EPA raises biofuels hopes by mandating greater use

By Jonathan H Harsch

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, Nov. 29, 2016 -EPA  raised ethanol and biodiesel hopes last week when it increased the amount of biofuels that must be blended with the nation's gasoline for 2017.

Gene Gebolys, founder, president and CEO of World Energy, one of America's largest suppliers of biodiesel, tells Agri-Pulse that EPA's raising the Renewable Fuel Standard (RFS) volume levels “provides a clearer guidepath than we have had in years.” With prospects brightening for biofuels, he expects to produce around 230 million gallons of biodiesel for 2017 while expanding production and opening new distribution channels. He predicts that with EPA's new mandates, “2017 will be the year when biodiesel blending becomes ubiquitous at the front end of the nation's pipelines.”

Gebolys says that although Donald Trump's election has created concern about continuing support for biofuels, what's certain is that “we are a nation of laws.” He says the RFS “is the law of the land as it relates to transportation fuels and it will continue to be for the foreseeable future.” He's confident that “The executive branch will administer the law and the judicial branch will continue to serve as a check and balance on the administration of it.”

Despite the oil industry's continuing efforts to repeal the RFS, Gebolys says that “American manufacturers of fuel, both petroleum and renewable, have begun a dialogue about working together in areas we both care about and agree on.

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“American refiners and American renewable fuel producers do share the fundamental value that American fuel should increasingly be made from American inputs by American workers. We both want efficient distribution of our products and we both want fair, predictable, and timely implementation of the laws impacting companies in both our industries.”

Gebolys sees “plenty of room for improved dialogue between the farm belt and the oil patch.” But he warns, “That won't happen if petroleum groups keep calling for an RFS repeal they know full well is never going to happen.” He says that at least some petroleum groups are tired of paying lobbyists “to wage an obviously unwinnable anti-RFS battle” and are beginning instead “to come together as American fuel producers to work together to put Americans to work using our own products and our own ingenuity to keep the country moving.”

The message from the 2016 elections, Gebolys adds, is that “it's clear that voters want American tax dollars to be focused on American workers, particularly those in rural communities.” Expecting further changes such as extending the biodiesel tax credit for American biodiesel producers to improve the RFS rather than repeal it, Gebolys is convinced that the biofuels industry has a bright future, well worth both public and private sector investment.

At Colorado ethanol producer Front Range Energy, Vice President Dan Sanders welcomes the new RFS levels as “a signal that we will have a market for what we're able to produce.” He tells Agri-Pulse that “an expanded market helps give producers like us more confidence for capital investments and potentially higher production” and gives consumers “the option to choose this great fuel in higher blends like E15 and E85 at the pump.”

Sanders warns that despite the short-term certainty provided by EPA's new volume mandates, “those who oppose the RFS will continue to push to limit the market for biofuels, and we'll definitely continue to hear debate in Congress.” He says any future uncertainty about mandates “could again freeze investment” and “would pull the rug out on the significant investments that have been made in these rural communities.” He says biofuels' future success is guaranteed as long as EPA administers the RFS as originally intended by Congress - and as long as President-elect Trump remains “as committed to the program as he was on the campaign trail.”

Jackie Anderson, global media relations manager for leading biofuels producer Archer Daniels Midland, is equally upbeat about biofuels. She tells Agri-Pulse that ADM appreciates “the EPA's willingness to work with industry to reach a rule for ethanol that meets the requirements of the RFS, and does more to support American farmers, American drivers, and the environment.”

Anderson hopes that along with raising the biofuels volumes, EPA will do still more “to offer the certainty the industry requires to continue to grow and create good American jobs.” She says that after all that has been invested to create the biofuels industry and its good American jobs, “Biofuels today are helping diversify our fuel supply, reduce emissions, lower prices at the pump, and support American farmers and agriculture - and the industry is ready and eager to do more.”

Matt Merritt, public relations director for POET, the nation's second-largest ethanol producer, tells Agri-Pulse that with the biofuels industry's proven track record for delivering conventional corn-starch ethanol, EPA's higher volume mandate will “fulfill the promise of the Renewable Fuel Standard” and speed the development of cellulosic ethanol made from crop residues.

“We don't expect the oil industry to let up in attacking renewable fuels,” Merritt says. But he's confident EPA's support for greater use of biofuels, including higher blends from E15 to E85, “will help us continue to prove that when given the option, Americans choose to use more biofuels, and the market can absorb these new levels of ethanol blending.”

While POET welcomes EPA's requirement for blending 15 billion gallons of conventional biofuels in 2017, Merritt points out that this is simply “fulfilling the original intent of the RFS.”

“We are extremely optimistic about the future,” Merritt adds. “Mr. Trump's incoming administration was incredibly supportive of domestic biofuels and rural voters heard him loud and clear. In fact, three of every four rural voters supported the president-elect and were responsible for him winning key battleground states. Mr. Trump met with our CEO, Jeff Broin, and visited one of our plants in Iowa. During both encounters we were pleased by not only his passion for promoting biofuels to help achieve energy independence but also by his commitment to revitalizing rural America.”

As shown by its own investments, POET believes that one road to revitalizing both the rural and the U.S. economy is developing cellulosic biofuels. As the chart below shows, this effort is continuing, with more production coming on line this year. There is concern that the federal government isn't doing enough to encourage greater investment in advanced biofuels. But despite challenges, investments are being made and industry leaders like POET, ADM, Front Range and World Energy are confident that these investments will continue and will deliver impressive returns.

EPA's Nov. 23 announcement raised the RFS biofuels volume for 2017 to an overall 19.28 billion gallons (bg), up from the 18.8 bg that EPA proposed in May and well above 2016's 18.11 bg. These new numbers mean that biofuels are expected to provide 10.7 percent of the nation's transportation fuel supply in 2017, up from 10.1 percent this year.

The new RFS mandate includes 2 bg for biomass-based biodiesel for 2017 and 2.1 bg for 2018, up from this year's 1.9 bg. EPA raised total advanced biofuels to 4.28 bg, up 670 million gallons from 2016 requirement. The largest part of the overall mandate will be filled with conventional corn-starch ethanol, at 15.0 bg for 2017. That's 200 million gallons above EPA's May proposal, 500 million gallons above the 2016 mandate, and back up to the level set by Congress. Significantly, EPA's higher figures come despite intense lobbying by the oil industry and congressional opponents of the RFS mandate.

Reps. Bill Flores, R-Texas, Peter Welch, D-Vt., and Jim Costa, D-Calif., responded to EPA's higher mandates by charging that “increasing the amount of ethanol to be forced into our nation's gasoline supplies . . . will increase the costs of fuel and food for our constituents.” Calling for legislation to limit rather than increase biofuels use, they said that “forcing more ethanol into the market creates uncertainty for our economy, the environment and for hardworking American families.”

Just days after EPA raised its biofuels requirements, the U.S. Government Accountability Office (GAO) raised an opposite concern about uncertainty. It said in a report released Nov. 28 that “many experts told us that uncertainty about the future of the RFS is limiting investment in advanced biofuels. In particular, some experts stated that the possibility of a repeal of the RFS has caused potential investors to question whether the RFS will continue to exist until 2022 and beyond. According to these experts, however, in the current political climate little can be done to address the threat of a repeal of the RFS.”

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The GAO report concludes that “it is unlikely that the goals of the Renewable Fuel Standard (RFS) - reduce greenhouse gas emissions and expand the nation's renewable fuels sector - will be met as envisioned because there is limited production of advanced biofuels to be blended into domestic transportation fuels and limited potential for expanded production by 2022.” The report adds that “according to experts GAO interviewed, the shortfall of advanced biofuels is the result of high production costs, and the investments in further research and development required to make these fuels more cost-competitive with petroleum-based fuels even in the longer run are unlikely in the current investment climate.”

The GAO report sees the needed answer as federal actions to “reduce uncertainty and encourage investment in advanced biofuels” through measures such as “maintaining a consistent tax credit for biofuels, rather than allowing it to periodically lapse and be reinstated.”

Clearly there is a real threat to the biofuels blending mandate that was created when the RFS was launched in 2005 and expanded in the 2007 energy bill. Reflecting strong opposition from the American Petroleum Institute and other oil industry interests, there is a bipartisan effort in Congress to pass legislation to limit or repeal the RFS.

API Downstream Group Director Frank Macchiarola charged that EPA's decision to restore the RFS mandate to statutory levels “only serves to reinforce the need for Congress to repeal or significantly reform the RFS.” The bipartisan Flores-Welch RFS reform bill (H.R. 5180) with 117 co-sponsors including 11 Democrats, calls for capping the biofuels requirement at no more than 9.7 percent of U.S. gasoline demand, well below the 10.7 percent set by EPA last week and below this year's 10.1 percent level.

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