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EPA releases long-awaited proposed rules on biofuels production volumes

The US Environmental Protection Agency released its long-delayed Renewable Fuel Standard proposals for 2014, 2015, and 2016 on Friday. The EPA is proposing requiring 15.93 billion gallons of total renewable fuel in 2014, 16.3 billion gallons in 2015, and 17.4 billion gallons in 2016; the federal agency said the 2016 proposal is nearly 9% more — or 1.5 billion gallons — than actual 2014 volumes. The proposal is still well below the level originally mandated by Congress in the 2007 Energy Independence and Security Act – 20.5 billion gallons in 2015 and 22.25 billion gallons in 2016. The proposed rules are set to become final by late November.

The EPA acknowledged that the volumes are lower than what was originally set by Congress, but will 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,” the EPA stated in its release. “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.”

The EPA has changed course on blended biofuels, which adds ethanol to gasoline and biodiesel into diesel. According to the EPA: “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.”

Most gasoline sold at US fuel stations contains 10% ethanol. For more ethanol to be blended in, a greater amount of fuel would need to contain gasoline with 15%, or 85% in flex-fuel vehicles. While attracting significant biofuels industry criticism on volumes, the EPA won some cautious praise for cautiously advancing renewable fuels targets for 2014 through 2016. It wasn’t right with the American Fuel and Petrochemical Manufacturers, which thinks the rule still has the EPA forcing more ethanol than the marketplace can handle.

That blend wall debate dates back to the 2005 Renewable Fuel Standard that required the blending of corn-based ethanol and other biofuels into motor fuels; it was to eventually reach 36 billion gallons in motor fuel by 2022. Based on energy independence and reducing greenhouse gas emissions, efforts by the EPA to raise the blend beyond 10% of gasoline coming from ethanol have been met with legal battles, intense lobbying, and public comment town meetings packed with supporters and opponents. Along with oil companies and refiners, automakers have backed limiting the ethanol blend with concern over potential damage to engines. Several automakers said that using E15, or anything over E10, would void their warranty coverage.

EPA shows where biofuels production stands through RIN report

As you review this table with 2014 Renewable Identification Number (RIN) production data, you’ll notice a diversity of biofuels starting to enter the market. The US Environmental Protection Agency released this data last month to track whether production goals set in the Renewable Fuel Standard were met. It’s no longer all about ethanol, with biodiesel seeing growth and cellulosic starting a new phase.

Cellulosic biofuel (such as cellulosic ethanol) nearly doubled that number with over 32 million gallons generated and biomass-derived diesel (such as biodiesel) surpassed the mandate by nearly 471 million gallons. Advanced biofuels (biodiesel and renewable diesel) were behind the mark. Corn ethanol fell behind by about a billion gallons, but it’s the biofuel category making up the lion’s share of the total reaching over 14.2 billion gallons in production last year. Without being lifted to the E15 level (15% of gasoline instead of the current E10 level) by the EPA, its volume has been lower than the original benchmark set in the mandate.

RIN volumes and prices are followed closely by biofuel producers and oil companies. Under the Renewable Fuel Standard, oil companies can either buy a gallon of renewable fuel to comply with the RFS or buy a RIN credit on the open market. It’s been one of the targets of complaints by oil companies and oil refineries.

Ethanol is used as the baseline for calculating RINs, with one RIN equaling one gallon of ethanol. Biodiesel accounts for 1.5 RINs per gallon, and other categories have their own RIN ratios. RINs are given monetary value on the market as an incentive for renewable fuel production and the EPA uses RINs to monitor biofuel trading and production volumes.

Lux Research, which featured that table above in a report issued on Sunday, made the point that cellulosic biofuel has entered a new phase. For the first time since adoption of that category in 2010, the mandated volume was met by the commercialization of cellulosic ethanol. However, Lux Research warns investors and analysts to not overrate the performance of that segment. RIN data from December 2014 showed that only 89,327 gallons of cellulosic ethanol were generated; that signifies a much slower ramp up of the POET-DSM’s Abengoa facility that received much attention and acclaim when in started up operations in September. The biofuel industry has seen its share of commercial facilities open up and miss their targets with low production volumes.

Ethanol sales may not be hurt by EPA decision on Renewable Fuel Standard

Are you producing and selling an alternative fuel that’s getting tangled up in regulatory limitations? No worries – just sell it overseas. While ethanol and other biofuels producers have been frustrated with delays in the Renewable Fuel Standard decision by the US Environmental Protection Agency (EPA), exports of corn ethanol have increased 31% this year and have reached their highest level since 2011.

Ethanol used in gasoline will probably never hit the 15% ethanol E15 target that the EPA had been considering; and the 10% ethanol mark may be reduced by pressure being placed on the EPA by oil refineries and producers. Exporting petroleum products with the additive ethanol blend has been a big growth sector for petroleum products and ethanol in the past few years. The US passed Russia in 2010 to become the dominant exporter of petroleum products, and ethanol sales have increased with that growing overseas demand.

Archer-Daniels-Midland Co., Green Plains Renewable Energy Inc., and Valero Energy Corp., three of the four largest U.S. ethanol companies, say that ethanol exports have been a significant part of their revenue growth. “If we can’t sell it here, we’ll sell it someplace,” said Bob Dinneen, president and CEO of biofuels industry group Renewable Fuels Association (RFA). “We’re going to focus overseas.”

Exporting fuel has been a bit more difficult for liquefied natural gas (LNG). So far, the US Dept. of Energy (DOE) has approved each export application, but the approval process has been complicated. Some analysts worry that strong demand for US-drilled natural gas may drive up the price for LNG and compressed natural gas, but so far it remains stable for users of natural gas vehicles.

The shale-oil boom in the US has created a stream of oil and gas products being sold overseas; ethanol is seeing a record level of crops being grown for these exports. The US is now producing about 66 million metric tons more corn than 10 years ago; that’s nearly as much as the rest of the world will export this year. Overseas demand is keeping ethanol sales strong even though the EPA has been easing off the ethanol mandate for the past year.

Ethanol trade lobbyists have traveled to Peru, Panama, Japan, and South Korea and trips are planned to Thailand, Malaysia and the Philippines this month to gain support for more overseas ethanol sales, according to RFA. A Commerce Department-sponsored trade mission to northern Brazil last year won sales contracts valued at $29 million, the RFA says. If the EPA mandates a lower volume of ethanol sales in US fuel, it probably won’t matter much for the ethanol industry.

On the biodiesel-powered road again with the legendary Willie Nelson

Biodiesel has provided inspiration for many, including the legendary singer/songwriter Willie Nelson. It’s also been enough to motivate his music industry colleague, Neil Young, to roll out the Lincvolt, a biodiesel-powered hybrid. There was also Josh Tickell touring the country in the mid-2000s in his Veggie Van, powered by biodiesel made from cooking oil taken from restaurants. For some, biodiesel has a do-it-yourself appeal; these are people living outside the mainstream and wanting to live outside the power of the oil industry.

But it’s also an industry, one suffering through several blows and challenges. Biodiesel has shot up in production volume, with the federal mandate bringing it from 500 million gallons in 2009 to 1.28 billion last year. Biodiesel producers saw conditions changing in recent years with a federal tax credit expiring, and the US Environmental Protection Agency deciding to scale down the production volume. Nelson’s story is a telling one highlighting the difficulties in succeeding in a new and risky business like biodiesel.

By 2007, Willie Nelson became committed to biodiesel in a book he’d written and through releasing his BioWillie biodiesel product. Having been an organizer of farm aid fundraising concerts since the 1980s, Nelson saw biodiesel as a logical continuation. BioWillie would help “reduce our dependency on foreign oil while simultaneously saving the American family farm,” he said.

Nelson had joined the board of Earth Biofuels, a Dallas company that left a trail of unpaid debts, delayed securities filings, and disgruntled investors. He forfeited six million shares of stock to resign in 2007. In 2008, Nelson and his business partners transformed a landmark truck stop on Interstate 35 in Texas into Willie’s Place, a biodiesel theme park. People stopped for the fuel and to view Nelson’s display that included gold records and occasionally a chance to meet the legend himself.

To come up with funding, Nelson and his partners took out a $4.75 million loan to finance construction of Willie’s Place. The group defaulted on the loan and Nelson put up $35,000 of his own money to make a payment. Willie’s Place was sold in 2011 during foreclosure proceedings.

Nelson, at 81 years old, has not given up on biodiesel. He has an ownership stake in Big Island Biodiesel of Hawaii and SeQuential-Pacific Biodiesel of Salem, Ore. Nelson also controls the trademark for BioWillie, sold at pump stations on the islands of Maui and Hawaii.

Cellulosic ethanol plant brings back hope for biofuels supporters

The grand opening of one of the world’s first cellulosic ethanol production facilities has given hope to the biofuels industry and to supporters of biofuels as an alternative to oil. The biofuels industry faces imminent changes from the US Environmental Protection Agency (EPA) on the Renewable Fuel Standard that will reduce production of ethanol and advanced biofuels. The EPA recently sent its revised rules to the White House for review and approval. A new advanced biofuels plant in Iowa shows an industry weathering diminishing government and public support, while also taking steps forward with investors and regional markets.

POET-DSM Advanced Biofuels, LLC, a joint venture between Royal DSM and POET, LLC, on Sept. 3 hosted the grand opening of “Project LIBERTY.” The plant converts baled corn cobs, leaves, husk, and stalk into renewable fuel at the cellulosic ethanol facility in Emmetsburg, Iowa. Those present at the ribbon cutting included His Majesty Willem-Alexander, King of the Netherlands, US Secretary of Agriculture Tom Vilsack, Iowa Governor Terry Branstad, and thousands of guests.

At full capacity, the plant will convert 770 tons of biomass per day to produce ethanol at a rate of 20 million gallons per year, later ramping up to 25 million gallons per year. Fuel from Project LIBERTY represents a greenhouse gas reduction of 85% to 95% over gasoline. It will consume 285,000 tons of biomass annually from a 45-mile radius of the plant. The plant employs more than 50 people directly, and biomass harvesting is creating another 200 indirect jobs in the community. Hundreds of people were involved in the construction of the plant.

“Some have called cellulosic ethanol a `fantasy fuel,` but today it becomes a reality,” said Jeff Broin, POET founder and executive chairman. “With access now to new sources for energy, Project LIBERTY can be the first step in transforming our economy, our environment and our national security.”

POET considers the cellulosic ethanol facility to be a huge step forward in the wider adoption of biofuels, both in North America and around the world. “It is also a victory for the Renewable Fuel Standard (RFS), which prompted increased investment into advanced biofuels that accelerated development of this new technology,” according to the press release.

The cellulosic ethanol plant isn’t the only biofuels investment seeing significant investment support lately. The challenges are there for regaining support for biofuels in the US. Freedonia has addressed the economic issues in its latest World Biofuels Report – which expects global biofuels to top 115 million metric tons in 2018, and will be up from 96.30 in 2013. As for the US, Freedonia has a less optimistic vision: “Healthy growth will be experienced in all regions with the exception of North America, where conflicting government regulations and waning public support in the United States — the world’s largest market for biofuels — will limit advances.”

EPA backs off pushing for E15 through Renewable Fuel Standard

You may have noticed that a number of new cars have a graphic image placed right on the gas cap that states: “E15—E85 – Up to E10 Gasoline Only.” The “E15—E85” text is placed inside an oval and has a slash mark cutting through it. That means the automaker is recommending you don’t use E15 gasoline (or anything higher up to E85, which is the amount used in flex-fuel vehicles) in your tank, and stick with the blend wall that’s in nearly all US gas stations – up to 10% ethanol in the gasoline, or E10. The US Environmental Protection Agency (EPA) had been pushing for E15 with the support of ethanol producers and against the lobbying efforts of oil companies and refineries. Automakers haven’t been fighting ethanol producers in Washington like oil company have been, but they have been warning about the potentially corrosive damaging effects of E15 on engines. The new EPA ruling, released on Friday, doesn’t explicitly speak to the E10 versus E15 debate; the agency appears to be accepting that E10 is as good as it gets for now.

The new EPA ruling caps renewable fuel targets for 2014 at 15.21 billion gallons – instead of the 18.15 billion gallon target that Congress had originally set in 2007 with its Renewable Fuel Standard. The EPA says its accepting the E10 blend wall for now because advances in fuel economy and other economic factors have pushed gasoline consumption to a much lower level than expected when the standard was passed in 2007. “As a result, we are now at the E10 blend wall,” EPA said in a statement.

The 15.21 billion gallon ceiling is also below the 16.55 billion gallon requirement for this year. Corn-based ethanol makes up the lion’s share of that total – it’s limited to 13 billion of next year’s total and 13.8 billion for this year. The limitations on corn ethanol have also been influenced by the amount of corn grown in the US that will end up in gas tanks versus food. Ethanol is expected to use up 38% of the corn crop this year. Cellulosic ethanol is also seeing cuts in volume for next year with the EPA’s revised ruling. Cellulosic and other next-generation biofuels, made from agricultural waste such as wood chips and corncobs, have not taken off as quickly as Congress had built into the 2007 act.

Oil companies and refineries weren’t thrilled with the EPA decision and may still continue to fight the Renewable Fuel Standard, but the groups were pretty much satisfied with the EPA’s decision on the E10 blend wall. Farmers and corn ethanol producers were angry about it, arguing that mixing higher blends of ethanol will not harm vehicles. The EPA has given in to “big oil.” The EPA’s revised targets will hurt farmers and violate the spirit of the Renewable Fuel Standard, according to Bob Dineen, president of the Renewable Fuels Association. “They’re capitulating to the oil companies,” Dineen said to The Washington Post.

Ethanol producers had disputed an Associated Press investigation released earlier last week that linked corn-based fuel production to environmental hazards. Ethanol groups attacked the accuracy of the AP findings for using dubious tactics while conducting the investigation for its report. The AP investigation report stated that the surge to find new areas to plant corn for the needed ethanol had eliminated five million acres of conservation land, destroyed natural habitat, and polluted water supplies.

The oil versus biofuels industry battle highlights the struggle nearly every alternative fuel faces. The arguments speak to environmental, safety, reliability, and economic issues. It’s very difficult to sift through all the lobbying messages, studies, and media reports to determine accuracy. For people buying the vehicles and fuels, it’s tough to make an informed decision and trust that it’s accurate. As an example, an argument comes up occasionally about the logic of buying an electric vehicle when the source of the energy (especially coal-powered electric power plants) takes away the gains offered by the zero emissions vehicle. All of the clean transportation vehicles, fuels, and technologies are in a transitional phase – none of them are perfect and their advocates usually support a pragmatic approach that is likely to lead to a better option years from now. A number of biofuels advocates, including the EPA, say that using corn-based ethanol in E15 is a step forward away from gasoline consumption and is necessary to transition over to advanced biofuels. For now, the EPA is stepping back from its earlier mandate.