produces say they’ve been hit especially hard because investors have turned away in the face of uncertainty. Several companies producing advanced biofuels have announced that they are looking overseas for their expansion plans. Others have had trouble financing their biofuels plants.

In one high-profile case, KiOR Inc., an ABFA member, last year declared bankruptcy after failing to make money at its cellulosic biofuel plant in Columbus, Miss. KiOR, which was backed by venture capitalist Vinod Khosla and at first considered a major success story in the advanced biofuels industry, was never able to get the plant to run at full capacity.

Up to now, however, biofuels producers have presented a united front opposing any changes to the RFS.

The ABFA represents about 30 companies, most of them smaller startups.

In previous public statements, McAdams has blasted EPA for its proposed rollback of the mandates. In an interview last fall, he said he would be open to working with the oil industry and that he could see supporting certain changes to the RFS, but this is the first time he has publicly backed a reform agenda (E&E Daily, Nov. 5, 2014).

In his speech today, McAdams said the ABFA had three main concerns with the 2007 RFS. The first, he said, was the “inverse relationship” between policy uncertainty and the advanced biofuels companies’ ability to raise investment capital.

Second, he said the calendar was working against advanced biofuels companies, given the 2022 sunset of the RFS. Lenders, he said, are requiring companies working to develop advanced biofuel technologies to pay off their loans in seven years.

The third factor driving the ABFA’s policy shift, McAdams said, was the lack of a market for companies that are actually producing cellulosic fuel. It’s currently a better deal for refiners to buy RFS paper credits representing gallons of cellulosic fuel rather than to purchase actual gallons.

McAdams further charged that the RFS was “not equally helpful to all sectors of the biofuels industry,” noting that the corn ethanol industry produced 14.3 billion gallons last year even without an annual RFS mandate.

“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 ABFA would like Congress to set a minimum value for the paper credits associated with gallons of cellulosic biofuels and to provide more support during times of cheap oil. McAdams also called on Congress to extend the program beyond 2022 and to remove a provision that allows refiners to opt out of purchasing an actual gallon of cellulosic biofuel by buying a paper credit.

McAdams also advocated for shifting EPA’s annual mandate rulemaking from November to February and for the agency to base the targets for advanced biofuels on actual production rather than estimates of production.

“ABFA, at the instruction of our members, will actively seek to reform the program,” McAdams said. “We will call on Congress, which has studied these issues for two years and held numerous hearings, to step up and pass the fixes I have outlined.”

‘Politically irresponsible’

Others in the biofuels industry have sought to distance themselves from the ABFA in recent years.

DuPont’s biofuels division left the group in October 2013, citing a desire to focus its efforts on “the broader, common priorities across all renewable fuels”; DuPont is now part of the Advanced Ethanol Council (E&ENews PM, Oct. 18, 2013).

At today’s panel, representatives from the Advanced Ethanol Council, Biotechnology Industry Organization and National Biodiesel Board all said their support for the RFS remained strong.

“I think it’s problematic for us to be saying that the law is broken because that’s what the opponents of the RFS are saying,” National Biodiesel Board CEO Joe Jobe said. “The word ‘reform,’ when the opponents use, it means ‘repeal.’ … The primary reason that we have been successful in preventing them from doing that is because we have prevented them from opening it up and tinkering.”

Coleman of the Advanced Ethanol Council, which represents some of the largest cellulosic ethanol producers, said that he generally agreed with the principles outlined by McAdams but that the issues could be solved administratively without any statutory changes. EPA, for example, already has the authority to extend the program beyond 2022.

“This thing is off the tracks at EPA, but give EPA the chance to get it back on the tracks,” he said.

Biofuels supporters attempted to achieve some of the goals McAdams laid out in his speech back in the 2007-08 time frame, when Congress passed the RFS. Coleman said that the political landscape was much less favorable toward the biofuels industry in the current Congress.

“The idea that we can go back to Capitol Hill and get these things today that we could not get then — I view as politically irresponsible,” he said.

Corn ethanol producers also slammed the remarks by McAdams and warned that pushing for reform would lead to “disastrous” consequences.

“This is a shortsighted proposal that would set the entire renewable fuels industry on the path to a rollback of the RFS,” said Tom Buis, CEO of the ethanol group Growth Energy, which also represents Poet-DSM Advanced Biofuels LLC. “By opening up the Clean Air Act, the end results could be far more disastrous for renewable fuel companies given the oil companies’ resistance to complying with the RFS.”

Responding to the criticism, McAdams said that he did not think the industry should wait for EPA to take action. The agency has said that it would issue a proposed rule this spring that would set the volume mandates for 2014, 2015 and 2016, but McAdams expressed doubt that the rule would be completed by the end of the year.

“What I’m afraid of is doing the same thing over and over and over, which is waiting for EPA and this White House to promulgate the rules, is insanity,” he said.

Members of a strange-bedfellow coalition of groups already pushing for RFS reform applauded the ABFA’s announcement. Scott Faber, vice president of government affairs at the Environmental Working Group, called the news a “huge political game-changer.”

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,” Faber said.

Bob Greco, the American Petroleum Institute’s director of downstream activities and one of the most vocal RFS foes, also said he also welcomed the announcement that “further narrows” the coalition in support of the policy. He would not comment on specifics of the ABFA’s proposal but said API was “willing to talk” with all those pushing for reform.