Government’s plan to expand biofuel use runs into multiple bumps in the road

2010 photo by Patrick Fallon/BLOOMBERG NEWS - Farmer Billy Thiel, left, unloads harvested corn for ethanol production in Marshall, Mo. Cellulosic ethanol projects have had trouble gaining traction. One project after another has been shelved.

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The road to wider biofuel use may have been paved with good intentions, but it has turned out to be full of potholes.

When Congress in 2007 mandated greater use of ethanol in U.S. motor fuel, it wanted to avoid a collision between food and fuel. So instead of creating a mandate for ever-rising amounts of corn-based ethanol, it ordered refineries to use a billion gallons of cellulosic ethanol in 2013 and to use 16 billion barrels of cellulosic ethanol by 2022. This was the fuel based on raw materials, such as switch grass that President George W. Bush had mentioned in a speech to Congress.

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But cellulosic ethanol projects have had trouble gaining traction. One project after another has been shelved. In October, for example, BP canceled plans it had announced in 2008 to build a cellulosic ethanol plant in Florida. Last year, there was virtually no cellulosic ethanol consumed nationwide.

So Thursday, the Environmental Protection Agency proposed a new standard, slashing the amount of cellulosic ethanol that refiners would need to use to just 14 million barrels a year. At the same time, the EPA said refiners would still need to use high levels of “advanced biofuels.”

The EPA move did nothing to calm the storm of lobbying and litigation over the fuel standard: Corn-based ethanol producers see new opportunity, the American Petroleum Institute vows to continue to fight against the standard and environmentalists are worried about the use of crops such as corn or sugarcane, cultivation of which requires higher levels of greenhouse gas emissions than cellulosic feedstocks.

The new proposed standard also comes in the shadow of a D.C. Court of Appeals ruling last week that threw out the standards the EPA set in 2010 and 2011. The agency had set a mandate of 5 million gallons of cellulosic ethanol use for 2010 and 6.6 million gallons for 2011 and none was produced. The court said there was no basis for those figures.

“EPA points to no instance in which the term ‘projected’ is used to allow the projector to let its aspirations for a self-fulfilling prophecy divert it from a neutral methodology,” the court said.

The agency’s new projection of 14 million gallons of cellulosic ethanol matches the amount that venture capital investor Vinod Khosla, in an interview in October, said would be produced this year at a small commercial plant in Mississippi by Kior, a company he is backing. Another company, Ineos, expects to produce some, too. And POET, one of the world’s largest corn-based ethanol producers, is constructing a cellulosic-based plant that might be done this year.

But the oil industry, which runs the nation’s refineries, says that even the new standard is arbitrary and optimistic. And the Energy Department’s Energy Information Administration has forecast nationwide production of just 9.6 million gallons.

“This entire mess underscores the need to look under the hood at what works, what doesn’t and adjust the volumes” in the renewable fuel standard, said Stephen H. Brown, vice president of government affairs for Tesoro, a San Antonio-based refining company. He estimates that Kior and Ineos, together, will fall short of the EPA’s new target. “If you believe in Santa Claus and the Easter Bunny, you believe in 14 million gallons,” he said.

Oil refiners say they are particularly upset because the law requires them to buy special certificates if they do not or cannot buy enough advanced biofuels to meet the federal mandate. The American Petroleum Institute said that raises costs for refiners and motorists alike.

“The court recognized the absurdity of fining companies for failing to use a nonexistent bio­fuel,” said Bob Greco, API downstream group director. “But EPA wants to nearly double the mandate for the fuel in 2013. This stealth tax on gasoline might be the most egregious example of bad public policy, and consumers could be left to pay the price.”

The new EPA standard was good news for the makers of corn-based ethanol. The Renewable Fuels Association said the new regulations would be the “catalyst that finally compels oil companies to get serious” about making motor fuel with 15 percent or more ethanol content. Oil refiners have resisted that, too.

“The program is working as envisioned by Congress,” RFA President Bob Dineen said. He said that the EPA has shown “flexibility” by using the waiver power Congress gave it in the 2007 legislation. He added that “we fully expect 2013 to be the breakthrough year for cellulosic ethanol” and that the industry would be able to meet mandates in later years.

But Dineen said he was worried that there might be a flood of imported sugarcane-based ethanol from Brazil. Last year, those imports filled 92 percent of the U.S. advanced biofuel mandate, the RFA said. Dineen said that the EPA should restrict such imports.

Meanwhile, the Union of Concerned Scientists (UCS) said that the lower cellulosic ethanol requirements would lead to increased use of food-based biofuels to make up for a shortfall in cellulosic biofuels, which are better from a greenhouse gas viewpoint.

“EPA should exercise more discretion to reduce competition between food and fuel,” Jeremy Martin, a senior scientist with the UCS’s clean vehicles program, said in a statement. He said that markets for corn, sugar and vegetable oil are already tight and that any expansion of mandates for any food-based biofuels will put upward pressure on food prices.

“This year’s drought reminded us that our food supplies can be easily disrupted,” Martin added. “Cellulosic biofuel production is behind schedule, but that doesn’t mean we need to accelerate mandates that threaten our environment and our food supplies.”

 
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