Why Is EPA Proposing to Continue Delaying the Arrival of Advanced Biofuels?

July 7, 2015 |

ericksonBy Brent Erickson, EVP, BIO Industrial & Environmental Section

Special to The Digest

Last week, United Airlines announced a significant investment in Fulcrum BioEnergy and an offtake agreement for as much as 90 million gallons per year of renewable jet fuel by 2021. The deal is a very significant development for the advanced biofuel industry and, hopefully, a harbinger of more good things to come. Importantly, it demonstrates the potential for forward-leaning federal policy to guide investment, speed commercialization of innovative alternative fuels, and score a win for the environment.

Last week’s deal clearly has roots in the Renewable Fuel Standard (RFS) as well as other federal programs BIO has championed, such as the Farm Bill energy title and the NAVY, USDA, DOE memorandum of understanding, which directs the government to work with private industry to create advanced drop-in biofuels. Yet it unintentionally highlights the primary flaw in EPA’s recently proposed rule for the RFS. That program was uniquely designed and intended to move the United States rapidly into a lower-carbon transportation future; yet EPA for some odd reason, is attempting to rewrite the statute through its regulations and shift the program into low gear.

United, an eager customer for renewable fuels

United has been an eager customer for renewable fuels as a hedge against volatile oil prices and future carbon emission standards. United has an existing partnership with AltAir fuels, which has been converting an oil refinery in the Los Angeles area to a biorefinery over the past several years. Beginning this summer, the AltAir Paramount biorefinery will provide 5 million gallons of jet fuel a year to the airline, helping to power flights between Los Angeles and San Francisco. While that arrangement is just one drop in the bucket of U.S. transportation or jet fuel use, it is a small step in the right direction. The Fulcrum deal is yet another, bigger step.

Both of United’s biofuel partners have roots in the RFS. The companies that partnered to form AltAir started out to make renewable diesel from oil crops, and AltAir’s Paramount biorefinery is registered under the RFS to generate advanced biofuel RINs. For its part, Fulcrum has been awarded a conditional loan guarantee under the USDA’s 9003 biorefinery program and one of the Navy contracts for military specification biofuels under Defense Production Act Advanced Drop-in Biofuels Production Project. But Fulcrum is also benefiting from the engineering expertise of an established cellulosic biorefinery company. Recently, it completed a fixed price contract with Abengoa Bioenergy – one of the first producers to register a commercial scale cellulosic biorefinery for the RFS program and begin production – to design, engineer and build its new Sierra BioFuels Plant in Storey County, Nevada.

These types of interdependent partnerships, investments and offtake agreements are exactly what the advanced biofuel industry needs in order to continue commercialization and growth. Commercially proven biorefinery technologies become a catalyst for additional innovations, but their realization takes large investments and market pull. The partnerships and investments are likely to continue to happen, now that advanced biofuel technologies have been successfully demonstrated and commercialized. The question becomes how quickly we as a nation want that advanced biofuel industry to grow and what can be done to speed up the formation of such partnerships.

Industry partners need government as a partner

Federal leadership has been vital in helping the transportation fuel market take these small steps and continuation of these successful federal programs is necessary to help ensure the advance biofuel industry reaches the goal. Unfortunately, EPA’s delays in administering the RFS and policy instability have chilled $13.7 billion worth of similar deals and partnerships. Further, EPA’s recently proposed rules for 2014 through 2016 are clearly flawed. The agency disingenuously claims that its proposal is “forward-leaning” and that the volumes are “higher than what the market would produce and use in the absence of such market-driving standards.” But the fact is, EPA proposed volumes for 2015 and 2016 that are transparently calculated to give the agency authority to rewrite the statutory volumes for the future.

The EPA’s numbers are not accidental, but cynical

Stakeholders are all well aware of the RFS waiver provision that allows EPA to rewrite the statutory volumes after 2016, if it is required to waive volumes by more than 20 percent in two consecutive prior years. The overall volumes that EPA has proposed for 2015 and 2016 are slightly higher than that 20 percent waiver mark. And it’s not a coincidence. Oil industry executives encouraged the agency to maintain those 20 percent cuts to the overall volumes and rewrite the statutory volumes for 2017 and beyond during EPA’s public hearing on the RFS proposal, held in Kansas City on June 25. EPA’s proposed rule cynically adjusts the regulatory system to benefit the industry it is intended to regulate and to throw up a roadblock (call it a blend wall if you like) for advanced biofuels.

The announced partnership between United and Fulcrum is a welcome sign of our industry’s success. I know it won’t be the last. But the RFS was intended to be a market driver that made such deals occur more frequently. That way, a bunch of small positive steps could add up to a major leap forward in a relatively short period of time. EPA’s inaction on pathway approvals and stumbles on the RFS methodology and RVOs are clearly preventing that from happening. While EPA’s current logic escapes me, they still have time to correct the RFS rulemaking and to stimulate advanced biofuels even more.

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