‘Excruciatingly slow’ EPA approvals hurting startup companies

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, April 30, 2014

NexSteppe, a startup seed company headquartered in San Francisco, is hoping to capitalize on the federal renewable fuel standard.

The company has developed two varieties of sorghum, a type of annual grass, engineered specifically for bioenergy. NexSteppe believes fuels made from the crops could help refiners comply with their annual biofuel mandates under the RFS.But the petitions for NexSteppe’s sorghum crops are mired in a regulatory abyss at U.S. EPA, among more than 30 renewable fuel petitions that the agency has yet to act on. Biofuels made from those crops and technologies do not yet count for credit under the renewable fuel standard, so there’s no incentive for refiners to use the fuel.

Biofuel advocates say companies like NexSteppe represent the real-world effects of the long and uncertain approval process for new renewable fuel technologies. National Sorghum Producers submitted its first petition for NexSteppe nearly two years ago. In the face of the delays, NexSteppe CEO Anna Rath said the company is focusing on other countries around the world — especially Brazil.

“Seed companies develop hybrids specially for this market, and all of a sudden they’re in just a wait situation,” said Tim Lust, CEO of the National Sorghum Producers. “The U.S.’s regulatory system has slowed stuff down to the point that our private companies are just pulling out.”

The 2007 renewable fuel standard required the nation to go beyond corn ethanol to next-generation biofuels. It spurred the launch of several biofuels companies attempting to develop new technology to create advanced biofuels, as well as seed companies focused on engineering crops specifically for bioenergy production.

EPA, though, must first approve new renewable fuel inputs, technologies and products — collectively known as “pathways” — before they can qualify for the credits that refiners use to show compliance with the standard. The approval process is based on a life-cycle greenhouse gas review; a fuel qualifies as an advanced biofuel if it reduces greenhouse gas emissions by 50 percent compared to a gasoline base line.

The lengthy approval process has long been under fire by biofuel advocates. Critics say EPA is keeping new fuels out of the market by delaying the reviews, while at the same time proposing to lower the advanced biofuel mandate on the grounds that there aren’t enough fuels available.

The agency has been “excruciatingly slow” to approve new pathways, said Biotechnology Industry Organization Executive Vice President Brent Erickson.

An analysis last May by researchers at the University of Illinois, Urbana-Champaign, found that companies that petitioned the agency for new next-generation fuel types have had to wait an average of 1.37 years for a decision. According to the Advanced Biofuels Association, some companies have gone out of business awaiting approval of their technologies.

“These individual facilities don’t know whether to sign a contract with a grower for this coming year, or whether it will be another year,” Lust said. “It’s just creating lots of challenges to the entrepreneurs that are starting these facilities.”

Some of the pending applications are controversial, including a petition to allow palm oil-based biodiesel. EPA has so far approved 12 advanced pathways, including cellulosic ethanol made from crop residues and sugar cane ethanol. According to the Office of Management and Budget, EPA sent a new pathways rule to the White House yesterday, but it’s unclear when it will go into effect.

When approval does come, it can make a big difference.

“If you’re building a plant that has a technology that is dependent on a particular feedstock, say sweet sorghum, and you go ahead and make that investment without having the approval ahead of time, or at least a really high degree of confidence you’re going to get the approval, the risks are very, very high,” said John Urbanchuk, a biofuels economist and managing partner at ABF Economics.

In late 2012, EPA approved grain sorghum — the type that is fed to animals as livestock feed — as a feedstock for biofuels. Depending on the type of facility it is produced in, grain sorghum counts toward either conventional ethanol or advanced biofuel. It can be seamlessly substituted for corn in conventional ethanol production.

Spurred partly by the approval and partly by drought in the United States, grain sorghum production has taken off in the United States. In the last two years, it has increased by 40 percent. About 40 percent of the nation’s 8 million acres currently goes into fuel production today.

Chromatin Inc., a seed company formed in 2010, has capitalized off the market in the United States. It has formed partnerships with major ethanol companies to take its sorghum as a feedstock.

“We’re running this in the way that the big ag companies have produced corn — hundreds of new hybrids a year,” said Daphne Preuss, CEO of Chromatin.

NexSteppe, which formed three years ago with the goal of finding the best potential source of bioenergy, is eyeing different types of sorghum.

Working in collaboration with DuPont, the company developed a high-biomass sorghum that can grow 20 feet tall in four months and is bred to have low moisture at the time of harvest, making it cheap to transport and process. The company’s other sorghum, a type of sweet sorghum, is similar to sugar cane but needs about half the water.

Both sorghum have all the properties of an ideal feedstock: low inputs, high yield, an existing supply chain infrastructure, return on investment for growers and great genetic diversity.

“Our sorghums have been designed for industrial processes, and that makes them pretty different from what’s come before,” Rath, the CEO, said last week.

National Sorghum Producers submitted the petition to EPA for NexSteppe’s high-biomass sorghum in August 2012, and the petition for sweet sorghum in December 2013, according to Lust.

Rath said she believes sorghum seems like a natural fit for the RFS because its water effectiveness contributes to life-cycle emissions benefits, but the sorghum company does not know when EPA will finish its review.

EPA has acknowledged the delays. Last month, the agency announced it would revamp reviews by making internal processes more efficient and developing a new step-by-step guidance for petitioners. EPA also plans to launch an automated review process for previously approved inputs and technologies. The review is expected to take six months, during which time EPA will only weigh “high priority” petitions (Greenwire, March 19).

“Our objectives are a more efficient and transparent process with improved public service,” EPA said.

But Rath said EPA’s action further complicates the landscape because companies do not know how the approval process will look at the end of the six-month review.

“The EPA has gotten some push-back on the way that it’s approved other feedstocks, so the way that new feedstocks get approved might change,” Rath said.

NexSteppe’s first customers for its high biomass sorghum are Brazilian biomass power producers, Rath said. Brazil is experiencing a shortage of hydropower due to drought, and the company hopes its sorghum can act as a replacement. The price of bagasse, a sugar cane residue used for ethanol production, has also increased, making the environment more favorable for drop-in energy crops not subject to price fluctuations in big commodity crops.

The company announced last week that it had sold more than 2,500 acres of its high biomass sorghum for biopower in Brazil, bringing it to 65 percent of the bioenergy sorghum market in the country.

“I believe power is going to be an enabler of cellulosic biofuels,” Rath said. “What we’re doing in Brazil right now in power is proving a dedicated cellulosic feedstock for an industrial process at scale.”

There is one company in the United States, Southeast Biofuels, planning a commercial-size biofuels facility in Florida capable of converting sweet sorghum to fuel.

Rath said that she remains “optimistic that [the petition review] gets done in the relevant time horizon so people trying to build facilities using some of these feedstocks can use it.”