USDA, EPA Testimony to Congress on Biofuels/Ethanol Reveal Little New Info

June 26, 2013 03:43 AM
 

via a special arrangement with Informa Economics, Inc.

Officials’ prepared remarks similar to previous testimonies, pull from existing analysis of biofuels situation


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


Testimony from USDA Chief Economist Joe Glauber and EPA Office of Transportation and Air Quality Office of Air and Radiation Director Christopher Grundler do not provide a lot of fresh information on the US biofuels/ethanol situation and draw considerably from prior information the agencies have released on this topic. Link to prepared remarks.

Grundler testimony is the more important to focus on. Of the two, Grundler’s testimony addresses issues relative to the final 2013 and yet-to-be proposed 2014 renewable fuels standard (RFS) plans, but largely reflects testimony he delivered recently to another government panel on this topic.

Grundler again noted the 2013 RFS requirements should be able to be met via a combination of corn-based ethanol output and the agency’s proposed level of 16.55 billion gallons for 2013 includes volumes for advanced biofuels, such as biomass-based diesel and cellulosic biofuel. Grundler’s testimony today said EPA is "currently in the process of reviewing the public comments in preparing to develop the final rule." The 2013 requirements should be met "through the use of RINs (Renewable Identification Numbers) generated in 2013 and those generated in 2012 that are available under the regulations for use (carryover RINs) in complying with 2013 standards."

Echoing his prior testimony, Grundler noted that for 2014, "the situation could be different." He outlined the following factors that will affect how compliance will be achieved.

Grundler details: "First, the advanced biofuel and total renewable fuel requirements rise substantially to 3.75 billion gallons and 18.15 billion gallons, respectively," Grundler said. "While non-ethanol biofuels are anticipated to continue to grow to help supply the advanced biofuel standard, an estimated 16 billion gallons or more of conventional and advanced ethanol might still be needed to comply with the RFS program in 2014. Second, the number of carryover RINs from 2013 will also be a critical factor in determining how obligated parties show compliance with the 2014 RFS volume requirements. EPA will continue to engage with stakeholders on this issue as we move to propose the RFS volume requirements for 2014."

Comments: Grundler does not mention the pledge he made to lawmakers at an earlier hearing that the agency would have both the final 2013 RFS and proposed 2014 RFS requirements published by the end of summer. It’s not clear whether the lack of that mentioned in this testimony as it was a subject of several questions at the prior hearing is a sign the agency is no longer on that time line. The focus will be on whether he addresses this at the question and answer portion of today's hearing as well.

Regarding new biofuels that could be used to meet RFS requirements, Grundler noted EPA has  "proposed a rule that will expand the opportunity for use of additional new advanced biofuels, including cellulosic fuels from landfill biogas and advanced biobutanol from corn."

From USDA’s perspective, Glauber said, "Demonstration plants have been constructed to assess various conversion technologies that can produce next generation biofuels, such as cellulosic ethanol, butanol, biojet fuel, and Fischer-Tropsch diesel. While the production costs  associated with the development of these fuels remains high, they are falling quickly and increasing volumes of next generation fuels are expected to reach commercial scale in the next few years."

Comments: Both officials’ comments are rather vague and don’t provide any targeted date when these new fuels will be commercially viable, something that to-date has not happened.

Relative to the blend wall, both officials’ testimony broach the subject.

Grundler observed the volume of ethanol projected to meet requirements under the RFS "will exceed the volume that can be consumed" via the current E10 fuel. "Additional volumes of ethanol would then need to be used at higher blend levels such as E15 or E85 to meet increasing RFS levels or significant additional volumes of non-ethanol biofuels would be needed. As a result, to the extent that ethanol is likely to be used to meet RFS volume requirements, the volume of ethanol that can be legally and practically consumed is a limiting factor in meeting the statutory volumes."

Grundler again pledged the agency will examine issues relative to the blend wall for the near and longer term. "We are also reviewing comments submitted in response to the agency’s proposed rulemaking for the 2013 RFS volume standards and we will carefully consider this input," he stated.

Glauber’s testimony noted the blend wall "must be overcome to reach the future goals of the RFS." He pointed to "considerable investment in drop-in fuels, which are substantially similar to gasoline, diesel and jet fuels and therefore have less blending constraints than ethanol and can help, along with additional biodiesel use, overcome the blend wall."

Comments: The officials do not provide any hard and fast answers to the blend wall issue, except to note that higher blends of ethanol such as E15 or E85 would be one key to overcoming the blend wall. But expansion of those two fuel options remains limited due to several reasons. On E15, there are remaining engine durability concerns, costs associated with separate fueling systems and storage facilities and liability concerns on the part of retailers. And E85 remains constrained by the number of vehicles that can utilize the fuel and outlets that sell it.

Both testimonies have a good amount of background information, with Glauber’s testimony focusing mostly on the impacts to US crop producers, livestock producers and to food prices from the rise in ethanol and biofuel production.

On food prices, Glauber referenced his 2008 testimony delivered to Congress in which he noted the rise in biofuels "has likely had only a small effect on US retail food prices. The farm component of most food sales is relatively small—about 14 percent of the overall food dollar. Higher corn and soybean prices are passed through to the consumer largely through higher fat and oil prices and indirectly through higher feed costs. Analysis of the price spike of 2007/08 suggests that ethanol had a small role in raising food inflation compared to other factors such as energy costs. The Department’s estimates for food prices show average levels of food price inflation in 2013 down from a peak in 2011, despite record high commodity prices."

On the subject of a long-term waiver, Glauber said, "The impact of a longer-term waiver, just as long-run production levels, depends on energy prices. So long as ethanol is priced less than gasoline, it is unlikely that there will be much reduction in ethanol usage from current levels."

Glauber also pointed out that the waiver authority relative to the RFS is "subject to statutory authorities granted to EPA under the Clean Air Act. The waiver authority under Clean Air Act Section 211(o)(7), for example, limits the duration of a waiver to one year."

Bottom line: The testimonies from EPA and USDA do provide a refresher of the issues and on the impacts that increased biofuel production have had on US agriculture and the US economy in general. What is still lacking are concrete ways that issues like the blend wall and the rising RFS requirements given the lack of new advanced biofuels and cellulosic ethanol in particular.


 

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


 


 

 

 

 

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