The future of the RFS becomes less easy to predict

Source: Tiffany Stecker, E&E reporter • Posted: Thursday, July 25, 2013

Retain, reform or repeal. These are the three R’s faced by the federal renewable fuel standard on Capitol Hill, but the results of any of those options remain unclear.

The House Energy and Commerce Committee has held a number of hearings on the renewable fuel standard (RFS), the guiding law for a nationwide goal to produce 36 billion gallons of biofuels by 2022, asking experts to weigh in on the economic, environmental and technical impacts of a law. Since late June, the committee has released a series of white papers to better understand the issue.

Rep. John Shimkus (R), whose southeastern Illinois district covers both oil refineries and corn farmers, said that a measure to repeal the RFS would not get many votes. But the call to reform has been popular.

“You don’t have enough for a repeal, but you do have enough for a reform,” he said at a hearing yesterday.

Since its passage in 2010, the amended RFS — which boosted the mandate from 7.5 billion gallons in 2012 to 36 billion by 2022 — has been fraught with complaints. Oil trade groups say they are forced to blend more ethanol to comply with the RFS than what the 10 percent blending rate for biofuels in gasoline can hold — a concept known as the blend wall that prevents refiners from being able to meet the RFS target

Oil trade groups like the American Petroleum Institute and the American Fuels and Petrochemicals Manufacturers — both present at the hearing — also complain that U.S. EPA, which administers the RFS program, sets too-high targets for cellulosic biofuels.

These fuels, which are made from agricultural waste, algae, trash energy grasses and other feedstocks that don’t conflict with food crops, are considered the next generation of biofuels that will take over from corn ethanol and soybean biodiesel, cutting greenhouse gas emissions from fossil fuels by at least 60 percent, and often more.

Ethanol replacement comes slowly

But the development of these fuels has been painfully slow. According to the 2009 RFS mandate, there should be 1 billion gallons of cellulosic biofuels made this year. EPA has proposed that number be revised down to 14 million, and many are skeptical it can reach that much.

Shimkus also accused oil trade groups the American Petroleum Institute and the American Fuels and Petrochemicals Manufacturers of diverging from their member companies on the RFS. Both trade groups have called for a full repeal of the legislation, a move Shimkus believes is divisive.

“It is my goal and desire to get a decision that benefits us all,” he said. “Can I get you to explore something in between?”

At least two oil companies, Shell and BP, have publicly vouched support for the RFS. Both companies have investments in biofuels ventures

In 2011, refiners received 4.2 million credit waivers because they were unable to comply with the RFS for lack of cellulosic production. Wyoming-based Blue Sugars and KiOR, a Mississippi-based maker of renewable gasoline and diesel from wood, successfully produced the first cellulosic renewable identification numbers (RINs), or credits that refiners buy to prove that they have complied with the mandate. But since November 2012, no cellulosic RINs have been generated, according to the EPA website. This may be due to a lag in reporting, according to the spokesman for the Biotechnology Industry Organization, or BIO, a trade group that backs biofuels.

Backers also see the next generation of biofuels as a key method of cutting greenhouse gases from the transportation sector. To qualify as an “advanced” biofuel, an advanced fuel must achieve at least 50 percent less greenhouse gas emissions than fossil fuels. To date, the only two commercially available advanced fuels are sugar cane ethanol from Brazil and American biodiesel, which is produced from soybean oil, corn oil, waste vegetable oil and leftover animal fats.

Biofuel proponents say that the existing infrastructure is solid and provides enough flexibility in itself. However, backers of advanced biofuels are calling on EPA to make longer-term projections for production, a move they hope will solidify the confidence of investors in the nascent technology.

Jeremy Martin, a senior scientist in the Clean Vehicles program, suggests that EPA use its authority to allow flexibility in the RFS, rather than change the requirements. He would like to see the agency offer objective criteria under which the volumes for renewable corn ethanol, advanced biofuels like Brazilian sugar cane ethanol and the next generation of cellulosic fuels are allowed to grow.

“It makes sense to describe [the volume obligations for] 2022 as 20 billion plus,” said Martin, rather than have EPA assign a set number — 21 billion gallons — for the mandate for advanced and cellulosic biofuels. This would allow cellulosic biofuels to flourish without being crowded out by conventional corn ethanol, Brazilian sugar cane ethanol and biodiesel. “They have no obligation to go higher,” he said.

The relationship between corn groups and advanced biofuels have been tenuous. While both support the RFS, the former have been more reluctant to support initiatives that primarily support next-generation fuels, like forming a defense against attackers of military procurement of advanced biofuels.

Investors want more certainty

“The fact of the matter is cellulosic biofuels aren’t here today, cellulosic investments are being made,” said Bob Dineen, president of the Renewable Fuels Association.

Mike McAdams, president of the Advanced Biofuels Association, would like to see EPA publish targets for multiple years in advance, ideally three years, in order to foster confidence in those who invest in cutting-edge biofuel technology.

“What I want is certainty for my industry,” McAdams said. “Repeal is a bridge too far.”

McAdams admits that it may not be legally possible under the statute for EPA to publish renewable volume obligations more than one year at a time. But what it can do it provide a “framework” that would guide expectations for the coming years. The agency responded and said it has not fully evaluated this approach.

McAdams also suggested that EPA re-evaluate the coefficient it uses to assign RINs biofuel makers for their greenhouse gas reductions. The RIN values fluctuate according to the fuel, from one credit per gallon to 1.5 credits per gallon.

Rep. Joe Barton (R-Texas) voted against the original version of the RFS in 2005 as part of the Energy Independence and Security Act. At the time, the standard was one of the most politically popular energy issues in Washington, D.C. Barton argues the RFS makes even less sense to him today, he said, because gasoline consumption continues to go down. He wants the RFS repealed.

“What appeared to be a good political compromise and maybe good market compromise eight or nine years ago doesn’t seem to be working, not because of [lack of] good intentions but because the marketplace has changed,” he said.

And according to the oil trade groups, it will only become worse.

“We’re at the early stage of what could be an evolving process,” said Jack Gerard, president and CEO of API. “This is going to become more intense over time.”