Industry leaders say RFS is needed to increase advanced fuel production

Source: Julia Pyper, E&E reporter • Posted: Thursday, May 3, 2012

If the next-generation biofuel industry is to ramp up production of advanced renewable fuels like cellulosic ethanol, the much-maligned federal renewable fuel standard must be left intact, industry leaders said yesterday.

“The impacts from the renewable fuel standard [RFS] are so obvious to us that we want to get that message out,” said Adam Monroe, president of Novozymes North America, which produces the enzymes used in making advanced biofuels.

“It’s obvious in that it has provided jobs, it has provided innovation and, most importantly, it’s providing a solution that is commercializing now … as it relates to a transportation fuel that is lower-cost and cleaner,” he said.

The standard administered by U.S. EPA sets requirements on the minimum volumes of renewable transportation fuel sold in the United States. The original program, RFS1, created as part of the Energy Policy Act of 2005, mandated that 7.5 billion gallons of renewable fuel be blended into gasoline by 2012.

RFS2, formed under the Energy Independence and Security Act (EISA) in 2007, upped that amount from 9 billion gallons in 2008 to 36 billion gallons by 2022. It also limits corn-based ethanol production to 15 billion gallons, requiring the remaining 21 billion gallons come from advanced biofuels, such as cellulosic ethanol made from nonedible crops.

The concrete policy has greatly helped advanced biofuel producers attract the investment they need to start commercializing production, according to industry leaders speaking to reporters yesterday from the BIO World Congress on Biotechnology and Bioprocessing.

But with commercial availability of cellulosic biofuels still far below the prescribed amounts, the oil and gas companies required to buy and blend biofuels have been waging a legal attack on the RFS targets (E&ENews PM, March 12).

Private industry making a push

Cellulosic ethanol has been heralded as the future of biofuels. Today, however, it does not exist on the market, though a handful of companies have said they will break ground on commercial scale facilities this year.

At the end of May, Novozymes will open a $200 million first-of-its-kind facility in Nebraska that will produce the enzymes used in the bioenergy industry, Monroe said.

Similarly, DuPont Industrial Biosciences is set to start construction on a 20-million-gallon cellulosic ethanol plant later this year, said Jan Koninckx, the company’s global director of biofuels.

“We were attracted to this opportunity, to cellulosic ethanol, because we really see a way for us to bring science into play in transforming the energy market and gaining access to what I expect will be … not just sustainable, but lowest-cost carbon source in the long run,” he said.

BP PLC has also made a big commitment and progress in moving the industry forward, said Sue Ellerbusch, president of BP Biofuels North America. The company is currently building its first commercial biofuels production facility in Highlands County, Fla., and is looking to break ground on a conversion facility later this year, she said.

The RFS has made these types of gains possible by providing a stable market framework, said Koninckx.

“It’s not just efficient, but it was a necessary and very useful, visionary piece of legislation that is specific and lays out a view of the future that we think is very attractive and realistic,” he said.

The ‘hidden tax’ of blended fuels

The problem with the RFS is that it mandates that oil companies buy cellulosic biofuels that do not exist yet, industry officials said.

Last year, EPA required that fuel makers buy 6.6 million gallons of cellulosic biofuel to help meet the 36-billion-gallons-by-2022 goal. “But there was not a single gallon commercially available in the U.S.,” said Richard Moskowitz, general counsel with the American Fuel and Petrochemical Manufacturers.

The oil industry was required to pay what amounted to a tax on every gallon it was unable to blend, he said. The penalties in 2011 added up to $6.8 million.

“This is simply a hidden tax that the customer ultimately bears,” he said. “It makes absolutely no sense for us to turn our back on the free market, and as a result, we’re simply increasing the total bill that Americans have to pay for their transportation fuel.”

EPA has so far held fast on the requirements to blend cellulosic biofuel and increased the goal to 8.65 million gallons this year.

Alejandro Zamorano, bioenergy analyst with Bloomberg New Energy Finance, said in an email, “I think it is okay to be optimistic” about where cellulosic ethanol technology is headed. “But we are still at least three years away from any commercial scale production of cellulosic biofuels.”

He added that investors are having a difficult time processing the industry’s progress, given that almost all next-generation bioenergy companies have poor track records in hitting production capacity targets. This is reflected today in many companies’ low share prices, he said.

A federal court will soon hear the oil industry’s case against the cellulosic biofuel requirements under the RFS. According to Moskowitz, EPA has yet to respond to a separate direct request to waive the phantom biofuel volumes the industry was required to buy last year.

“Should the RFS be retained? We would say certainly not in its current form, because it’s clearly broken,” he said.