EPA’s proposed rule pits corn-based ethanol against cellulosic ethanol
While the production of renewable fuels has increased during the past decade, U.S. gasoline consumption, having peaked in 2007, did not increase to analysts’ projections. As a result, the Environmental Protection Agency (EPA) proposes to reduce the advanced biofuel and total renewable fuel standards (RFS) for 2014.
In its proposal, EPA recommends setting the total renewable fuel volume for 2014 at 15.21 billion gallons, down from 2012’s estimates by 3.93 billion gallons. For advanced biofuels, which includes cellulosic, biomass-based diesel and non-ethanol advanced biofuels, EPA proposes a level of 2.2 billion gallons, down 2.55 billion gallons.
According to EPA, the proposal addresses two important constraints: gasoline consumption as it relates to the ethanol blend wall and the ability of the industry to produce sufficient volumes of qualifying renewable fuel.
15.21 billion: The number of gallons EPA recommends setting the total renewable fuel volume for 2014, according to its proposal.
$100 million: The investment in São Paulo, Brazil, to build the first of its kind commercial cellulosic ethanol facility with Iogen’s technology.
2.55 billion: The number of advanced biofuel gallons that EPA recommends cutting for 2014 from its original target level set forth in the RFS.
But renewable fuel industry experts say EPA’s proposal is short-sighted. "I’m concerned that if people in America look at the ethanol market as fixed, there will be no incentive to invest in new technologies for delivering these fuels," says Brian Foody, president and CEO of Iogen Corporation, a company that develops cellulosic technology. He says that the proposal undermines the good intentions and public policy benefits that the RFS promotes, which are energy independence and fewer greenhouse gas emissions.
Iogen’s technology is being used to build a commercial cellulosic ethanol facility, worth $100 million, next to a sugar cane mill in São Paulo, Brazil.
"There are huge opportunities in the U.S. to convert ag residues and other cellulosic materials into biofuels to meet the RFS," Foody says. "But the RFS is the single most important market driver. It’s critical that investors see this as continuing."
Chris Standlee, executive vice president of Institutional Affairs at Abengoa Bioenergy U.S., adds that his company has placed a hold on U.S. investments. "This has taken our business plan and has forced us to look at potential investments in other countries," Standlee says.
During the past few years, Abengoa has invested more than $1 billion in the United States, according to Standlee. He explains that EPA’s proposal validates the "blend wall" and essentially limits the biofuels market to 10% of fuel consumption.
"Investments in first-generation biofuels plants are not a priority," says Standlee. "First-generation biofuels are inextricably tied to second-generation biofuels. We expected investments for second-generation plants to be done largely by those first-generation producers."
EPA’s proposal asks first-generation producers to strand millions of dollars of investment to advance second-generation biofuels, Standlee says, noting that it puts a box around the ethanol market and pushes the first generation to compete with the second generation for market share.
Commitment Needed. "EPA has put into question the administration’s support of this policy, which we’re only five years into a 15-year plan," Standlee says. "This will significantly impact and make it almost impossible for existing biofuels producers and new investors to have the confidence that a market will be there in order to invest a large sum of money for a new facility."
The proposed target levels for 2014 are a step backward for the renewable fuels industry, says Delayne Johnson, general manager for Quad County Corn Processors in Galva, Iowa. Since 2000, Quad County has operated a corn ethanol biorefinery, producing 35 million gallons a year.
With the same feedstock already on site, Quad County planned to turn the fiber from corn kernels into a high-octane, clean-burning ethanol and broke ground on a cellulosic ethanol plant in July 2013. The new plant is forecast to produce 1.8 to 2 million gallons of ethanol a year.
If EPA makes changes to the RFS, investments will be stifled, Johnson says. "Without the RFS, it gives a 90% mandate for consumers to use petroleum and removes consumer choice at the pump," he says.
EPA is reviewing testimonials and written comments. According to the Renewable Fuels Association, it will likely be months before a final rule will be released.
Listen in as industry experts share their perspective on EPA’s proposal at www.TopProducer-Online.com/RFS.