Pivotal moment’ arrives for U.S. bioenergy — White House official 

Source: Amanda Peterka, E&E reporter • Posted: Monday, June 29, 2015

U.S. EPA does not plan to finalize its renewable fuel targets for 2014 through 2016 until November, but stakeholders and officials are already starting to ponder what comes next for the nation’s biofuels policy.

At the Department of Energy’s annual bioenergy conference earlier this week, doubts about the long-term role of biofuels and how policy will look in the United States beyond 2016 played a key role.

A “reset” provision that Congress wrote into the renewable fuel standard, likely lawsuits, a new president and fuel efficiency standards all are playing into long-term uncertainties about the future of biofuels. Industry experts agree advanced biofuels companies will bear the brunt of the uncertainty, given corn ethanol’s establishment already in the market.

But stakeholders have very different ideas about whether Congress should step in or let EPA deal with the future of biofuels policy.

“We are still faced with a very live policy question,” said Robert Simon, principal adviser to the director for energy, transportation and resources in the White House Office of Science and Technology Policy. “That is, the degree to which bioenergy technology can continue to need and require policy support and regulatory mandates in order for a new bioenergy sector to become firmly established.”

Congress passed the RFS in 2007 with the goal of increasing the use of both ethanol and advanced biofuels in the United States to combat volatility in the global oil market and reduce greenhouse gas emissions. The RFS is currently set to expire in 2022.

Most of the attention in recent months has been on EPA’s current rulemaking, which would set conventional ethanol and advanced biofuel — including cellulosic biofuel and biodiesel — requirements through 2016. The proposal would also set refiners’ 2017 biodiesel target.

EPA’s proposal has struck a nerve with biofuels producers because it would require fewer gallons of biofuels than Congress intended when it wrote the RFS. But critics of the standard have also sharply criticized the proposal for setting a 2016 target for ethanol that would exceed the so-called blend wall, or 10 percent of the gasoline supply.

EPA says its goal is to put the renewable fuel standard on a manageable trajectory in the long term while recognizing certain market realities: that infrastructure is still lacking for higher blends of ethanol and that advanced biofuels have ramped up more slowly than expected.

But what comes next after the 2016 rule is anyone’s guess. Congress wrote into the program a reset provision that lets EPA rejigger the congressional volumes of renewable fuels starting in 2016 if the agency has reduced any of the mandates by at least 20 percent for two consecutive years or by at least 50 percent for a single year.

At a recent congressional hearing, EPA acting air chief Janet McCabe suggested that resetting the volumes was a possibility but that the agency had no concrete plans yet (Greenwire, June 18).

“They clearly have a reduction of 20 percent in ’14 and ’15, which triggers the reset mechanism moving forward,” said Michael McAdams, president of the Advanced Biofuels Association. “So what does that mean in terms of what is the actual mandate for anybody under the RFS moving from 2016 through 2022, let alone after 2022? A federal policy’s got to send a signal.”

Also complicating the future is that stakeholders are likely to sue EPA over the final 2014-16 rule, meaning it will likely take months before the courts decide whether the agency has taken a legal approach to reducing the mandates.

And the nation will have a new president beginning in 2017 who could potentially upend the policy.

The RFS has “problems, and it needs to be fixed. I think it’s either going to be fixed by the courts or Congress or unless EPA finds a way through it,” said Joel Velasco, senior vice president at Albright Stonebridge Group, a Washington, D.C.-based public policy shop. “And I think this is really going to end up being a problem for the next president to deal with.”

Mindful of the impending change in leadership, a coalition known as America’s Renewable Future has launched a campaign to boost the renewable fuel standard in the Iowa presidential caucuses.

“Clearly, this issue is not going to end this year,” Patty Judge, a former Democratic lieutenant governor of Iowa and co-chairwoman of the coalition, said earlier this month. “It’s really important that whoever becomes president, that they have a clear understanding of the importance of renewable fuel standards and the importance of renewable energy to our country.”

Monte Shaw, executive director of the Iowa Renewable Fuels Association, however, said that where President Obama goes with the renewable fuel standard will likely play a key role now and in the future, no matter who the next president is.

EPA’s corporate average fuel economy, or CAFE, standards complicate the policy picture, though, in the next several years, according to Claire Curry, an associate in advanced transport at Bloomberg New Energy Finance.

Under the CAFE law, manufacturers get a credit for every flex-fuel vehicle they build that can handle higher blends of ethanol up to 85 percent. But Congress decided to phase that out, and EPA says it will start instead giving credits to auto manufacturers beginning in 2017 based on whether vehicles actually consume E85.

The change is going to make electric vehicles a bigger competitor to the market for flex-fuel vehicles that can handle more ethanol, Curry predicted.

“We’re going to see in 2017 onward a huge drop-off in the amount of E85 vehicles being produced by carmakers. The only reason car companies produce them is because they get credits in CAFE,” she said. “I think all of that R&D that was going into E85 and any work they were doing in biofuels will go into the electric vehicles space.”

Bob Dinneen, president and CEO of the Renewable Fuels Association, pushed back, arguing that car companies will need engines that require higher-octane fuels in order to achieve 56.5 mpg, as required in the CAFE standards. Ethanol is one way of boosting octane.

All the uncertainty over future biofuel use, production and policy has led several major oil companies to drop their investments in advanced biofuels projects, Curry said.

According to the Biotechnology Industry Organization, the lack of stable policy in the last couple of years has led to a shortfall of $13.7 billion in investment in the advanced biofuels industry. Investors in advanced biofuel companies are getting, on average, a return on investment of only about 6 to 8 percent, Bloomberg New Energy Finance has found.

The one place where partnerships seem to be working is in the area of renewable chemicals, which provide a higher-value market in the short term than fuels.

‘Realignment of stars’

The United States has reached a “pivotal moment” in the trajectory of bioenergy, Simon, the White House energy official, said at the DOE bioenergy conference.

He noted that the strategic focus at the Department of Energy has changed from focusing on ethanol to drop-in biofuels that can be used directly in existing fueling infrastructure. And he said DOE has shifted focus to higher-value products such as chemicals.

The future, he said, would depend on addressing problems with feedstock logistics, how creative companies are in building up next-generation fuels and whether sustainability questions can be answered definitively.

At the DOE bioenergy conference, at least one biofuel producer expressed optimism for the next decade.

“I think the next five years — I don’t want to predict because then I’d have to take the glass-half-empty view,” said Michele Rubino, vice president of business and corporate development at Beta Renewables, which has cellulosic ethanol aspirations both in Europe and in the United States. “But I think in 10 years, you’re going to have to see realignment of stars here between policy, capital markets, commodity prices. It’s going to take a new realignment of all of these things to generate that next wave of energy that is needed to see this come through.”

In a recent interview, Christopher Grundler, director of EPA’s Office of Transportation and Air Quality, said he hoped to put in place a “long-term fuel strategy” for the nation once the agency has a handle on how to approach the annual rulemakings.

“It’s more than just RFS. Our fuels program and regulations have been developed over the course of 30 years. And there are, I think, a lot of opportunities there to streamline them, to make them more relevant to what the fuels sector looks like today,” he said. “I believe that there are opportunities both for burden reduction, as well as more effective emission reductions.”

He acknowledged that getting everybody in the biofuel debate to the table “in a civil way” would be difficult. Attempts in Congress to come up with a reform package for the RFS have previously fallen apart because of a lack of agreement on a way forward.

Geoff Moody, senior director of government relations at American Fuel and Petrochemical Manufacturers, said the refining industry would be open to taking a broader look at fuels policy.

“In general, a more cohesive comprehensive energy policy would be welcome to the refining industry, rather than these siloed regulations that are often conflicting with one another,” he said. “We have Tier III [low-sulfur gasoline standards], we have the RFS, we have CAFE standards, and in many cases, some of the standards are mutually exclusive. We’d love to have the opportunity to harmonize those.”

But first things first.

“I think this is all something that I am eager to get on with as soon as we get the RFS back on track,” Grundler said. “But job one is getting that on track, and then we can look at some of these longer-term things.”