New EPA numbers strike fear in investment-hungry producers

Source: Tiffany Stecker, E&E reporter • Posted: Tuesday, November 19, 2013

U.S. EPA took a significant step back from the progressive increase of the renewable fuel standard Friday, when it proposed volumes for 2014 production that — if implemented — could throw the next generation of low-carbon biofuels into a tailspin.

The overall pool of renewable fuel — which includes corn ethanol, Brazilian sugar cane ethanol, biodiesel and cellulosic fuel — was set at 15.21 billion gallons, 16 percent less than the 2014 levels expected in the statute passed six years ago.

Advanced biofuels, fuels that have a 50 percent or smaller greenhouse gas footprint than fossil fuels, were slashed by 40 percent at 2.2 billion gallons.

“I’m in a state of shock,” said Michael McAdams, president of the Advanced Biofuels Association. “This rule is a departure from the last five and a half years.”

Signed into law by President George W. Bush, the RFS is an ambitious program to gradually reach a production rate of 36 billion gallons of biofuels by 2022. EPA picks the annual targets each year, but this time took a different approach to proposing the numbers for 2014 by offering both a target and a range of possible volumes. Parties are invited to submit comments on the ranges over the 60-day comment period (E&ENews PM, Nov. 15).

Although Friday’s announcement is not the last word, EPA’s message was clear to biofuel producers: Don’t count on us to grow your industry. Trade groups lamented the move as a departure from a once-enthusiastic administration.

While the corn ethanol, Brazilian sugar cane ethanol and biodiesel industries are well-established and can produce in volumes at or beyond their mandates, the second generation of biofuels is still reaching for commercial production. These include fuels made from algae, grasses, forest and agricultural waste, household trash and other unconventional feedstocks. They also consist of “drop-in” biofuels, like biobutanol, that don’t need to be blended in gasoline like ethanol.

A lack of support is dangerous for investment, say advanced biofuels producers. With many advanced biofuel companies still waiting on money to build plants, research the technology behind the fuel and develop the infrastructure to make a system work, a lower RFS doesn’t sound good.

“It comes at a bad time,” said James Wrathall, an attorney at Sullivan & Worcester whose clients include biofuel companies and investors. “What we were seeing is a market that’s coming online in 2013, with continued determination when the higher volume requirements were in sight.”

Big year for cellulosics in 2014

Adam Monroe, president of Novozymes North America, represents a company that works in developing biofuel enzymes, the largest research effort in the company’s history.

“I don’t know what to look for in the future,” he said. Novozymes provides the enzymes for Beta Renewables’ 20-million-gallon cellulosic ethanol facility in Crescentino, Italy, a plant that has begun the paperwork to comply with the RFS. Novozymes has also collaborated with Raizen, a major Brazilian sugar cane crusher, to make cellulosic ethanol.

The cellulosic ethanol industry — which could potentially produce some of the lowest-carbon fuels to date — has struggled for a number of years to produce significant volumes of fuel, and year after year, EPA has needed to revise the target down. The 2014 volume of cellulosic ethanol is 17 million gallons, slightly lower than the 23 million gallons indicated in a leaked draft last month.

“The latest Renewable Volume Obligations from the EPA underestimate the volume of cellulosic ethanol that will be produced next year,” said James Moe, chairman of POET-DSM Advanced Biofuels, which will open its 20-million-gallon-per-year plant next year. “We ask the EPA to continue to engage closely with the cellulosic biofuels industry during the comment period so that we can demonstrate our confidence in our ability to scale up these processes.”

Next year could be a landmark year for cellulosics, with three major ethanol plants set to begin production. INEOS Bio, whose Vero Beach, Fla., plant opened this summer, will be increasing capacity, as well.

This year, EPA has faced tremendous pressure to address the issue of a blend wall — a situation in which the RFS mandates more ethanol than what can feasibly be blended. Most gasoline sold in the United States contains a 10 percent blend of ethanol, or E10. This year, the projected gasoline supply is about 133 billion gallons. The 2013 RFS requires oil companies to blend 13.8 billion gallons, slightly more than 10 percent

Dread of an ethanol oversupply

This oversupply of ethanol, given the country’s comfort level with E10, has pushed oil trade groups like the American Petroleum Institute and the American Fuel and Petrochemical Manufacturers to ask EPA to lower the mandates, claiming it is impossible to blend more than 10 percent in the fuel supply without causing problems.

Although EPA has found that E15 gasoline, a 15 percent ethanol blend, is safe to use in vehicles manufactured after 2001, the automobile industry trade group has complained that the fuel could damage engines. Livestock groups have also campaigned against E15, saying that it will divert corn from feed to ethanol, raising prices for their industry.

“If gasoline demand continues to decline, as currently forecast, continuing to grow the use of ethanol will require greater use of higher ethanol blends such as E15 and E85,” wrote Janet McCabe, acting assistant administrator for air and radiation at EPA. “At the present time, there are a number of factors that limit the use of these fuels.”

Another blend, E85, could also allow for much more ethanol to be blended. There are about 14.6 million flex-fuel vehicles — cars and trucks that can run on up to 85 percent ethanol — but most of them are located in and around cities and in Texas, while most E85 pumps are in the Midwest. Nevertheless, EPA set the E85 target to 180 million gallons.

While the oil industry decries the RFS as “broken” and rejects the mandate, it remains the biggest investor in biofuels, pouring in $9.4 billion, $2 billion of that into next-generation biofuels, since 2005, according to Bloomberg New Energy Finance. About $881.4 million was for projects to make advanced ethanol.

Fear of a freeze in biodiesel

Biodiesel producers didn’t see their numbers cut, but a freeze in the mandate for the next two years at 1.28 billion gallons annually isn’t good for an industry that plans to exceed 1.7 billion gallons by the end of 2013. Biodiesel is also considered an advanced biofuel and would lose out from a shrunken advanced mandate.

“It would put our company out of business,” said Ben Wootton, owner of Keystone BioFuels in Camp Hill, Pa. “The EPA proposed freeze on biomass-based diesel would essentially cut our current market in half and therefore put our company out of business. ”

From an environmental point of view, it makes some sense to slow down the RFS, said Jeremy Martin, a senior scientist in the Clean Vehicles Program at the Union of Concerned Scientists. Because low-carbon cellulosic biofuels have failed to come up in the past several years, EPA has revised their volumes, while keeping the overall level of the RFS intact. This has allowed for an increase in advanced fuels that rely on food crops, like sugar cane and soybeans, said Martin.

But that must be a balanced with a long-term stable policy, which allows for more clarity and confidence in the process

“The blending challenges are a speed bump rather than a brick wall,” Martin said. “Slowing down is prudent, but the changes should be carefully calibrated to maintain forward progress on the oil saving and carbon climate goals of the RFS.”