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

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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

 

Biofuel Policy Updates January 24, 2014

Here’s a quick wrap-up of some recent developments relating to biofuel policies in the U.S., particularly relating to the U.S. Renewable Fuel Standard (RFS) and the California Low Carbon Fuel Standard (LCFS).

2014 RFS volume mandates. The end of the public comment period is approaching on the US EPA’s proposed rule for the 2014 volume mandates (renewable volume obligations, or RVOs) under the RFS. As I reported in my 2013 year-end summary, this proposal represented the first time that EPA was proposing to reduce not only the targets for cellulosic fuels, but also the mandated volumes both for advanced biofuels (a category which includes cellulosic fuels) and the overall target for all renewable fuels. The biofuel industry and its proponents have been up in arms about this proposal, conducting an intense war of words in the media, the Twittersphere, and elsewhere, with numerous companies, trade groups, elected officials and others publicly voicing their opinions opposing these reductions in the RVOs. The public comment period closes on January 28, 2014, and it is not known how quickly EPA will respond and set the final 2014 volume mandates. My prediction is that EPA will respond to the public comments by raising the volumes from the levels in the proposed rule, but not restore them to the levels originally set in the RFS legislation.

Challenges to the RFS. In October 2013,  the American Petroleum Institute (API) and the American Fuel & Petrochemical Manufacturers (AFPM) filed petitions with the EPA challenging the 2013 cellulosic biofuel volume mandates, in view of an August 2013 announcement from KiOR that the company was lowering its projections for the amount of cellulosic biofuels it would be able to produce that year. On January 23, 2014, EPA announced, in letters to API and AFPM posted on its website, that it was partially granting these petitions for reconsideration of the 2013 cellulosic RVOs, based on the “new information” from KiOR, and that EPA expected to propose such revised volume mandates in upcoming rulemaking. I haven’t yet seen any industry reaction to this announcement, but I’m sure that responses from the biofuel industry will be swift and harsh, especially coming so closely on the heels of EPA’s proposed reduction in the 2014 RVOs. Note that the October 2013 petitions are different from the petitions filed by API and AFPM in August 2013 asking for a partial waiver of the 2014 RVOs, and are also in addition to a lawsuit these groups and others had filed in the U.S. Court of Appeals challenging the 2013 volume mandates.

California Low Carbon Fuel Standard. The full 9th Circuit U.S. Court of Appeals issued a decision on January 22, 2014 that it would not, after all, rehear a case previously decided in favor of the California Air Resources Board (CARB), when a 3-judge panel of the Court ruled by a 2-1 vote that the LCFS did not unconstitutionally discriminate against out-of-state fuel producers. That panel decision reversed a lower court decision that went against CARB. The decision not to rehear the case leaves the decision by the 3-judge panel in place and would allow CARB to continue to administer the LCFS program. However, seven justices on the Court signed on to a dissent that is widely believed could signal the path for the industry groups who are the plaintiffs to appeal the case to the U.S. Supreme Court. The crux of the dispute is whether the requirement that the energy costs of transporting fuel into California from other states be considered in determining the carbon intensity of fuels under the LCFS discriminates against out-of-state fuels in violation of the Constitution’s provisions that prohibit states from interfering with interstate commerce. 

 

Year-End Biofuel Policy Wrap-Up

The close of 2013 seems to be a good time to post a quick wrap-up of some recent developments relating to biofuel policies in the U.S. and Europe, particularly relating to the U.S. Renewable Fuel Standard (RFS) and the European Renewable Energy Directive (RED). As some of these stories have already been widely reported in the trade press and onlnie, I have not included links for all the stories — please contact me for more information on any of these developments.

2014 RFS volume mandates. As has been widely reported, the US EPA published its proposed rule for the 2014 volume mandates (renewable volume obligations, or RVOs) under the RFS. In the proposal, EPA used its statutory authority to propose reduction of certain of the volume mandates below what was called for in the original 2007 legislation. This included a substantial reduction in the target for cellulosic fuels, as has been done in recent years, to a level corresponding to EPA’s assessment of actual gallons of cellulosic fuel expected to be produced next year. But for the first time, EPA used its authority to also lower the mandated volumes both for advanced biofuels (a category which includes cellulosic fuels) and the overall target for all renewable fuels, the latter being reduced by about 3 billion gallons. Combined, these adjustments also lead to about a 1 billion gallon reduction in the portion of the mandates corresponding to corn ethanol.

This is only a proposed rule, and EPA is taking comments on the proposal until January 28, 2014. The proposal elicited the expected vehement reactions on both sides of the renewable fuels debate, and biofuel supporters have been pulling out all the stops to convince EPA to scale back or eliminate the proposed reductions in the mandates.

EPA has held public hearings on this proposal. A hearing in Washington DC on December 5 drew approximately 150 commenters over a 12-hour period. Reportedly, RFS supporters outnumbered RFS opponents roughly 2-to-1. The outcome of all the public comments and debate will likely not be known until after the close of the public comment period.

Challenges to the RFS. Among pending actions challenging the RFS are the following.

  • EPA has requested public comment on the petition asking for a waiver of the 2014 RVOs filed in August 2013 by the American Petroleum Institute (API) and the American Fuel & Petrochemical Manufacturers (AFPM). Public comments have been requested by January 28, 2014.
  • The U.S. Court of Appeals has agreed to expedite review of a pending lawsuit challenging the 2013 volume mandates that EPA issued in August 2013. The Court had previously consolidated three separate lawsuits filed by API, AFPM, and Monroe Energy. A number of organizations have filed briefs on both sides of the issue, including BIO and the National Biodiesel Board in defense of the 2013 volume mandates. The case should move quickly after a February 2014 deadline for submission of all briefs.

Congressional action. Although EPA’s proposal to lower the 2014 mandates may have temporarily quieted Congressional Republican efforts to repeal the RFS in its entirety, at least two new bills have been, or are expected to be, filed in Congress to revise the RFS, in addition to at least one bill addressing the tax credits due to expire today, December 31, 2013.

  • On December 13, Senators Dianne Feinstein (D-Calif.), Tom Coburn (R-Okla.) and eight cosponsors introduced the Corn Ethanol Mandate Elimination Act of 2013. The bill eliminates the corn ethanol mandate within the Renewable Fuel Standard (RFS), which requires annual increases in the amount of renewable fuel that must be blended into the total volume of gasoline refined and consumed in the United States. Cosponsors of the bill are Richard Burr (R-N.C.), Susan Collins (R-Maine), Bob Corker, (R-Tenn.), Kay Hagan (D-N.C.), Jeff Flake (R-Ariz.), Joe Manchin (D-W.Va.), Jim Risch (R-Idaho) and Patrick Toomey (R-Pa.).
  • Senators Ben Cardin (D-Md.) and David Vitter (R-La), the top Republican on the Senate Environment and Public Works Committee, have been widely reported to also be working on legislation that would curtail corn’s portion of the RFS mandate. Details on this bill have not yet been disclosed.
  • On December 11, the Senate Environment and Public Works Committee held a hearing on the RFS. Although testimony and statements from committee members were heard on both sides of the issue, Committee Chair Senator Barbara Boxer (D-Calif.) reportedly closed the hearing by indicating that her committee would not be pursuing any legislation that would “reverse course” on the RFS.
  • On Dec. 12, Rep. Scott Peters (D-Calif), introduced H.R., 3758, which would extend the second generation biofuel producer credit and the special allowance for second generation biofuel plant property. The bill, entitled the “Second Generation Biofuel Extension Act of 2013,” would extend both the second generation biofuel tax credit and the second generation biofuel plant property allowance for one year, extending the expiration dates from to Jan. 1, 2015.

California Low Carbon Fuel Standard. The full 9th Circuit U.S. Court of Appeals will rehear a case previously decided in favor of the California Air Resources Board (CARB), when a 3-judge panel of the Court ruled by a 2-1 vote that the LCFS did not unconstitutionally discriminate against out-of-state fuel producers. That panel decision reversed a lower court decision that went against CARB. Briefs have been filed on both sides of the issue, but it is not known when the full Appeals Court will decide the issue.

European Union Renewable Energy Directive. In meetings December 12-13, the Energy Ministers from EU nations failed to reach agreement on the path forward for amendments to the Renewable Energy Directive. In particular, the ministers rejected a compromise proposal from Lithuania that would have capped crop-based biofuels at 7% (up from the 6% limit passed by the European Parliament) but would also have required mandatory reporting of indirect land use change (ILUC). This action apparently means that the proposal will not advance any further until after the 2014 parliamentary elections, and assures that there will not be final action until sometime in 2015. In the meantime, the provisions of the Renewable Energy Directive remain in place as originally adopted.