Renewable Diesel Takes Smaller Cut
Jim Lane
“EPA continues to assert authority under the general waiver
provision to reduce biofuel volumes based on available
infrastructure,” says BIO. “This is a point that will have to be
litigated. It goes against Congressional intent.”
In Washington, the
EPA released its proposed standards for 2014, 2015, and 2016
and volumes for renewable fuels. The volumes, as widely expected,
include substantial reductions from the statutory standards in the
original 2007 Energy Independence & Security Act. The EPA also
released a 2017 proposed standard for biomass-based diesel.
Yet, while attracting significant industry criticism on volumes,
the EPA won some cautious praise for cautiously advancing
renewable fuels targets for 2014-16.
In today’s Digest, we have a complete coverage of the volumes,
round-up of industry reaction, plus a look at the EPA’s rationale,
the infrastructure dilemma, the options to change EPA’s proposal
in the comment period, and the industry’s short-term and long-term
options should the rule be finalized as proposed.
At a glance: 2014, 2015, 2016 volumes
* The EISA Act did not set volumes past 2012 and 1.0 billion
gallons for biomass-based diesel, but required EPA to set a
volume based on market conditions each year.
Detail: Growing levels of renewable fuels
Detail: The proposed rule for 2015
The proposed volumes are (in billons of US gallons):
Proposed
Statutory volume for 2015
Cellulosic
0.106
3.000
Biomass-based diesel
1.700
1.000
Advanced biofuel
2.900
5.500
Renewable Fuel
16.300
20.500
* The EISA Act did not set volumes past 2012 and 1.0 billion
gallons for biomass-based diesel, but required EPA to set a
volume based on market conditions each year.
The effective corn-ethanol mandate is (in billons of US
gallons):
Proposed
Statutory volume for 2015
Corn ethanol
13.400
15.000
Detail: The proposed rule for 2016
The proposed volumes are (in billons of US gallons):
Proposed
Statutory volume for 2016
Cellulosic
0.206
4.250
Biomass-based diesel
1.800
1.000
Advanced biofuel
3.400
7.250
Renewable Fuel
17.400
22.250
* The EISA Act did not set volumes past 2012 and 1.0 billion
gallons for biomass-based diesel, but required EPA to set a
volume based on market conditions each year.
The effective corn-ethanol mandate is (in billons of US
gallons):
Corn ethanol
14.000
15.000
Detail: The proposed rule for 2014
The proposed volumes are (in billons of US gallons):
Proposed
Statutory volume for 2014
Cellulosic
0.033
1.750
Biomass-based diesel
1.630
1.000
Advanced biofuel
2.680
3.750
Renewable Fuel
15.930
18.15
* The EISA Act did not set volumes past 2012 and 1.0 billion
gallons for biomass-based diesel, but required EPA to set a
volume based on market conditions each year.
The effective corn-ethanol mandate is (in billons of US
gallons):
Corn ethanol
13.250
14.400
The EPA says:
EPA writes: “EPA has evaluated the availability of qualifying
renewable fuels and factors that in some cases constrain the
supply of those fuels to the vehicles that can consume them. EPA
has also considered the ability of the market to respond to the
applicable standards by producing changes in production,
infrastructure, and relative pricing to boost the use of renewable
fuels.
“Based on these and other considerations, EPA is proposing
volumes which, while be low the volumes originally set by
Congress, would increase renewable fuel use in the U.S. above
historical levels and provide for steady growth over time. In
particular, the proposed volumes would ensure continued growth in
advanced biofuels, which have a lower greenhouse gas emissions
profile than conventional biofuels. EPA is also proposing to
increase the required volume of biomass-based diesel in 2015,
2016, and 2017 while maintaining the opportunity for growth in
other advanced biofuels that is needed over the long term.
“Due to constraints in the fuel market to accommodate increasing
volumes of ethanol, along with limits on the availability of
non-ethanol renewable fuels, the volume targets specified by
Congress in the Clean Air Act for 2014, 2015 and 2016 cannot be
achieved. However, EPA recognizes that the statutory volume
targets were intended to be ambitious; Congress set targets that
envisioned growth at a pace that far exceeded historical growth
rates. Congress clearly intended the RFS program to incentivize
changes that would be unlikely to occur absent the RFS program.
Thus while EPA is proposing to use the tools provided by Congress
to waive the annual volumes below the statutory levels, we are
proposing standards that are directionally consistent with
Congress’ clear goal of increasing renewable fuel production and
use over time. The proposed volumes would require significant
growth in renewable fuel production and use over historical
levels. EPA believes the proposed standards to be ambitious but
within reach of a responsive marketplace.”
The new EPA view, summarized
The EPA’s line of thinking is essentially this: they are
considering that supply exists where that supply can find a market
given existing infrastructure. So, if the market can only
tolerate, say, 14 billion gallons of E10 ethanol, they do not
consider capacity or production as “supply” rather, they look to
alternative fuels (such as drop-ins) and, in that case, don’t see
the production.
The practical goal for the EPA is not to use the RFS2 renewable
fuels schedules as a driver to produce investment in
capacity-building or infrastructure for distribution. Rather, the
EPA opts for a more passive role of providing a market for those
capacities that are built based on incremental, if any, changes in
infrastructure.
Beyond the blendwall, the hidden issues
EPA wrote in 2013: “Although the production of renewable fuels
has been increasing, overall gasoline consumption in the United
States is less than anticipated when Congress established the
program by law in 2007.”
In its own way, the EPA is signaling that it believes that the
original mandates were set, as volumetric rather than percentage
standards, at a time when it was believed that the overall
gasoline market would be much larger. Lower gasoline volumes —
which in their own way reduce emissions – in the EPA’s view bring
on issues such as blend walls faster and more intensively, and
require regulatory relief.
Options in the courts: Suing to enforce the 2015 statutory
numbers
It’s going to be tough for the biofuels industry to sue to
enforce the overall statutory volumes, given the shortfall in
cellulosic biofuels — even though the EPA is wading into regions
of doubtful legislative intent in using blendwall issues as a
reason to cut the corn ethanol target. The authority of EPA to
waive down cellulosic mandates in unquestioned, in the absence of
production capacity — but their authority to waive down renewable
fuel standard obligations in the absence of infrastructure being
deployed is bound to suggest to incumbents that the best way to
prevent renewable fuels is to ensure that there is no investment
in distribution.
Why not balance less corn ethanol with more advanced biofuels?
The fear — rightly or wrongly — is that the advanced pool will be
drowned in low-cost, imported ethanol that qualifies for the
advanced biofuels pool — and exacerbates the blendwall issue that
it sees in the marketplace. So, they have increased the advanced
pool, but kept it quite close to the biobased diesel volumes.
At the end of the day, there’s not much production out there,
outside of the biomass-based diesel capacity (representing
renewable diesel and biodiesel) and the cellulosic fuels capacity.
At scale, there are some providers such as Aemetis that can
produce qualifying advanced ethanol at scale using the milo-biogas
pathway, and there’s sugarcane ethanol.
Why is industry deeply disappointed?
RFS2 is based in production targeting, but it is ultimately about
requiring distribution. The renewable fuels industry is taking the
view that the E10 blendwall issue was well understood, at a
technical level, by Congress when they passed the EISA Act — and
that the law places the onus on the conventional fuel industry to
develop distribution solutions, so long as the production is
there.
Well, the production is there. The conventional fuels industry
did not develop the distribution solutions, and the EPA is waiving
the obligation. To the renewable fuels industry, it looks like
rewarding the oil industry for doing nothing. And stranding
renewable fuels capacity that was built in reliance on Congress
and RFS2 to provide a market.
So, it’s a distribution war. Renewable fuels distributors haven’t
built much to speak of — a few thousand outlets feature options
for consumers to purchase high-blend renewable fuels. Congress
gave every indication that they would expect rising RIN prices
would compel obligated parties to find distribution solutions.
When RIN costs rose, the oil industry correctly foresaw that by
waving the flag of “exploding prices at the pump,” they could
count on the White House and Congress to cave in.
Industry reaction
Brent Erickson, executive vice president of BIO’s Industrial
& Environmental Section
EPA has proven they still don’t understand the advanced biofuel
industry’s need for policy stability. The RFS was designed by
Congress to tear down the so-called blendwall by providing a
market floor for biofuels that would enable us to attract capital
for construction of new biorefineries and commercialization of
advanced technologies. Instead, EPA is helping the oil industry
build the blendwall to keep advanced biofuels out of the market.
Just as advanced biofuel companies began to successfully
commercialize new technologies, EPA proposed to turn the RFS
methodology upside down. That policy instability is responsible
for chilling as much as $13.7 billion in investments that the
advanced biofuel industry needed to build capacity to meet the RFS
goals. Now EPA and the Obama administration claim to be scratching
their heads as to why our industry hasn’t built more capacity.
And while the President took time on Thursday to warn that
climate change will worsen storms in the future, EPA’s actions on
the RFS have already resulted in 21 million metric tons of
additional CO2 emissions — equal to putting 4.4 million more cars
on the road or opening 5 new coal-fired power plants, which will
only increase with today’s proposal.
EPA continues to assert authority under the general waiver
provision to reduce biofuel volumes based on available
infrastructure. This is a point that will have to be litigated. It
goes against Congressional intent.
EPA has proposed higher volumes for advanced biofuels, still
below the statutory volumes, but maintained a methodology that
discourages investment in the industry. That will likely undercut
future production, requiring additional cuts to volumes in future.
Michael McAdams, president, Advanced Biofuels Association
“The Advanced Biofuels Association looks forward to reviewing the
complex, multi-year proposal unveiled today in detail and
submitting our official comments on this important regulation. We
are grateful for the EPA’s good-faith efforts to support this
industry, today’s proposal is a step in the right direction and
gives more growth potential to advanced and cellulosic biofuels
relative to the original proposal. However, we continue to believe
that the cellulosic waiver credit and other areas require
legislative reform. We look forward to continuing to work with
Congress and the Administration to reform and strengthen the RFS
so it can deliver on the promise of next-generation renewable
fuels.”
Bob Dinneen, president and CEO of the Renewable Fuels
Association
“EPA has to be given some credit for attempting to get the RFS
back on track by increasing the renewable volume obligations
(RVOs) over time. But the frustrating fact is the Agency continues
to misunderstand the clear intent of the statute — to drive
innovation in both ethanol production and ethanol marketing. The
Agency has eviscerated the program’s ability to incentivize
investments in infrastructure that would break through the blend
wall and encourage the commercialization of new technologies. By
adopting the oil company narrative regarding the ability of the
market to effectively distribute increasing volumes of renewable
fuels, rather than putting the RFS back on track, the Agency has
created its own slower, more costly, and ultimately diminished
track for renewable fuels in this country.
“Today’s announcement represents a step backward for the RFS. EPA
successfully enforced a 13.8 billion gallon RVO in 2013. The
industry produced 14.3 billion gallons of ethanol last year. There
is no reason to promulgate an RVO rule that takes us backward. All
it will do is result in an ever-increasing supply of renewable
fuel credits (RINs) that will further discourage private sector
investment in infrastructure and technology. This doesn’t make
sense.
“The EPA plan fundamentally places the potential growth in
renewable fuels in the hands of the oil companies — empowering the
incumbent industry to continue to thwart consumer choice at the
pump with no fear of consequence for their bad behavior. That is
not what the statute intended. And that is not what’s in the best
interests of consumers — who will be denied greater access to the
lowest cost liquid transportation fuel and octane source on the
planet.”
Joe Jobe, CEO, National Biodiesel Board
“It is not perfect, but it will get the U.S. biodiesel industry
growing again and put people back to work. I want to thank
Administrator McCarthy and Secretary Vilsack for restoring growth
to the program and for their commitment to renewable fuels.”
“Biodiesel has proven that Advanced Biofuels can do just what we
said they would, which is create jobs and strengthen our energy
security while significantly cutting harmful pollution from
petroleum,” Jobe said. “Biodiesel has displaced more than 8
billion gallons of petroleum diesel in the U.S. over the last
decade. That is an incredible achievement, and we will build on
that success under the proposal the EPA released today.”
“However, more can be done, and we particularly look forward to
working with the administration on strengthening biodiesel volumes
for 2016 and 2017 during the comment period in the coming weeks.”
Brian Jennings, Executive Vice President, American
Coalition for Ethanol
“Promises to get the RFS back on track and USDA funding for flex
fuel pumps are appreciated, but EPA is yet again proposing to
circumvent the RFS by limiting ethanol use to the amount oil
companies are willing to blend with the gasoline they refine and
not one gallon more. It’s like the NFL saying it’s ok for the New
England Patriots to deflate footballs while everyone else must
play by the rules.”
As expected, proposed volumes for the 2014 RFS largely reflect
actual use. The Agency intends for renewable fuel use to increase
from 2014 to 2016. But EPA’s proposed blending targets for 2015
and 2016 fall back on the E10 “blend wall” methodology which has
disrupted RFS implementation for more than a year. Earlier this
week the U.S. Department of Energy’s National Renewable Energy
Laboratory released a report confirming that most retail
infrastructure is already compatible with E15. The majority of
cars on the road can use E15.
“EPA was forced to withdraw their original 2014 proposal because
the law doesn’t allow them to use the blend wall to set levels and
doing so undermines the integrity of the program. The good news is
that there is still time to get the RFS back on track,” Jennings
said. “We will provide ACE members and biofuel supporters a
platform to once again blitz EPA with comments before the final
rules are issued on November 30.”
Tom Buis, CEO, Growth Energy
“Today’s proposals are better than EPA’s initial proposed rule
for 2014, but they still need significant improvement. We have
sincere concerns that these proposed numbers are not moving
forward to the degree that Congress had intended for the RFS.
“It is unfortunate that EPA chose to side with the obligated
parties who have deliberately refused to live up to their
obligation to provide consumers with a choice of fossil fuels or
lower cost, higher performing, homegrown renewable energy at the
pump. Everyone in Congress, as well as all parties in the
renewables and oil industry, knew when this legislation was
debated and passed into law that the only way the RFS goals could
be met was by introducing higher blends into the market moving
forward. Now the obligated parties, controlled primarily by Big
Oil, have refused to live up to their obligation and the initial
read on EPA’s proposal is they have simply acquiesced to the
demands of Big Oil.
“One thing that everyone should keep in mind is that this a proposed
rule. We will continue to analyze and review these
proposals for 2014, 2015 and 2016. Furthermore, Growth Energy will
file exhaustive comments with EPA. Just as we successfully
commented on the original 2014 RVO proposal by EPA, which
ultimately forced EPA to reconsider their initial flawed rule, we
are confident that our forthcoming comments will highlight the
changes that are necessary to meet the goals of the RFS.
Elizabeth Farina, President, UNICA (Brazilian sugar
growers association)
“While UNICA is disappointed that today’s Renewable Fuels
Standard proposal from the U.S. EPA significantly reduces target
volumes for advanced biofuels below Congressionally mandated
levels, we are pleased to see growing requirements for advanced
biofuels in 2015 and 2016. This leaves the door open for continued
American access to sugarcane ethanol, one of the cleanest and most
commercially ready advanced biofuels available today.
“EPA identifies Brazilian sugarcane ethanol as an advanced
biofuel because it reduces greenhouse gases by more than 60
percent compared to gasoline. This advanced biofuel from an
American ally plays a modest but important role supplying the
United States with clean renewable fuel. For the past three years,
more than one billion gallons of sugarcane biofuel imported from
Brazil flowed into American vehicles. During this time, sugarcane
ethanol has comprised only 2 percent of all renewable fuel
consumed by Americans, but has provided nearly 15 percent of the
U.S. advanced biofuel supply.
“Our association looks forward to commenting on this proposal and
will continue to play an active role in the RFS rulemaking
process, serving as a source of credible information about the
efficiency and sustainability of sugarcane ethanol. Likewise,
Brazil will continue to be a strong, dependable partner helping
America meet its clean energy goals.”
Jeff Lautt, CEO, POET
“Today’s proposal by the EPA puts the oil industry’s agenda ahead
of farmers and rural America. While the EPA is correct in
recognizing the intent of Congress to continue growth in biofuels,
the targets announced today fall well short of rural America’s
potential to produce low-cost, clean-burning ethanol.
“America’s farmers have answered the call laid out in the
Renewable Fuel Standard to help wean our nation off of foreign
oil. Agriculture has taken incredible strides in recent years,
growing yields through efficient farming practices and technology
improvements, and we have all reaped the benefits of that labor
through greater availability of high-performance, domesticly
produced ethanol. Rural America has upheld its end of the deal,
and I ask that the EPA uphold Washington’s end.
“Some in Washington do understand what’s at stake and are still
committed to rural America. The announcement by Sec. Vilsack today
that UDSA would provide funds for flex pump infrastructure aims to
increase consumer access to clean, high-performance fuel produced
here at home. It is an effort obligated parties should have been
driving since the RFS became law. We hope Sec. Vilsack’s
commitment to clean fuels and rural America rubs off on some of
his colleagues in the Administration.
“For the sake of consumer choice, rural jobs and strong markets
for farmers, I hope the EPA fixes its mistakes in the proposed
rule and recognizes our nation’s capability to power itself with
clean, renewable fuel.”
Monte Shaw, executive director, Iowa Renewable Fuels
Association
“Today’s RFS proposal gives in to Big Oil lies and turns its back
on consumers, fuel choice, and the environment. The Obama
Administration has no legal authority to reduce the ethanol
numbers. For conventional biofuels, this is a path to nowhere. The
proposed ethanol level for 2016 is less than what we already
produced in 2014. This proposal will not crack the petroleum
monopoly and will not allow consumers to benefit from the choice
of lower-cost E15 and E85. As we’ve done over the past year, we’ll
continue to work with all parties to fix this proposal.”
“It’s a positive that the proposal does allow for some growth in
biodiesel. However, EPA inexplicably fast tracked Argentinian
biodiesel imports earlier this year, and today’s proposed rule
fails to take those imports into account. As this could actually
lead to lower U.S. biodiesel production, we’ll be focused on
working to improve the biodiesel targets for 2016 and 2017 during
the comment period.”
“Last year Iowans swamped the EPA with negative comments on the
previous RFS proposal. While this new proposal is better, it’s a
far cry from good enough. We need Iowans to once again step up and
tell the EPA to follow the law and to let the RFS crack the oil
monopoly as Congress intended.”
Adam Monroe, President, Novozymes Americas
“Renewable fuels are a huge opportunity for the United States
to achieve President Obama’s climate change goals, capture
private investment, create jobs and save drivers money. Today’s
proposal undermines all of that.
“We are disappointed that the agency is allowing Big Oil to
maintain an artificial impediment like the so-called blend wall.
While President Obama is pushing to reduce greenhouse gas
emissions in other sectors, he is letting the oil industry
attack climate-smart alternative energy.
“The only way the world will use more renewable energy is with
bold leadership and bold policy. The EPA’s aspiration should not
be a slow buildup in renewable fuel volumes, it should be an
economy driven by clean technologies, supporting thousands of
new jobs and billions in private investment. That all starts
with aggressive goals for the RFS.
“During the comment period, we urge the Administration to
rethink its approach and support an existing law that works: the
Renewable Fuel Standard. Together, we can get this right. If
America does not capitalize on the benefits of home-grown fuel,
other countries will. In fact, they already are.”
Industry opponent reaction
Emily Cassidy, Research Analyst, Environmental Working
Group
Using
the Environmental Protection Agency’s own estimate, we
calculate that the corn ethanol mandate has been worse for the
climate than projected emissions from the controversial Keystone
XL pipeline.
What makes matters worse is that the EPA is about to mandate that
more corn ethanol must go into American gas tanks. Today
the EPA proposed new minimum volumes
of corn ethanol that refiners would be required to blend
into gasoline this year and the next. Congress set this policy,
called the Renewable Fuel Standard, in the Energy Independence and
Security Act of 2007. At the time, lawmakers hoped that using
ethanol and other renewable fuels would reduce carbon emissions
and American dependence on foreign oil.
Last year, corn ethanol producers churned out 14 billion gallons,
about 13.4 billion gallons of which were blended into the 135
billion gallons of gasoline the nation’s drivers used.
Extracting tar sands and turning them into oil is more
energy-intensive than traditional drilling for petroleum.
According to the Natural Resources Defense Council, dirty oil
transmitted from Alberta, Canada, to the Gulf Coast by the
Keystone Pipeline would emit 24 million tons of carbon per year.
But our calculations show that last year’s production and use of
14 billion gallons of corn ethanol resulted in 27 million tons
more carbon emissions than if Americans had used straight gasoline
in their vehicles. That’s worse than Keystone’s projected
emissions. It’s the equivalent of emissions from seven coal-fired
power plants.
So far the federal corn ethanol mandate has resulted in a massive
influx of dirty corn ethanol, which is bad for the climate and bad
for consumers. The only interest it benefits is the
ethanol industry. As we’ve
said before, it’s time for Congress to correct course and
reform the broken Renewable Fuels Standard to make way for truly
green biofuels.
Comment period
Once the proposal is published in the Federal Register, it will
be open to a 60 day public comment period through July 27.
What can industry do to change these outcomes?
The industry has two options, in general.
1. Demonstrate a stronger market for higher ethanol blends
such as E15 or E85. This would contribute to restoring gallons
lost in the overall renewable fuels pool — and, essentially,
benefit corn ethanol producers.
2. Demonstrate a stronger biomass-based diesel production
capacity, which should be a no-brainer, but also convince
EPA that production capacity can and would translate into actual
production.
Where can growth occur, outside of RFS2 rules and targets?
The RFS2 targets should incentivize all parties in renewable
fuels to shift strategies more towards driving consumer demand
over compliance-driven demand.
This means:
1. Build the higher-blend ethanol market based on price
and positive community attributes as perceived by the consumer.
2. Build the biomass-based diesel market based on
corporate demand for B5 blends based on social, and price-hedging
opportunities — while limiting the practical impact of any
differential in street prices of diesel vs biomass-based diesel by
having low-level blends (that is, a $1.00 per gallon cent cost
differential translates into a nickel a gallon at B5 blend
levels).
3. Building markets in diesel and jet fuel based on
overall price parity. That is, building a case that fuel price
should include a) the cost of volatility and risk with fossil
commodity fuels; b) the social costs, such as disappointing
end-use customers who prefer renewable fuels, and c) differential
in maintenance costs and engine replacement cycles.
4. Rely on the EPA to support long-term capacity building
in cellulosic biofuels with appropriate market mandates.
The bottom line
Clearly the industry is apoplectic over the the strategic shift
at EPA. As BIO’s Brent Erickson tipped, “EPA continues to assert
authority under the general waiver provision to reduce biofuel
volumes based on available infrastructure. This is a point that
will have to be litigated. It goes against Congressional intent.”
For corn ethanol, there is going to be a strong push back based
on hopes that persuading EPA to stick with a tough mandated number
will prompt the conventional fuels industry to push through wider
adoption of E15, which would be good not only for corn ethanol,
but ultimately for advanced ethanol fuels when they are available
in higher numbers.
Jim Lane is editor and
publisher of Biofuels Digest where this
article
was originally published.
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