Industry awaits cellulosic gallon requirements from EPA
Source: Tiffany Stecker, E&E reporter • Posted: Friday, January 11, 2013
In the last six months, both the American Petroleum Institute and the American Fuel and Petrochemical Manufacturers have sued EPA for mandating that oil and gas companies buy credits for blending cellulosic biofuels into gasoline when hardly any cellulosic fuel is available.
“The fact that we have pending lawsuits here means EPA is using a far more thoughtful process to use a number that is defensible,” said Michael McAdams, president of the Advanced Biofuels Association.
In the last three years, EPA has published targets to reach a combined 36-billion-gallon goal for four types of plant-based fuels: conventional corn ethanol and the advanced biofuels — cellulosic, biomass-based diesel and other lower-carbon fuels like sugar cane ethanol. These fuels are blended in the greater fuel supply by law under the federal renewable fuel standard (RFS).
EPA submitted the proposed rule to the Office of Management and Budget in July. Pro-ethanol groups met with White House officials to discuss the rule Friday, and oil interests met with officials in August, according to OMB meeting records.
“They’re filing lawsuit after lawsuit on this very subject,” said Brooke Coleman, executive director of the Advanced Ethanol Council, adding that EPA’s delay is “largely because of the sheer amount of things they’ve had to do.”
The real question mark hangs above cellulosic, a fuel that can drastically reduce greenhouse gas emissions, compared to fossil fuels, but whose industry has not kept up with production expectations.
Cellulosic: a hard sell
When the second version of the RFS was finalized in 2010, EPA, the biofuels industry and environmentalists were optimistic that cellulosic fuels made from grasses, agricultural waste and other non-food sources would quickly replace conventional corn ethanol. They projected that 250 million gallons would flow in 2011, with that volume doubling the next year and again in 2013 to reach 1 billion gallons.
Every year, the industry fell short. EPA had to revise its 250-million-gallon target to 6.6 million gallons, and then cut back its 2012 target to 8.65 million gallons. Even the revised volumes were too high, leaving the oil and gas companies wondering how to blend a “phantom” fuel.
Lately, the industry has been looking up. KiOR Inc. began producing 500 gallons per day of wood-based biofuel in November, and INEOS Bio also began operations in Florida in the fall, making fuel from farm and yard waste at a rate of 8 million gallons per year.
For the cellulosic biofuel companies on the cusp of moving up to commercial production, new investments hinge on certainty for the coming year.
“It takes tens of millions to hundreds of millions [of dollars] to build these plants,” said George Boyajian, vice president of business development for Primus Green Energy, a maker of renewable gasoline and other fuels. “You’re going to have bigger players making bigger investments, and in some ways they are more sophisticated, and they will want to either see those [Renewable Identification Numbers] or subsidies will be in place.”
Renewable Identification Numbers, or RINs, are 38-digit numbers that represent a credit that an oil company will buy to satisfy its obligation under the RFS. As part of the “fiscal cliff” budget deal, Congress granted cellulosic biofuel producers a $1.01-per-gallon tax credit.
Despite the progress, the oil industry remains wary about whether biofuel makers will produce the gallons needed, so that oil companies can meet their obligations and avoid breaking the law.
Oil companies “need the [renewable volume obligation] so they can start planning how much ethanol will be blended,” said Bob Greco, group director for downstream and industry operations for the American Petroleum Institute. “This really underscores why we think the RFS is broken and needs to be repealed.”
Others are watching the EPA announcement to observe how EPA balances cellulosic fuel gallons with biodiesel and advanced ethanol. In past years, the volume requirements of commercialized advanced biofuel — primarily sugar cane ethanol from Brazil and soybean biodiesel from the Midwest — made up for the lack of cellulosic biofuels in the overall advanced pool.
The ethanol shuffle
Although these fuels technically count as a step beyond conventional corn ethanol — they achieve at least a 50 percent savings in greenhouse gas emissions, according to EPA, compared to corn’s 20 percent — ramping up the volumes could create a competition between food and fuel, said Jeremy Martin, a senior scientist with the clean vehicles program at the Union of Concerned Scientists.
“Even without absorbing the extra volumes from the cellulosic mandate, the advanced mandate is aggressive,” he said. “Adding almost another billion gallons would be counterproductive.”
Martin thinks the advanced ethanol pool should stop expanding at 5 billion gallons, even if it means the United States doesn’t reach 36 billion gallons by 2022 for lack of cellulosic fuel.
Due to Brazilian sugar cane ethanol’s elevated status as an advanced biofuel, oil companies can earn a higher value than corn ethanol and have been importing biofuels from Brazil. Meanwhile, corn ethanol makers export their product to a thriving market in Brazil. This bizarre irony was called the “ethanol shuffle” by the Renewable Fuels Association, which has asked EPA to reassess the greenhouse gas models for corn and sugar cane ethanol.
Biodiesel, the only commercially available advanced biofuel made in the United States, is also the only fuel to be designated a volume requirement for 2013: 1.28 billion gallons, a 28 percent increase over last year.
The National Biodiesel Board expects it will exceed that amount by “a few hundred million gallons,” said Ben Evans, a spokesman for the board. It’s within realistic expectations.
“We know there’s a limit to how quickly we can grow,” he said.