Biofuels Law Conference: Discussion of International Biofuel Policies

On May 2, 2014, I presented a talk at the Energy Bioscience Institute (EBI) 6th Annual Biofuels Law and Regulation Conference at the University of Illinois, summarizing a number of key legal, policy and regulatory issues affecting the development of the biofuels industry in the U.S. and internationally. The slides from that presentation can be found here. In this series of posts in Biofuel Policy Watch, I’m elaborating on the issues I discussed in the presentation.  These posts are not meant to provide comprehensive summaries of the issues at hand, but instead to highlight some key aspects of my presentation and other discussions at the EBI conference. For most of these policy issues, you can find background information in other posts on this blog and my Advanced Biotechnology for Biofuels blog, and I’ll provide links such previous posts where possible.

In today’s post, I’ll briefly cover some of the international issues I discussed in the EBI presentation. I’ll also provide some brief updates on important international developments that have occurred in the weeks since that presentation. The two issues I highlighted in my talk were the EU Renewable Energy Directive and its importance in promoting the use of biofuels, particularly advanced biofuels, in the EU, and the need for consistent, broader, enforceable mandates for ethanol and biodiesel use in countries around the world. My talk also touched on issues relating to international trade harmonization.

European Union Renewable Energy Directive.  As I’ve described in several previous blog posts, the EU Renewable Energy Directive (along with its companion legislation the Fuel Quality Directive) is the major regulatory policy promoting the use of renewable fuels in the EU. As discussed last year in Advanced Biotechnology for Biofuels, the EU RED was put in place in 2009 to establish the goal for all EU member states to derive 20% of their overall energy consumption from renewable sources by 2020, including 10% of energy consumption within the transportation sector by the same year. This would be accompanied by concomitant reductions in greenhouse gas emissions as these targets are met. Companies selling transportation fuels to the public would be required to utilize fuels certified as renewable in order to meet these goals, while developers or producers of fuels had certain requirements to meet in order to demonstrate that the fuel is indeed produced renewably and sustainably.

As is the case with all EU directives, the 28 EU member states are obligated to adopt national laws containing all the provisions of the RED, and so the directive is enforced at the national level in all EU states. Compliance to date has therefore varied considerably from country to country, although it seems clear that the directive has led to increased adoption of renewable transportation fuels across the EU, and a number of renewable fuel producers have had their fuels certified as complying with the requirements of the directive.

However, most of the renewable fuels used to date in the EU have been first-generation fuels such as corn or sugar beet derived ethanol, or biodiesel or other renewable diesel fuels largely derived from vegetable oils or oilseed crops, so the mandates of the RED have become entangled with the politics of the “food vs. fuel” debates that are prominent in Europe. This led to the proposal, in October 2012, of an amendment to the RED that was aimed at discouraging the use of food-derived biofuels and encouraging the use of advanced biofuels not produced from food crops. The main feature of this proposal, which was originally described in a January 2013 post on this blog, was to establish a ceiling on the amounts of food-derived fuels that could be included in the volume of renewable fuel that each EU member state would count towards meeting its volume obligations. As originally proposed, this ceiling was 5%, meaning that, regardless of how much food-based biofuel was used in any country, the amount that could be applied towards the overall goals of renewable fuel use would be limited to 5% of the total transport fuel usage in the country.

In the months that followed, this proposal was debated at various levels within the EU, including by several different committees of the EU Parliament. On September 11, 2013, the full EU Parliament adopted a proposal which would set a limit of 6% for food-derived fuels, while setting separate targets for the use of advanced biofuels in the overall transport sector at 0.5% by 2016 and 2.5% by 2020. However, in meetings in December 2013, the Energy Ministers from EU nations failed to reach agreement on the path forward for these amendments, after considering compromise language that would have raised the limit on crop-based biofuels to 7% but would also have required mandatory reporting of indirect land use change (ILUC), the latter generally being opposed by the industry.

This stalemate persisted until only recently. In May 2014, a group of EU diplomats proposed a revised version of a proposed amendment which was agreed to by the Energy Council of the European Council in June 2014. The key provisions of this policy are a 7% cap on food-based biofuels as of the 2020 target date, an invitation to member states to promote the adoption of second and third generation biofuels by setting a national target for advanced biofuels of 0.5% of total fuel usage, among several other provisions. This proposal apparently still needs to be ratified by the Parliament, but the general reaction to this development was that the logjam was broken and that these are the changes that will be adopted as policy.

During my talk at the EBI conference, I didn’t come out in favor of any particular proposed amendment to the RED. However, I did stress the importance of maintaining the RED and the incentives it creates for biofuel usage, and, if amendments are to be adopted to the Directive, to be sure that they adequately address the goal of promoting the use of advanced (second or third generation) biofuels. It seems like the recent developments (which came after my talk at the conference in early May) are taking the policy in the right direction, although the final word will be written by the ultimate action by the EU Parliament.

International Trade Harmonization. The other broad international issue I touched upon in my talk is the issue of international trade policies. There have been recent developments relatating to some of the ongoing trade disputes between the EU and different regions of the world, several of which I’ve reported on in previous blog entries. One development has to do with the anti-dumping duties imposed in February 2013 by the EU on ethanol imported from the U.S. Apparently, companies were getting around this requirement by shipping U.S. ethanol to Norway, for subsequent importation into the EU. As a result of an investigation into this practice, on June 4, 2014, the European Commission decided to apply the duties on U.S.-originated ethanol coming into the EU from Norway. This action had been requested by the European trade association ePURE, which welcomed the news of the new duties. According to Ethanol Producer Magazine, a compliant in EU court filed in May 2013 by the Renewable Fuels Association and Growth Energy challenging the decision to impose an anti-dumping duty is still ongoing.

Other recent developments relate to EU anti-dumping duties on biodiesel coming from Argentina and Indonesia. These sanctions were imposed by the EU in 2013, a decision which Argentina had already challenged in December 2013. In June 2014, it was announced that Indonesia had also begun to challenge these duties, by filing a notice with the World Trade Organization, requesting consultations with the EU about these anti-dumping measures. Even more recently, the European Commission announced that it may renew for another five years anti-dumping tariffs already in place against U.S. biodiesel exporters. These duties were to have expired on July 11, but in announcing its intent to launch two new inquiries to see how the situation may have changed since 2009, the tariffs will remain in effect for as long as the investigations last.

Although I don’t have any unusual perspective into these trade controversies, during my talk at the EBI conference I highlighted the need to resolve international trade disputes so that renewable fuels produced anywhere in the world could be imported to any other region of the world where there might be a market. I acknowledge each nation’s right to protect its domestic industries from cheaper foreign imports, but climate change and energy security are global issues facing all countries, which demand global solutions, and it seems to me that these frequent disputes only serve as roadblocks to accomplishing those goals.

D. Glass Associates, Inc. is a consulting company specializing in government and regulatory support for renewable fuels and industrial biotechnology. David Glass, Ph.D. is a veteran of over thirty years in the biotechnology industry, with expertise in industrial biotechnology regulatory affairs, U.S. and international renewable fuels regulation, patents, technology licensing, and market and technology assessments. More information on D. Glass Associates’ government and regulatory consulting capabilities, and copies of some of Dr. Glass’s prior presentations on biofuels and biotechnology regulation, are available at www.slideshare.net/djglass99 and at www.dglassassociates.com. The views expressed in this blog are those of Dr. Glass and D. Glass Associates and do not represent the views of any other organization with which Dr. Glass is affiliated. Please visit our other blog, Advanced Biotechnology for Biofuels

Biofuels Law Conference: Discussion of Ethanol Blend Wall

On May 2, 2014, I presented a talk at the Energy Bioscience Institute (EBI) 6th Annual Biofuels Law and Regulation Conference at the University of Illinois, summarizing a number of key legal, policy and regulatory issues affecting the development of the biofuels industry in the U.S. and internationally. The slides from that presentation can be found here. In this series of posts in Biofuel Policy Watch, I’m elaborating on the issues I discussed in the presentation.  These posts are not meant to provide comprehensive summaries of the issues at hand, but instead to highlight some key aspects of my presentation and other discussions at the EBI conference. For most of these policy issues, you can find background information in other posts on this blog and my Advanced Biotechnology for Biofuels blog, and I’ll provide links such previous posts where possible.

In today’s post, I’ll briefly discuss issues related to the so-called ethanol “blend wall” that I discussed in the EBI presentation. As has been widely reported, the blend wall represents a somewhat artificial (yet real) limit on the amount of ethanol that can be blended into the U.S. gasoline pool. This limit, which is roughly 10% of the total volume of gasoline-based fuel sold in the U.S., arises largely because until recently, EPA regulations did not allow the blending of concentrations of ethanol greater than 10% into gasoline for use with conventional motor vehicles. Higher blends of ethanol, particularly E85 (85% ethanol, 15% gasoline) are sold for use in specialized “flex-fuel” vehicles that are designed to utilize such blends, but these vehicles comprise only a very small share of the U.S. automobile fleet. Almost all the gasoline sold in the U.S. today includes 10% ethanol (E10), for use with automobiles, light trucks, as well as motors on boats, lawn mowers, snowmobiles, etc. The blend wall poses a challenge to compliance with the U.S. Renewable Fuel Standard, since the yearly-escalating volume mandates under the RFS cannot be met in the short term without the use of amounts of ethanol that well exceed the blend wall limits.

EPA is responsible for setting limits on the amounts of ethanol in gasoline, under its responsibilities under the Clean Air Act. In 2010 and 2011, EPA announced that it had granted waivers under the Act to allow ethanol blends of up to 15% (E15) to be used in all cars and light trucks of model year 2001 or later. However, E15 was not allowed to be used in older cars and in other motors, so that EPA’s regulations allowing the sale of E15 additionally included some requirements aimed at preventing misfueling of E15 into vehicles or motors for which it was not permitted. See my January 11, 2013 posts on Biofuel Policy Watch and Advanced Biotechnology for Biofuels for more details about E15.

In spite of EPA’s action, adoption of E15 around the country has been slow, for a variety of reasons. Some of these are quite legitimate: in order to sell E15 along with E10 (and in some cases also E85), gas stations may need to retrofit their gasoline pumps to offer the different blends, and may also need to install new tanks or piping to accommodate the increased corrosiveness of the higher ethanol blends. Along with the labeling requirements of EPA’s regulations and other factors, the needed infrastructure changes to individual gasoline stations can be extensive and expensive. Furthermore, many states also regulate their gasoline supplies and had existing laws or regulations that placed the blend limit at 10% — those states would need to explicitly authorize the use of higher blends, often through legislative action.

Beyond these legitimate barriers, the acceptance of E15 has been hindered by the lobbying and (quite frankly) misinformation efforts of various parties opposed to the use of E15. Although EPA’s action to approve E15 was based on the results of extensive engine tests showing that the fuel can be used safely, opponents have funded and widely publicized studies purporting to show that E15 damages engines. The resulting publicity has cast doubt on the safety of E15, including concerns over whether use of E15 might invalidate the warranties on engines.

So, as long as E15 struggles to gain acceptance, the blend wall of 10% remains a reality, thus causing the conflict with the obligations under the Renewable Fuel Standard. During my talk, I made several suggestions for policies that might promote the use of higher ethanol blends, to help break through the blend wall. These included the following.

Adopt state legislation to guarantee that E15 can be sold; block state bills that would prohibit sale of blends greater than E10. There has been a fair amount of state legislative attention directed at E15 in recent years, some of which I’ve discussed in earlier entries on this blog (for example, my posts of May 23, 2013 and February 27, 2014). According to recent news reports, there are now 14 states which allow E15 to be sold, although in many of these states there are very few gas stations yet selling this fuel. On the other hand, the last 18 months or so have seen a flurry of activity in state legislatures that were considering bills to prevent the sale of ethanol blends greater than 10% — please see the May 23, 2013 post and others preceding it on the blog for summaries of activities in 2013, particularly in some of the New England states. The biofuel industry has lobbied hard against these bills, and has successfully defeated or neutralized most of them, but in general the bills that have passed impose limits that would only go into effect in that state if a specified number of neighboring states adopted similar bans. Among more recent (winter-spring 2014) activities and developments in state legislatures are the following.

  • In Missouri, a law was scheduled to go into effect at the end of May, allowing E15 to be sold in the state. According to press reports, Missouri will become the 13th state to allow E15 to be sold. However, as reported elsewhere, the law generated some controversy from groups opposed to the use of higher ethanol blends.
  • The first gasoline station to offer E15 in Ohio opened in late May, making Ohio the 14th state in which E15 is commercially available.
  • In Iowa, Governor Branstad signed a bill on May 21, 2014 that promotes biofuel usage in several ways, including extending the state’s biodiesel production tax credit, and enhancing the retailer tax credit for gasoline sellers who want to offer E15 during the summer driving season.
  • Earlier this year, South Dakota announced that it would begin incorporating E15 into its state vehicle fleet. This six-month test period was announced in March 2014 by Governor Dennis Daugaard
  • In New Hampshire, the state House passed House Bill 1220, which would limit the use of corn-based ethanol to 10 percent of the fuel mix used in New Hampshire, but only if two other New England states adopt similar legislation. However, on May 15, 2014, the State Senate voted to send the bill to an interim study, which effectively kills the bill for the current legislative year.

Adopt policies mandating use of alternative fuels and high ethanol blends in captive government fleets. One potentially powerful strategy available to federal, state and local governments would be to adopt policies mandating or favoring the use of higher ethanol blends in captive government fleets: the cars and trucks used by government agencies for internal purposes, as well as mail delivery vehicles and other motor vehicle fleets owned and operated by governments. There are a handful of examples of this (e.g. see the South Dakota news report mentioned above), but to my knowledge such policies are not common, but more widespread adoption of such policies could go a long way towards creating a market for E15 as well as E85 and the flex-fuel vehicles that can utilize E85.

Education and consumer communication about the safety and utility of higher ethanol blends. The efforts by those interest groups opposed to biofuel adoption have been successful in sowing doubt about whether E15 can safely be used in most automobile engines. Rigorous studies have been done establishing safety, but it has been hard for the industry to publicize and disseminate these results against the tide of misinformation coming from the opponents. Ethanol and biofuel advocacy groups are doing what they can: among other activities, the Renewable Fuels Association maintains a webpage promoting E15, and the American Coalition for Ethanol recently issued a press release aimed at E15 education for the public. However, these efforts need to be broadened and intensified, and ideally should be joined by the government agencies whose studies have shown efficacy and safety, and which maintain regulation promoting or authorizing use of higher ethanol blends. That being said, I know this is not an easy task, and that the efforts of many stakeholders will be needed.

Promoting infrastructure upgrades. As mentioned above, the most important tangible barrier to the acceptance of higher ethanol blends is the need for costly infrastructure improvements at gasoline stations around the country. Governments at all levels should adopt programs that allow, encourage or support the infrastructure upgrades that are needed for E15, E85 and other high ethanol blends, by providing grants, tax breaks and other types of assistance for retailers to improve infrastructure. Some efforts along these lines have taken place, but more are needed.

D. Glass Associates, Inc. is a consulting company specializing in government and regulatory support for renewable fuels and industrial biotechnology. David Glass, Ph.D. is a veteran of over thirty years in the biotechnology industry, with expertise in industrial biotechnology regulatory affairs, U.S. and international renewable fuels regulation, patents, technology licensing, and market and technology assessments. More information on D. Glass Associates’ government and regulatory consulting capabilities, and copies of some of Dr. Glass’s prior presentations on biofuels and biotechnology regulation, are available at www.slideshare.net/djglass99 and at www.dglassassociates.com. The views expressed in this blog are those of Dr. Glass and D. Glass Associates and do not represent the views of any other organization with which Dr. Glass is affiliated. Please visit our other blog, Advanced Biotechnology for Biofuels

Biofuels Law Conference: Discussion of Low Carbon Fuel Standards

On May 2, 2014, I presented a talk at the Energy Bioscience Institute (EBI) 6th Annual Biofuels Law and Regulation Conference at the University of Illinois, summarizing a number of key legal, policy and regulatory issues affecting the development of the biofuels industry in the U.S. and internationally. The slides from that presentation can be found here. In this series of posts in Biofuel Policy Watch, I’m elaborating on the issues I discussed in the presentation.  These posts are not meant to provide comprehensive summaries of the issues at hand, but instead to highlight some key aspects of my presentation and other discussions at the EBI conference. For most of these policy issues, you can find background information in other posts on this blog and my Advanced Biotechnology for Biofuels blog, and I’ll provide links such previous posts where possible.

The previous entry discussed the U.S. Renewable Fuel Standard, administered by the Environmental Protection Agency, that provides an escalating series of mandated volumes of renewable fuels that must be sold in the U.S through 2022, and specifies the criteria under which fuels can be certified as renewable. The RFS has been a powerful incentive for the biofuels industry since the law’s inception in 2005, but its impact has been supplemented by a similar, but differently-structured program in place in California, the state with the largest single economy in the U.S. This is the Low Carbon Fuel Standard (LCFS), put in place as a result of Assembly Bill AB 32, a broad-based climate change bill enacted by the California legislature in 2006. I have described this program in detail in a post last year in Advanced Biotechnology for Biofuels, but the following is a summary of some key points.

Implemented by an Executive Order pursuant to AB 32, the LCFS, issued on January 18, 2007, requires producers of petroleum-based fuels to reduce the carbon intensity of their products by 10% by 2020, beginning with 0.25% in 2011. The parties obligated by this requirement, such as petroleum importers, refiners and wholesalers, can meet these obligations either by developing their own low carbon fuels, incorporating other companies’ fuels in their products, or by buying LCFS Credits from other companies. The LCFS is administered by the California Air Resources Board (CARB).

The key to the LCFS is that renewable fuels qualifying under the program are assigned values corresponding to their carbon intensity. “Carbon intensity” is defined as the net mass of carbon dioxide gas (or its equivalent) that is released over the life cycle of the fuel, taking into account the energy and materials needed to produce the fuel, usually measured against a baseline, i.e. the carbon intensity of the fuel it is meant to replace. When the regulations were established, the carbon intensities of certain renewable fuels were determined by CARB staff and entered into a look-up table. For those fuels not covered by an entry on the look-up table, the developing company needs to submit a petition to CARB calculating the carbon intensity through a life cycle analysis, and upon approval of the petition, the fuel and its carbon intensity are entered into the look-up table. The carbon intensity of the fuel determines the economic value of the credits each fuel is entitled to under the program.

The LCFS and programs like it differ from the RFS, because under the RFS, each fuel is assigned to one of four categories defined by minimum carbon intensity (or GHG emission reductions) and there is no added value to the company if the carbon intensity of that fuel is later improved – all fuels above that minimum are lumped together. Under LCFS schemes, the economic value of the fuel (i.e. the credit to which it is entitled) is determined by the carbon intensity, so fuels with incrementally better GHG emission reductions have a greater economic value.

The following are some of the issues relating to low carbon fuel standards that I discussed during my presentation as being important for the growth of the biofuels industry.

Ensure continued enforcement of California LCFS and overcome pending court challenges. To date, the California LCFS seems to be working well in encouraging the use of renewable fuels in the state. The statistics that CARB reports each quarter show that the number of LCFS credits generated has been growing substantially, and a market for the trading of credits has emerged over the past two years or so. However, the program continues to face challenges. As I’ve reported in previous posts on this blog, the State of California has been fighting two court challenges. One suit is in federal court, alleging that the program violates the Interstate Commerce clause of the U.S. Constitution because, in taking the costs and emissions of transporting the fuel into account, it places fuels produced out of state at a disadvantage to fuels produced in-state. The other suit is in state court, alleging that CARB made various administrative errors in promulgating the rule.

Although CARB has had some setbacks in both cases, the courts have allowed the agency to continue administering the program while the suits progress, and at this writing the overall program seems not to be threatened by either lawsuit. However, two industry groups and twenty-one states have recently filed petitions with the U.S. Supreme Court, asking the Court to review the Court of Appeals ruling that was favorable to CARB in the federal suit, so the possible impact of continuing or new litigation cannot be discounted. I should note that there are differing opinions on the California LCFS within the biofuels industry: several Midwestern corn ethanol producers are among the groups that have challenged the LCFS in federal court, due to the way out-of-state fuels are treated under the rules.

Adopt sensible revisions to the LCFS petition process. CARB is also currently considering several revisions to its regulations, one of which affects its petition process for new fuel pathways. Like the RFS, the LCFS includes the requirement for developers of new fuels not covered by existing pathways to submit petitions for approval of and assignment of a carbon intensity to their pathway. Similarly to EPA, CARB has seen a far greater number of petitions than they had expected, even from applicants producing first-generation biofuels extremely similar to fuels already approved. I believe this is, in part, an outgrowth the structure of the LCFS – because developers are entitled to credits that correspond to their carbon intensities, this creates an incentive for companies to file new petitions rather than to rely on the “look-up” value of the similar fuel, hoping to qualify for a credit that is a few points better than that shown on the look-up table. CARB’s proposal, which is now out for public comment, would attempt to solve this problem by assigning first-generation biofuels (e.g. corn ethanol, renewable biodiesel) into tiers – for example, assigning all fuels with carbon intensities of 80-90 in one tier with an assigned credit at the midpoint of 85. Many have voiced their opposition to this scheme, since it may accomplish a reduction in the number of petitions at the cost of losing the incremental advantage afforded by small improvements in carbon intensity. The timetable for adopting any such change is not clear, but it points out the challenges facing the state in administering a popular program at a time when more and more companies are developing or producing biofuels. These challenges may well affect decisions by other U.S. states or Canadian provinces to adopt similar LCFS regulations.

Extend LCFS regulations beyond California. Although California is the only U.S. state that is currently implementing and enforcing low carbon fuel standard regulations, similar laws have been adopted or have been considered in other states (an LCFS is in place in the Canadian province of British Columbia, which I won’t discuss here). I’ve discussed these other programs in detail in a post last year in Advanced Biotechnology for Biofuels. During my presentation, I briefly discussed the current status of these programs, as follows.

  • In Oregon, an LCFS has been enacted, and the state has begun implementation of the first phase of the program, which entails mandatory reporting by fuel providers of the renewable content of the fuels they sell. However, progress towards fuller implementation of the law faces two obstacles. The first is that the legislature has not yet authorized the executive branch to move beyond the first phasewhich would be to require fuel producers and importers to achieve a 10% reduction in carbon intensity by 2025; and the second is that the law itself is scheduled to expire (via a “sunset” provision) in December 2015. In recent weeks, Governor Kitzhaber has attempted to overcome the first obstacle by issuing an executive order authorizing the next phase of the program to begin, but as of yet he has been unable to have the state legislature agree to remove the 2015 sunset provision. Full implementation of the Oregon LCFS is dependent upon success on both fronts.
  • Washington State has, from time to time in recent years, considered the adoption of an LCFS, most recently in 2011 when a Department of Ecology report recommended adoption of a program with the goal of reducing transportation fuel carbon intensity 10% from 2007 levels by 2023. However, the state took no action on this recommendation until just recently – in April 2014, Governor Inslee issued an executive order for a feasibility study of a low carbon fuel standard as part of a larger program for reducing carbon emissions.

The interest in LCFS regulations by the three U.S. West Coast states, along with British Columbia, opens the possibility of there someday being a broad-based regional alliance having similar goals of reducing carbon emissions from transportation fuels through a low-carbon fuel standard. In fact, during my talk, I suggested that broader adoption of state or regional LCFS rules could be one way to overcome some of the shortcomings of the federal RFS without the need for Congressional action. Adoption of low carbon fuel standards in states representing a significant portion of the national economy could create a de facto national LCFS by providing the incentive to sell advanced renewable fuels nationwide. California itself represents about 12-13% of the nation’s economy and about 10% of gasoline consumption, and adding Oregon and Washington would bring the total closer to 20% of the economy and 13% of gas consumption, which would be a good start, if other states or regions could follow suit.

D. Glass Associates, Inc. is a consulting company specializing in government and regulatory support for renewable fuels and industrial biotechnology. David Glass, Ph.D. is a veteran of over thirty years in the biotechnology industry, with expertise in industrial biotechnology regulatory affairs, U.S. and international renewable fuels regulation, patents, technology licensing, and market and technology assessments. More information on D. Glass Associates’ government and regulatory consulting capabilities, and copies of some of Dr. Glass’s prior presentations on biofuels and biotechnology regulation, are available at www.slideshare.net/djglass99 and at www.dglassassociates.com. The views expressed in this blog are those of Dr. Glass and D. Glass Associates and do not represent the views of any other organization with which Dr. Glass is affiliated. Please visit our other blog, Advanced Biotechnology for Biofuels

Biofuels Law Conference: Discussion of Renewable Fuel Standard

On May 2, 2014, I presented a talk at the Energy Bioscience Institute (EBI) 6th Annual Biofuels Law and Regulation Conference at the University of Illinois, summarizing a number of key legal, policy and regulatory issues affecting the development of the biofuels industry in the U.S. and internationally. The slides from that presentation can be found here. In a series of posts in Biofuel Policy Watch beginning today, I’m elaborating on the issues I discussed in the presentation.  These posts are not meant to provide comprehensive summaries of the issues at hand, but instead to highlight some key aspects of my presentation and other discussions at the EBI conference. For most of these policy issues, you can find background information in other posts on this blog and my Advanced Biotechnology for Biofuels blog, and I’ll provide links to such previous posts where possible.

Today’s post covers issues relating to the U.S. Renewable Fuel Standard (RFS). The RFS is widely considered the most important piece of legislation for the promotion of the biofuel industry in the U.S. I’ve described this law in detail in several posts in the Advanced Biotechnology for Biofuels blog (for example, starting with this post from January 2013), and additional information can be found on the EPA website  and plenty of other places on the Web. The key features of the RFS are the establishment of goals for reduction of greenhouse gas emissions from transportation fuels, and setting mandated, escalating volumes of four different categories of renewable fuels that must be included within the U.S. motor vehicle fuel supply each year, as well as defining which fuels fall into which categories based on their expected levels of greenhouse gas emission reductions. By setting the yearly volume obligations at aggressive levels, the RFS set ambitious goals for the industry to meet, and by having the levels escalate from year to year, the law also provided the basis for future growth of the industry.

In the early years under the law, these goals were spectacularly met – usage of renewable fuels, particularly ethanol and renewable biodiesel, rose markedly to meet each year’s volume obligations, and the law provided the market stability that has encouraged and facilitated investment in the biofuel sector. However, the amount of ethanol approved for blending in the nation’s gasoline market has been limited by the maximum 10% blend percentage that EPA had originally approved, and although EPA recently gave its OK for 15% blends with some limitations, the 10% figure has created the so-called “blend wall” that has begun to limit the upside market potential for ethanol in the U.S. Concerns over the blend wall, along with the delays that have been seen in commercializing cellulosic biofuels, has led to Congressional scrutiny of the law, with Republican calls for its repeal or substantial revision, as well as court challenges to EPA’s yearly volume obligations. In the fall of 2013, EPA generated substantial controversy by proposing significant reductions to the 2014 volume mandates, partially in response to these criticisms and partially reflecting the slower than expected progress in commercialization of advanced biofuels such as cellulosic ethanol. At this writing, EPA is still reviewing public comments and has not finalized the 2014 volume mandates.

The following are three key points I made in my presentation about the RFS and its importance for the development of the biofuel industry.

Ensure the stability of the RFS and its policies. Most industry observers would probably agree that this is the highest priority of all that relates to the U.S. biofuel industry and markets. As noted above, the several years culminating in 2013 saw intensified pressure from Congressional Republicans and competing interest groups for the repeal or substantial revision of the RFS. It has therefore become somewhat of an industry mantra in recent years to say that the RFS must be retained in its current form, without modification, in order to preserve its ability to continue to promote the growth of the industry. However, in discussions at the EBI conference, several speakers, while acknowledging the importance of the RFS, also focused on the shortcomings of the law and the need to fix it. Several speakers acknowledged that the ethanol blend wall poses problems for the aggressive volume mandates for the next several years as included in the original legislation, and there were suggestions that it might be appropriate to change the RFS to be more like the California Low Carbon Fuel Standard, so that fuels providing greater reductions in greenhouse gas emissions are better rewarded, and therefore incentivized relative to first generation biofuels. Although no one had concrete suggestions for any such revisions, at least one speaker expressed the view that “we need to revise the RFS in order to save it”.

I don’t disagree with that sentiment, except to say that in today’s political climate it is not realistic to expect a bitterly-divided Congress to find a sensible bipartisan approach to revising the RFS, so that the best the industry can do is to try to head off blatant attempts to simply repeal the law. I think the industry should engage in any substantive, good faith discussions about revisions to the law, but in the short term, I’m hopeful that EPA’s actions to scale back some of the more aggressive volume mandates will stave off Republican attempts to repeal the law, and that EPA can strike a balance between setting volume mandates that are reasonable but which are still aggressive enough to provide the incentive for continuing investment and development of advanced biofuels in the years to come. In the meantime, the biofuels industry awaits EPA’s decision on the final rule for the 2014 volume mandates, expected for June, with baited breath.

Expedite, streamline RFS pathway reviews. The more practical problem facing biofuel companies wishing to benefit from the RFS is EPA’s backlog in approving petitions for new fuel production pathways. Under the RFS each renewable fuel is assigned into one of four categories, based on their production method and expected greenhouse gas (GHG) emission reduction. These four categories are “renewable fuel” (with at least 20% GHG reduction); “advanced biofuel” (at least 50% reduction); “biomass-based diesel” (also with at least 50% reduction); and “cellulosic biofuel” (requiring a cellulosic feedstock and at least a 60% reduction in GHG emissions). Certain fuels were assigned to a category when the “RFS2” regulations were instituted in 2010, but for fuels produced by other, newer pathways, it is necessary for companies to file petitions with EPA to have the agency review the pathway, its life cycle analysis and expected GHG reductions, and other factors, so that the pathway can be approved and assigned into a category, after which the company can issue Renewable Identification Numbers (RINs) for its fuel.

EPA was caught unawares by how many companies would need to take advantage of this procedure and how many petitions they would receive. As a result, a substantial backlog of petitions has arisen (36 pending as of this writing) and the average time EPA has needed to review and approve each petition has also risen to levels of concern to the industry. This has been described in more detail in several recent posts on Advanced Biotechnology for Biofuels: see this post for more information. As a result, in a Program Announcement dated March 2014, EPA announced that it was initiating activities to improve the petition process for new fuel pathways under the RFS.  EPA said that it found “that improvements should be made to the petition process to enable more timely and efficient decision-making” in the RFS program.

Several speakers at the EBI conference highlighted the need for a more efficient, transparent petition process, and I agree. Although I think that, overall, EPA’s move is a good one, the one troubling aspect of EPA’s announcement is that they have asked companies to voluntarily hold off on submitting new pathway petitions for six months (i.e. until roughly September 2014) while the internal review is underway. Although some in the industry are concerned about this unofficial “moratorium”, I’m not particularly troubled, because any company submitting a new petition at this time would have gone to the back of the queue anyway, and so would not be likely to see any EPA action in the near term under any circumstances, so I doubt any company will be unduly disadvantaged by this short delay. Let’s hope EPA is able to improve its processes in a meaningful way.

Create viable, reliable RIN validation schemes to avoid RIN fraud. One of the major advantages of the RFS for renewable fuel producers is the ability to generate Renewable Identification Numbers (RINs) for each gallon of fuel they produce. RINs are tradable on the open market, and have fluctuating value based on changing market and economic situations at any given time. When responsible parties (e.g. gasoline sellers) are not able to obtain enough quantities of renewable fuels to meet their volume obligations, they can purchase RINs on the open market to help meet their obligations. Therefore, RINs (which are issued in different categories corresponding to the different renewable fuel types under the RFS) tend to have a higher value when actual supplies of fuels are, or are expected to be low, and tend to have a lower value when supplies are more plentiful and responsible parties don’t need to buy RINs to meet their obligations (although like many financial instruments, RINs are subject to price fluctuations due to market speculation and other factors).

To some extent, the system depends on the reliability of the system and the authenticity of the RINs on the market. RINs are not issued by EPA – RINs are 38-character numeric codes that are created by the entity that first produces the fuel, using a formula EPA established in the RFS rule. The system works in a sort of “honor system” whereby the RINs generated are supposed to correspond to tangible volumes of fuel. Unfortunately, there were several very well publicized instances of RIN fraud, largely in 2012, where companies created and sold RINs for volumes of diesel fuel that did not actually exist, and when this fraud was uncovered, not only were the offending companies subject to fines and criminal penalties, but the companies which unknowingly purchased the fraudulent RINs were also subject to penalties for missing their volume obligations. This situation created quite a bit of uncertainty in the RIN markets at the time, particularly for biomass-derived diesel RINS.

In response, in January 2013 EPA proposed rules to establish a voluntary quality assurance program that would include auditing and validation of RINs by independent third-parties, so that purchasers of the RINs could be assured that the RINs were valid. The proposal did not place the burden of validation on EPA itself, but instead would allow third parties to qualify to provide auditing and validation services, and the proposed rule specified the minimum requirements any such third party would need to adopt to develop a quality assurance program. Under a critical part of the proposal, obligated parties would be able to invoke an affirmative defense against civil liability arising from the transfer and use of invalid RINs that had been verified under a quality assurance plan. EPA published the proposed rule for public comment and in the wake of what was likely substantial comment from industry parties, the agency has not yet finalized the rule.

Even before adoption of a final rule, several independent consulting firms announced that they were developing plans for such quality assurance programs, and no doubt regulated parties have themselves become more cautious about the RINs they purchase. There have been no reported instances of RIN fraud since 2012, and at least two of the alleged perpetrators were convicted in 2013 and sentenced to jail time. So it may be that the problem will be solved by more vigorous internal policing from within the industry, but there is no doubt that the ongoing success of the RFS depends on the integrity, and the perceived integrity, of the RINs generated by fuel producers.

D. Glass Associates, Inc. is a consulting company specializing in government and regulatory support for renewable fuels and industrial biotechnology. David Glass, Ph.D. is a veteran of over thirty years in the biotechnology industry, with expertise in industrial biotechnology regulatory affairs, U.S. and international renewable fuels regulation, patents, technology licensing, and market and technology assessments. More information on D. Glass Associates’ government and regulatory consulting capabilities, and copies of some of Dr. Glass’s prior presentations on biofuels and biotechnology regulation, are available at www.slideshare.net/djglass99 and at www.dglassassociates.com. The views expressed in this blog are those of Dr. Glass and D. Glass Associates and do not represent the views of any other organization with which Dr. Glass is affiliated. Please visit our other blog, Advanced Biotechnology for Biofuels

Upcoming Presentation: Biofuel Legal and Policy Issues

This Friday, May 2, 2014, I will be presenting a talk at the 6th Annual Biofuels Law and Regulation Conference at the University of Illinois. My talk, entitled “Legal and Policy Issues Affecting Biofuel Development,” will briefly summarize a number of key legal, policy and regulatory issues that are critical for the successful development of the biofuels industry in the U.S. and internationally. The slides from that presentation can be found here, and after the conference, I’m planning a series of posts here on in Biofuel Policy Watch to elaborate on the issues I intend to cover in the presentation. These topics are as follows (with links to the blog posts describing each topic):

In each post, I’ll briefly summarize the issues I’ve presented in the talk, and to the extent possible I’ll also report on any relevant discussion on these topics that arose during the conference. I’ll be happy to answer any questions anyone may have on this presentation, these topics, and the forthcoming blog entries.

D. Glass Associates, Inc. is a consulting company specializing in government and regulatory support for renewable fuels and industrial biotechnology. David Glass, Ph.D. is a veteran of over thirty years in the biotechnology industry, with expertise in industrial biotechnology regulatory affairs, U.S. and international renewable fuels regulation, patents, technology licensing, and market and technology assessments. More information on D. Glass Associates’ government and regulatory consulting capabilities, and copies of some of Dr. Glass’s prior presentations on biofuels and biotechnology regulation, are available atwww.slideshare.net/djglass99 and at www.dglassassociates.com. The views expressed in this blog are those of Dr. Glass and D. Glass Associates and do not represent the views of any other organization with which Dr. Glass is affiliated. Please visit our other blog, Advanced Biotechnology for Biofuels

 

U.S. Federal and State Biofuel Policy News: February 27, 2014

Here’s an update on recent news items and other public policy developments relating to biofuel policies at the federal and state levels in the U.S.

Federal Legislative Developments


Farm Bill Passage. As has widely been reported in the trade press and lay press, in late January Congress passed, and President Obama signed, a new Farm Bill to replace the Farm Bill of 2007 that had expired at the end of 2012. The bill restored mandatory funding for the Energy Titles of the bill, an also extended eligibility of these programs to processes for production of renewable chemicals. The bill, which was widely heralded as a rare example of bipartisanship in the U.S. Congress, is also viewed as a victory for the biofuels and industrial biotechnology industry.

Biodiesel tax incentive extension. On February 12, 2014, Sens. Maria Cantwell, D-Wash., and Charles Grassley, R-Iowa, introduced a bill to extend the expired biodiesel tax incentive for three years. This incentive would apply to biodiesel, renewable diesel and renewable aviation fuel. The bill, S. 2021, would extend the tax incentive until 2017. However, the tax code overhaul bill more recently introduced by Rep. Dave Camp, R-Mich., would repeal and not reinstate any of the expired biofuel incentives or credits. Prospects for passage of the Camp overhaul bill in the current Congressional session are generally considered to be dim.

Bill filed to assist fuel retailers invest in alternative fuels. Representative Dave Loebsack (D-Iowa) has introduced the Renewable Fuel Utilization, Expansion and Leadership, also known as the  Re-FUEL-Act. This bill, H.R. 4051, would create a competitive grant program to provide funds for fuel retailers to use to make investments in renewable and alternative fuel and energy sources. It is meant to address the need for infrastructure changes at the retail level to allow improved consumer access to renewable fuels such as biodiesel and higher ethanol blends.

State Legislative and Policy Developments


New Hampshire legislation introduced
.  A bill has been introduced in the New Hampshire State Legislature, HB 1220, that would prohibit the blending of more than 10% corn-based ethanol in gasoline in the state. A hearing on the bill was held by the House Science, Technology and Energy Committee on February 11, 2014, at which several proponents of ethanol, including the Biotechnology Industry Organization and the Advanced Ethanol Coalition, testified against the bill.

Missouri ethanol blending policy. In Missouri, on February 6, 2014, a State Senate committee debated whether to block a proposal that would allow ethanol/gasoline blends of up to 15% (E15) be sold in the state. The state’s Agriculture Department issued a rule in 2013 that would have allowed the sale of E15, but that rule was blocked by a legislative committee, due to concerns touted by business groups, car manufacturers and the petroleum industry that E15 blends might damage engines. Permanently blocking the rule would require approval by early March 2014 of both branches of the Missouri legislature and the signature of the governor, who is on record as supportive of E15.

Low Carbon Fuel Standard News


California Low Carbon Fuel Standard. In February 2014, The California Air Resources Board (CARB) issued an update to its scoping plan which indicated that it intends to extend the requirements of the California Low Carbon Fuel Standard through 2030. CARB did not provide further details of its plans, except to say that it plans during 2014 to propose “more aggressive targets for 2030”.

Oregon Low Carbon Fuel Standard.  On February 13, 2014, Oregon’s governor John Kitzhaber announced his intention to use executive authority to extend Oregon’s Clean Fuels Program beyond its scheduled December 2015 expiration. Legislative efforts to extend the program past this “sunset” date failed last year and have not sufficiently progressed so far this year, and so Gov. Kitzhaber said he would direct the Department of Environmental Quality to move to the second phase of the program, under which fuel distributors would be required to meet targets for low-emission motor vehicles fuels.

D. Glass Associates, Inc. is a consulting company specializing in government and regulatory support for renewable fuels and industrial biotechnology. David Glass, Ph.D. is a veteran of over thirty years in the biotechnology industry, with expertise in industrial biotechnology regulatory affairs, U.S. and international renewable fuels regulation, patents, technology licensing, and market and technology assessments. More information on D. Glass Associates’ government and regulatory consulting capabilities, and copies of some of Dr. Glass’s prior presentations on biofuels and biotechnology regulation, are available at www.slideshare.net/djglass99 and at www.dglassassociates.com. The views expressed in this blog are those of Dr. Glass and D. Glass Associates and do not represent the views of any other organization with which Dr. Glass is affiliated. Please visit our other blog, Advanced Biotechnology for Biofuels

 

International Biofuel News: February 20, 2014

Here’s an update on recent news items and other public policy developments in recent weeks relating to the development and commercialization of renewable fuels in Europe.

European Union Renewable Energy Directive


In news relating to the EU Renewable Energy Directive (RED), it was announced that the European Commission had filed suit in the EU Court of Justice against the Republic of Ireland for its alleged failure to implement its obligations under the RED.

Also in February, the U.K. Department of Energy and Climate Change issued updated statistics for the U.K.’s compliance with its RED obligations, showing that 1.34 billion liters of renewable fuels were used in the12-month reporting period that ended in April 2013. This represented 3% of the total road transport fuels used in the U.K. in that time period.

On January 22, 2014, the European Commission issued its 2030 framework for climate and energy policies, to extend EU’s goals for greenhouse gas emission reductions beyond 2020 when the RED will end. Many in the biofuel industry were disappointed that this proposal did not include any proposals for binding targets for renewable fuel use in motor vehicle transport beyond 2020.

European Union Ethanol Policies


EU ethanol anti-dumping actions
.  In late January 2014, the European ethanol trade association ePure filed a formal complaint with the European Commission, alleging that U.S. ethanol producers are illegally dumping ethanol at low prices onto the European market in circumvention of the anti-dumping duties the EU imposed on U.S. ethanol in February 2013. The allegation is that U.S. ethanol is being exported to Norway, which is not an EU member state, and then exported from Norway into the EU in the form of E48 ethanol/gasoline blends. ePure says that Norwegian ethanol imports from the U.S. have grown tenfold in the past year.

More recently, ePure has also pointed to rising exports of ethanol from Peru into the EU, following the entry into force of the EU’s Free Trade Agreement with certain Central and South American countries in August 2013. The association claims that a three-fold increase of ethanol exports from Peru to the EU to over 93 million liters in the first ten months of 2013 has corresponded to exports from the U.S. into Peru of about 84 million liters in the same time period.

The subject of dumping and the EU ethanol tariffs was the cause for a spirited debate at a panel session of the National Ethanol Conference on February 18, 2014, in which Rob Vierhout, the head of ePure, defended the need for tariffs against assertions made by Bob Dineen, the executive director of the Renewable Fuels Association and other North American industry representatives.

Previous Biofuel Policy Watch posts on international biofuel news:

D. Glass Associates, Inc. is a consulting company specializing in government and regulatory support for renewable fuels and industrial biotechnology. David Glass, Ph.D. is a veteran of over thirty years in the biotechnology industry, with expertise in industrial biotechnology regulatory affairs, U.S. and international renewable fuels regulation, patents, technology licensing, and market and technology assessments. More information on D. Glass Associates’ government and regulatory consulting capabilities, and copies of some of Dr. Glass’s prior presentations on biofuels and biotechnology regulation, are available at www.slideshare.net/djglass99 and at www.dglassassociates.com. The views expressed in this blog are those of Dr. Glass and D. Glass Associates and do not represent the views of any other organization with which Dr. Glass is affiliated. Please visit our other blog, Advanced Biotechnology for Biofuels