EPA releases 15.2B gallon biofuels mandate proposal for 2012.
Does the subtle ruling create conditions for increased cellulosic biofuels investment?
In Washington, the EPA proposes to mandate the blending of 15.2 billion gallons of renewable fuel into the US fuel supply, and increased the proposed mandate for advanced biofuels by 48 percent, to 2 billion gallons. The agency yesterday released its proposal for 2012 requirements under the Renewable Fuel Standard.
For 2012, the program is proposing to implement EISA’s requirement to blend more than 1.25 billion gallons of renewable fuels over the amount mandated for 2011.
The proposed 2012 overall volumes and standards are:
Biomass-based diesel (1.0 billion gallons; 0.91 percent)
Advanced biofuels (2.0 billion gallons; 1.21 percent)
Cellulosic biofuels (3.45 – 12.9 million gallons; 0.002 – 0.010 percent)
Total renewable fuels (15.2 billion gallons; 9.21 percent)
Based on analysis of market availability, EPA is proposing a 2012 cellulosic volume that is lower than the EISA target for 2012 of 500 million gallons. EPA said it will continue to evaluate the market as it works to finalize the cellulosic standard in the coming months. The agency remains optimistic that the commercial availability of cellulosic biofuel will continue to grow in the years ahead. In addition, EPA is proposing a volume requirement of 1.28 billion gallons for biomass-based diesel for 2013.
EISA specifies a one billion gallon minimum volume requirement for that category for 2013 and beyond, but enables EPA to increase the volume requirement after consideration of a variety of environmental, market, and energy-related factors
Overall, EPA’s RFS2 program encourages greater use of renewable fuels, including advanced biofuels. For 2012, the program is proposing to implement EISA’s requirement to blend more than 1.25 billion gallons of renewable fuels over the amount mandated for 2011.
Because it qualifies as an advanced biofuel, biodiesel is also eligible to exceed the biomass-based diesel targets and help meet general advanced biofuels requirements under the program.
The Digest’s Take
1. The RFS stands.
While the cellulosic range is between 3 and 12 million, much lower than the 500 million intended, the EPA projects that other advanced biofuels will make up the difference. So the levels for the RFS remain in place, and the overall structure of the RFS remains intact.
2. De-facto low-carbon standard.
The standard should be seen, increasingly, as a de-facto low-carbon standard, technology and source-neutral. The EPA is essentially creating a 2 billion gallon pool of advanced biofuels, which must meet a 50 percent carbon reduction target including both indirect and direct emissions – from there, it is up to market forces to determine which fuels are most efficient to manufacture – and whether it is more effective to import or domestically manufacture fuels to meet the standard.
3. Important – EPA takes a stand on proposed capacity.
BIO pointed this out – “Also, EPA proposes to deny the petition of API and NPRA to change the methodology for projecting the cellulosic standard. EPA uses achievable production volumes based on survey of the industry. API and NPRA wanted actual volume commercially produced or the more conservative projection from DOE’s Energy Information Administration.”
Why is this significant? There’s a vast difference of opportunity for biofuels producers, in terms of market power and pricing power, if the standard is based on achievable production volume rather than actual production.
As we have pointed out in the past, so long as the mandate is tuned exactly to commercial production, the industry has no pricing power based on competition. If the industry, for example, had the opportunity to divert 5 million gallons of cellulosic biofuels to the ethylene market – the oil refiners do not want to compete for the fuel by raising price. They simply want the mandate, in that fictional example, reduced by 5 million gallons.
By contrast, the EPA method gives the cellulosic producers an opportunity to get a green premium for their fuels – an opportunity to divert 5 million gallons of cellulosic biofuels to the ethylene market at, say, a 30 percent price premium to ethanol, would not relieve oil refiners of their obligations to blend low-carbon cellulosic biofuels. So, they will either have to find alternative sources (spurring higher production), or bid up the price (spurring higher margins).
Either way, it translates into added market pressure, and added viability for biofuels. Also, it creates a strong pricing advantage for oil refiners who own their own cellulosic biofuels production capacity – since they will not have to raise price to compete for fuels. That could spur investment.
Advanced Ethanol Council Executive Director Brooke Coleman
“America’s advanced and cellulosic ethanol industry is rapidly progressing with many technologies proven and biorefinery projects shovel-ready. Yet, advanced biofuel producers continue to sail into a head wind created by tax policy favoring oil and gas. There is no question that the RFS is a forward-looking policy that will drive significant usage of cellulosic biofuels once the industry hits the requisite production levels. America needs the same kind of forward-looking tax policy to ensure these technologies can commercialize and compete in marketplace where oil production is still subsidized.
“The most immediate term solution to this problem is to enact meaningful and long-term tax incentives to spur construction of the first-commercial advanced biofuel plants, in much the same way that Congress has stood behind oil and gas production for nearly 100 years. American consumers can no longer afford to be dependent on foreign oil. It is a jobs issue. It is a deficit issue. And it is one of the primary causes of the economic woes facing this country. The cellulosic and advanced ethanol industry will hit the mark and achieve the goals of the RFS if Congress aligns our tax code with the RFS and sends a clear message to the marketplace that advanced biofuels will be a cornerstone of a broader strategy to create jobs and reduce oil dependence.”
NBB CEO Joe Jobe
“This proposal represents a careful and responsible approach to growth that is consistent with the resources that we know are available for sustainably producing biodiesel. As America’s first advanced biofuel being produced on a commercial scale nationwide, we have done extensive research to assess the various feedstocks that are used to make biodiesel, including agricultural oils, recycled cooking oil, animal fats, algae and camelina. We are confident we can meet these targets and we anticipate that we will likely exceed them. In doing so, we will continue to improve the environment, create jobs, and reduce the nation’s dangerous reliance on foreign oil.”
Growth Energy CEO Tom Buis
“Spurring the production of next-generation ethanol will requiring removing the barriers to investment with good public policy, such as market access, federal loan guarantees, removing the blend wall and providing long-term certainty to the industry. I am confident the next generation can be produced to help our nation reduce its dependence on foreign oil, improve our environment and create jobs nationwide to produce home-grown ethanol from a variety of feedstocks.”