Recent Developments on Renewable Fuels Policies

It’s been a busy start to 2015 for me, and so I haven’t had much free time for new posts to the blog. However, there have been numerous developments relating to the regulations and policies affecting renewable fuels. The following are brief summaries of some of these developments.

U.S. Renewable Fuel Standard


Schedule announced for issuance of annual volume mandates
.The U.S. EPA has still not issued a final rule to set the volume mandates under the RFS for 2014. Instead, the agency has been working on a single proposal to cover volume mandates for 2015, 2015 and 2016. More recent developments have affected these plans. On March 18, the American Fuel & Petrochemical Manufacturers and American Petroleum Institute filed suit against EPA in the U.S. District Court of the District of Columbia, asking the Court to require EPA to promptly issue the delayed volume mandates for 2014 and 2015. Late last week, it was reported that EPA will enter into a consent agreement with AFPM and API to settle this suit, under which EPA will commit to a schedule for issuing the delayed mandates. According to EPA’s website, this schedule is as follows.

  • Finalize the 2014 volume mandate by November 30. In addition, although not covered by the consent order, EPA said that it would issue a new proposal for the 2014 mandates by June 1, reflecting the volumes of renewable fuel that were actually used in 2014, to be the basis for the final rule due by November.
  • Issue proposed 2015 and 2016 volume mandates by June 1 and finalize them by November 30 (the 2016 commitment is outside the scope of the consent decree).
  • Also outside the consent decree, EPA said it will finalize the biomass-based diesel volume requirements for 2017, as required under the law, on the same June-to-November schedule.

Cellulosic waiver credits. In the meantime, the agency has announced other activities, including issuance of a direct final rule clarifying how EPA calculates cellulosic waiver credit prices under the RFS. Cellulosic waiver credits are available for obligated parties to show compliance with the cellulosic biofuel standard in any year in which EPA reduces the cellulosic volume mandate, as it has done for the past several years.

New RFS pathway petitions. EPA has also begun granting petitions for new fuel pathways under the RFS, under the procedures it announced in September 2014 (as described in my October 2, 2014 entry and follow-up posts in Advanced Biotechnology for Biofuels). Most of the approved petitions are for corn starch-to-ethanol pathways under the newly-instituted Efficient Producer program, but recent approvals have also included a new pathway for production of ethanol from algae, submitted by Algenol Biofuels.

EU Renewable Energy Directive


Proposed revisions to the RED. There’s been quite a bit of back-and-forth about the proposed amendment to the EU Renewable Energy Directive (RED) and its companion legislation the Fuel Quality Directive, but it appears that a political compromise has been reached. As last reported in Biofuel Policy Watch, European legislators and bureaucrats have been trying to reach agreement on amendments to these directives that would cap the contribution that food-based biofuels could make to the EU-wide goal of deriving at least 10% of energy in the transport sector from renewable fuels by 2020, while also finding a way to encourage the development and use of advanced biofuels not relaying on agricultural feedstocks. On April 1, 2015, representatives of the European Commission, the Parliament and the individual member states, meeting in so-called “trilogue” sessions, have agreed to cap food-based fuels at 7%, up from the original level of 5% first proposed in 2012. However, there appears to be no binding target for the percentage of the fuel supply to be attained by advanced biofuels.

A final compromise appears to have been reached by members of Parliament on April 14. According to reports, the amendment to the RED will cap food-based biofuels at 7%, will set an optional target of 0.5% for advanced biofuels, and would require reporting of indirect land use change (ILUC) but not require that ILUCs be taken into account when calculating carbon intensities under the directive. The proposal still needs the approval of the full Parliament, which is reportedly scheduled for April 29.

Oregon Low Carbon Fuel Standard


Oregon Clean Fuels Program will be fully implemented
. The early months of 2015 saw a great deal of activity regarding the Oregon Clean Fuels Program, a state law similar to the low-carbon fuel standard that has been in place in California for some time. It was last reported in the blog that the state’s Environmental Quality Commission had issued regulations to implement the Program, but that the legislature was about to again begin work on passing legislation to remove the “sunset date” under which the law would have expired at the end of 2015. A bill to remove the sunset date was approved by the Oregon Senate in February and debate in the House took place through early March, amidst a political scandal that drove newly-reelected Governor John Kitzhaber from office. Final House approval of the bill came on March 4. Kitzhaber’s successor, Governor Kate Brown, signed the bill on March 12, ensuring the continued implementation of the law going forward. I hope to analyze the regulations in a future blog post, but it is good to see that this law will remain on the books and will begin to be implemented. If progress can also be made in Washington State, we may yet see a situation where the entire U.S. and Canadian west coast would maintain incentives for adoption of renewable transportation 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. Dr. Glass previously served as director of regulatory affairs for Joule Unlimited Technologies, Inc. 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

 

Update: Oregon Low Carbon Fuel Standard Approved

This post is an important update to my year-end wrap-up of news relating to Low Carbon Fuel Standards in individual U.S. states, to report that Oregon’s LCFS program has been approved by that state’s Department of Environmental Quality.

Low Carbon Fuel Standards in Other States and Provinces


Oregon Clean Fuel Standard
. As previously reported in Biofuel Policy Watch, Oregon has had an LCFS program known as the Clean Fuels Program on the books since 2009, but it has not been fully implemented and is scheduled to “sunset” in December 2015. As reported in the year-end wrap-up in the previous post, the state’s Department of Environmental Quality has proposed new rules for this program, and these rules were considered by the Environmental Quality Commission on January 7-8, 2015.

In this meeting, the Oregon Environmental Quality Commission approved the rules which lay out the next phase of the Oregon Clean Fuels Program, with the stated goal of cutting greenhouse gases by lowering the carbon content in Oregon transportation fuels. The rules will go into effect Feb. 1, 2015. According to the agency’s website, the approved rules:

  • Establish clean fuel standards to reduce greenhouse gas emissions from Oregon’s transportation fuels by 10 percent over a 10-year period, implementing House Bill 2186, which the Oregon Legislature passed in 2009.
  • Require importers of transportation fuels – owners of the fuel when it crosses into Oregon – to reduce the average carbon intensity of fuels they provide in Oregon to meet the annual clean fuel standards. To meet the standards, regulated parties can choose a variety of strategies, including incorporating more lower-carbon biofuels, natural gas, biogas, propane or electricity into their fuel mix, or purchase clean fuel credits from providers of clean fuels.
  • Allow providers of clean fuels to generate and sell clean fuel credits for the fuels they provide in Oregon.
  • Establish fuel supply and fuel price deferrals to contain the program’s cost.

Continuance of the program is still contingent upon the State Legislature removing the December 31, 2015 sunset date, an effort which failed in the legislature last year.

This is clearly only the first step in what will be a long, possibly complex process for Oregon to develop a strong LCFS along the lines of the California program. However, it is very encouraging to see the state take this action, and coupled with other positive news coming out of Washington State in the latter months of 2014, it creates the strong possibility that in the near future, renewable fuel usage can be promoted by LCFS policies throughout the west coasts of the U.S. and Canada. with programs in all three U.S. states and British Columbia.

Other coverage of Oregon’s action can be found at http://www.opisnet.com/offers/images/opis_issue.pdf.

Previous Blog posts on Low Carbon Fuel Standards:

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. Dr. Glass previously served as director of regulatory affairs for Joule Unlimited Technologies, Inc. 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

 

End-of-Year News Wrap-up: Low Carbon Fuel Standards

As 2014 draws to a close, the following are some recent stories that have caught my attention, relating to several renewable fuel policy issues that I’ve followed from time to time in this blog. This entry will focus on issues relating to Low Carbon Fuel Standards in individual U.S. states and the Canadian province of British Columbia.

California Low Carbon Fuel Standard


Updates on California LCFS regulations. The staff of the California Air Resources Board (ARB, or CARB) has been working since early in 2014 on a series of potential amendments to the state’s Low Carbon Fuel Standard. This is being undertaken partially to address a court ruling directing ARB to take steps to cure some administrative deficiencies that the court found in the regulations. According to an ARB staff document, ARB staff is proposing that the Board re-adopt the LCFS regulation along with a proposed “suite of amendments [intended] to provide a stronger signal for investments in and production of the cleanest fuels, offer additional flexibility, update critical technical information, and provide for improved efficiency and enforcement of the regulation”. Among these proposed new regulations is a revised procedure for ARB review of applications to certify new fuel pathways under the LCFS. I have previously reported on the staff’s original (April 2014) proposal in a post earlier this year: aimed at reducing the substantial backlog of Method 2A and 2B applications, the April proposal would have classified first-generation biofuels (e.g. corn ethanol, renewable biodiesel) as Tier 1 fuels and advanced biofuels as Tier 2 fuels, and further would have created “bins” for the Tier 1 fuels– for example, assigning all Tier 1 fuels with carbon intensities of 80-90 in one bin with an assigned credit at the midpoint of 85. However, this proposal attracted some controversy because it might have accomplished a reduction in the number of petitions at the cost of losing the incremental advantage afforded to fuel developers by small improvements in carbon intensity.

ARB staff went back to the drawing board, and unveiled a revised proposal at a May 30 public meeting. In the May proposal, the staff was still proposing to distinguish between Tier 1 (1st Gen) fuels and Tier 2 (2nd Gen) fuels, but the “bin” concept for Tier 1 fuels was no longer being considered. Instead, all new Tier 1 fuels would use a proposed new “Tier 1 Calculator” spreadsheet under the CA-GREET 2.0 model to establish a carbon intensity value, with no need for filing a formal petition. Second generation (Tier 2) fuels would follow much the same procedures for submission of Method 2A or 2B applications as is currently the case. The proposal would also streamline the process by consolidating pathway application with the procedures needed for registration of fuel producers. I discussed this May 2014 proposal in a little more detail in my talk at the 2014 BIO Pacific Rim Summit on Industrial Biotechnology: you can find the slides from that presentation here.

At this writing, this remains only a proposal, which presumably would be adopted only as part of the larger regulatory overhaul that staff has been orchestrating. Those regulatory revisions were intended to be completed during 2014, which does not appear likely at this time, so the possible timing of the implementation of new procedures for fuel pathway approvals is not clear. More details on the various components proposed for the regulatory re-adoption can be found on the ARB website.

Low Carbon Fuel Standards in Other States and Provinces


Washington State Clean Fuel Standard
. On December 17, 2014, Governor Jay Inslee of Washington announced a number of legislative and regulatory proposals designed to “transition Washington to increased energy independence through use of clean energy, to reduce carbon pollution in Washington and to meet the statutory greenhouse gas limits adopted by the state Legislature in 2008”. Most prominent among these is a proposed cap-and-trade program to limit carbon emissions. Also among the proposals, Gov. Inslee has directed the state’s Department of Ecology to draft proposed regulations for a Clean Fuel Standard that would require a transition to cleaner fuels over time. Input will be sought from legislators, affected and interested parties and the public before formal rulemaking begins. The proposal for a Clean Fuel Standard follows on a revised analysis of the impact of a potential Clean Fuel Standard, prepared for the state by Life Cycle Associates LLC, Jack Faucett Associates and the Center for Climate Strategies, which was issued on December 12. This report analyzes several scenarios to achieve a 10% reduction in transportation fuel carbon intensity by 2026 relative to 2012 levels.

Oregon Clean Fuel Standard. Environmentalists are hopeful that, with Democratic gains in the State Senate, a favorable vote can be achieved to keep the Oregon Clean Fuel Standard in operation. As previously reported in Biofuel Policy Watch, the state has had such a program on the books since 2009, but it has not been fully implemented and is scheduled to “sunset” in December 2015. A bill in the Senate that would have extended the program failed to pass in 2014, but according to a recent press report, Senate Democrats plan to reintroduce such a bill when the new legislature convenes in January. According to this report, the state’s Department of Environmental Quality has proposed new rules for this program, which are expected to be approved by the Environmental Quality Commission on January 7-8, 2015. This proposal has continued to be controversial, in particular attracting opposition from oil industry groups and their allies.

British Columbia Renewable and Low Carbon Fuel Regulations. I briefly described this program of the Canadian province of British Columbia in a February 6, 2013 posting on my Advanced Biotechnology blog. According to the website of the province’s Ministry of Energy and Mines, this regulation led to the use of renewable and low carbon fuel in 2012 that “saved 904,868 tonnes of greenhouse gas emissions from being released into the environment, the equivalent of about 190,499 cars being removed from the road”. According to a recent editorial in The Globe and Mail, current Energy Minister Bill Bennett is reviewing this low-carbon-fuel regulation, with his report expected soon. The editorial writer expressed concern that, since former B.C. Premier Gordon Campbell left the provincial government, there may be less enthusiasm within the present government for environmental causes. In the meantime, the Low Carbon Regulation continues to be in effect, with the California company Trestle Energy being the latest firm to obtain a carbon intensity rating for its fuel under the British Columbia regulations. The company’s fuel is reported to be a a corn ethanol product with a very favorable carbon intensity compared to other corn-derived ethanols.

Previous Blog posts on Low Carbon Fuel Standards:

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. Dr. Glass previously served as director of regulatory affairs for Joule Unlimited Technologies, Inc. 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 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