U.S. Renewable Fuel Standard: Issues and Controversies Part 2

In my previous Biofuel Policy Watch post, I described issues and controversies surrounding the U.S. Renewable Fuel Standard (RFS). This program, which establishes annual minimum volumes of different categories of renewable fuel, has created a guaranteed market for biofuels that is largely independent of pricing and fuel costs, thus reducing the risk associated with biofuels production. I have posted a fairly detailed summary of the major provisions of the RFS, and how the biofuels industry has benefited from this law, on my Advanced Biotechnology for Biofuels blog. The controversies over the RFS have played out in the forum of public discussion, as well as Congress, the courts, and agency administrative proceedings. The previous Biofuel Policy Watch entry, Part 1 of this series, discussed issues relating to the corn ethanol mandates and fraudulent RINs. Today’s entry, Part 2 of the series, will complete the discussion. 

Cellulosic fuel mandates also under attack

The other major public controversy over the RFS has to do with the aggressive volume mandates the law established for the “cellulosic biofuel” category. Delays in commercial development of cellulosic ethanol, unforeseen in 2007 prior to the economic downturn which began in 2008, have left the industry far short of meeting these volume mandates: in fact, prior to 2012 there were no fuels produced in the U.S. that qualified as cellulosic biofuels under the RFS. Although EPA has continually relaxed the cellulosic requirements on a year-to-year basis, the recent attacks on the RFS relate to the alleged detrimental effects on fuel blenders and sellers due to the failure to meet the cellulosic mandate.

Under the Energy Independence and Security Act (EISA) of 2007 (the law that revised the Renewable Fuel Standard to create “RFS2”), very optimistic volume obligations were set for cellulosic fuels, but the law explicitly gave EPA the authority to revise these mandates on a year-by-year basis. Accordingly, the initial cellulosic biofuels mandate for 2010 was 100 million gallons, but in February 2010, EPA revised this mandate to require only 6.5 million ethanol-equivalent gallons. Similarly, the  original cellulosic mandate for 2011 was 250 million gallons, but in November 2010 EPA revised this mandate downward to 6.6 million gallons; and in December 2011 the 2012 mandate was reduced from 500 million gallons to 8.65 million gallons. However, until 2012 there were no functional plants for the production of fuels  that would qualify for the “cellulosic biofuel” category.  In July 2012, KiOR announced that it had succeeded in obtaining EPA certification under 40 CFR Part 79 of its gasoline blendstock derived from cellulosic feedstocks, but this is an EPA action that is separate from approval under the RFS, and at this writing, KiOR’s petition to have the fuel accepted under the RFS is still pending. Also in July 2012, Blue Sugars Corporation (formerly KL Energy) announced that EPA had granted the company approval to issue cellulosic RINs for ethanol that had been produced at company’s subsidiary demonstration plant, Western Biomass Energy LLC (although that ethanol appears to have been exported to Brazil for R&D and testing purposes). In August 2012, INEOS Bio announced that it had not only achieved Part 79 approval but also registration of its cellulosic ethanol plant under 40 CFR Part 80 (the RFS regulations). Once this plant begins producing ethanol, it would be able to issue cellulosic RINs.

The lack of commercial availability of cellulosic fuels has led to a number of actions from trade groups representing the petroleum industry to oppose the cellulosic mandates. For example, a group of petitioners led by the American Petroleum Institute has filed two lawsuits against EPA over the 2011 and 2012 cellulosic requirements in the RFS. Both cases argue that since there are no cellulosic RINs to date, EPA has no authority to mandate the purchase of cellulosic fuels. The 2011 lawsuit was filed in reaction to EPA’s May 2012 decision to deny an earlier petition that API filed, seeking a retroactive waiver of the 2011 cellulosic requirements. In December 2012, the U.S. Court of Appeals dismissed part of API’s suit over the 2011 mandate while allowing another part to go forward. The Court dismissed the challenge to EPA’s final rule setting the 2011 mandate because it was filed well after the 60-day period that was set for challenges to the rule. However, the Court ruled that the portion of the lawsuit challenging EPA’s denial of the retroactive waiver could go forward. About a week earlier in December, a panel of appeals court judges held oral arguments on the lawsuit challenging the 2012 cellulosic requirements, but it is not clear how soon a decision might be announced. Just recently, on December 31, 2012, the American Fuel & Petrochemical Manufacturers, an ally of API’s on these challenges, announced that it had petitioned EPA to waive the 2012 cellulosic biofuel mandate. In fact, in response to a January 11 EPA announcement that 1,741 gallons of cellulosic diesel fuel had been produced in November 2012 (over and above the 20,000 gallons of cellulosic ethanol produced in 2012), APFM has issued a sarcastic correction to their previous statement, saying that this newly-announced production “shows excellent progress toward complying with the EPA’s 2012 mandate of 10.45 million ethanol equivalent gallons of cellulosic biofuel. Six thousand additional months at this production level and the country will finally achieve EPA’s 2012 mandated volumes.”

Although it’s refreshing to see that some in the oil industry have a sense of humor, such comments and the industry’s position opposing the cellulosic mandates trivialize the significant technological and economic obstacles the cellulosic ethanol industry has had to overcome, and also overlook the significant progress that has been made. Although some biofuel opponents may be skeptical, a case can be made that 2013 will finally be the year for cellulosic fuels to break into commercial markets. In an online report, Bloomberg News predicts that production of cellulosic biofuels will rise almost 20-fold in 2013 compared to 2012. Based on data from the Energy Information Administration, the report projected that 9.6 million gallons of cellulosic fuels will be produced this year, substantially up from 2012 production but less than the RFS mandate for 2013. The Advanced Ethanol Council recently released a 35-page report profiling U.S. and Canadian cellulosic biofuels facilities and development projects, with additional information on overseas activities. The report includes profiles of companies including Abengoa Bioenergy, American Process Inc., Beta Renewables, BlueFire Renewables, Clariant, Enerkem, Fiberight, Fulcrum Bioenergy, Imbicon, Ineos Bio, Iogen, Kior, LanzaTech, Mascoma, Poet-DSM Advanced Biofuels and ZeaChem.

There has also been Congressional action aimed at creating relief from the cellulosic volume mandates. For example, Representative Jeff Flake of Arizona filed H.R. 6047, the Phantom Fuel Reform Act of 2012, in June 2012, which would have required the EPA to base the yearly cellulosic requirements on “actual production” of cellulosic fuels. Earlier, Senator Tom Udall of New Mexico had introduced S. 1564, the Renewable Fuel Parity Act of 2011, which would have combined the categories of “cellulosic biofuel” and “advance biofuel” into one technology- and feedstock-neutral category of “advanced biofuel”, thereby eliminating separate cellulosic volume requirements. These bills were not acted upon in the outgoing 112th Congress.

Challenges to the Entire RFS

The above discussion has focused on specific aspects of the RFS which critics have objected to. But there continues to be opposition to the overall RFS legislation, with frequent calls for its repeal or overhaul. For example, the  American Petroleum Institute has recently shifted its position from advocating revisions to the law such as those discussed above, to a policy favoring outright repeal. An official of API has recently called for the repeal of the RFS “because it is not working well and because it will force higher concentrations of ethanol in gasoline that could harm vehicles.”

There also have been Congressional attempts to repeal the RFS. One example is H.R. 3098, the Renewable Fuel Standard Elimination Act, which was introduced by Representative Robert Goodlatte of Virginia, that would repeal the entire program. Congress did not act on this bill, but the threat of additional legislation remains. There have been reports that several Republican House members intend to revisit the RFS with hearings in the new Congress.

In response to these more aggressive challenges to the law, a large coalition of advanced and traditional renewable fuel stakeholders — led by most of the major biofuels trade associations (such as BIO and RFA) and some of the leading cellulosic ethanol companies, including DuPont, Novozymes and POET — joined forces to defend the RFS.  In September 2012, these groups formed a coalition called FuelsAmerica, with online platform at FuelsAmerica.org, and since then the coalition has been conducting a national campaign to support the RFS, supported by a Washington public relations firm, that would include advertising both nationally and in key state markets. Most industry observers expect 2013 to see continuing, perhaps intensified, political battles over the RFS, making the lobbying and informational efforts of this coalition more critical to preserve the benefits of the RFS for the biofuels industry.

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 also serves 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 Joule Unlimited Technologies, Inc. or any other organization with which Dr. Glass is affiliated. Please visit our other blog, Advanced Biotechnology for Biofuels

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