The Time has come for RFS Reform

July 25, 2017 |

By Mike McAdams, president, Advanced Biofuels Association

Special to The Digest

In December of 2007, President Bush—with overwhelming bipartisan support—signed the RFS2 into law. Since that time, it has become clear the law has worked for first-generation corn ethanol and biodiesel. While the first generation fuels now represent over eighteen billion gallons of fuel production, the new advanced and cellulosic fuels represent less than four hundred million gallons. Common sense suggests that now is the time to explore the disparity between first and second generation biofuels production if we hope to deliver on the promise of more diverse and sustainable fuels.

BP, a member of the Advanced Biofuels Association (ABFA), agrees: “BP is actively involved in developing and promoting advanced biofuels. We have a profitable production business in Brazil; we supply and trade in biofuels globally; and we invest in research and development of new sustainable low carbon biofuels such as biojet. Advanced biofuels in the longer term can also help reduce emissions in aviation and heavy-duty applications where moving to electrification is much more difficult. However, to realize this future, we believe legislative reform of the RFS is necessary to further support the development and deployment of advanced and cellulosic fuels.”

As the President of ABFA, I have had the opportunity to see most of the new proposed technologies attempt to transfer from the lab to commercial production. Regardless of the process or the feedstock—thermochemical, synthetic biology, acid hydrolysis, algae, wood, municipal solid waste, agricultural oils, waste gas, or cellulosic material—all of these processes have suffered from the same barriers to entry: inability to finance new technology based facilities, limited flexibility in the current statutory definitions, and overly burdensome compliance rules. These three barriers will continue to exist without true legislative reform.

First and foremost, the ability to raise financing to build out a new technology has been disproportionately impacted by regulatory uncertainty. The very longevity and support of the program at the federal level have been in question for several years now. We must have reaffirmation that the program is supported at the federal level. And, while we are at it, we should address the shortcomings of the original statute.

Wayne Simmons, CEO of Sundrop Fuels, perhaps explains this best: “Financing new, innovative commercial plants for the production of cellulosic biofuels is virtually impossible under the current Renewable Fuels Standard. This inability to secure financing is driven by several factors, but the largest barrier is the level of uncertainty created by the current law. For large commercial biofuel plants, leveraging the cost with debt is critical–as it is with any large capital facilities. Ideally, one would hope to secure tenor on debt of as long as 20 years. In the current statute, however, it is very unclear how the program will be administered after 2022. Similarly, the access to the current RIN mechanism that drives the market is regulated by the annual Renewable Volume Obligations (RVO) set by EPA. Again, EPA’s inability to consistently set the RVO yearly has created further uncertainty for the financial community. In addition, the current EPA policy for purchase of Cellulosic Waiver Credits allows obligated parties a means of opting out of purchasing physical gallons intended under the RVO, which winds up undercutting the support of RINs actually produced with cellulosic biofuels. And, stacked on top of all of these uncertain elements is the fact that this is the first commercial deployment of these new, innovative technologies which further impacts risk for debt financing.”

The second major issue with the RFS is its existing feedstock and pathway definitions. EPA has been very slow to bring new technologies and feedstocks under the RFS program. In a pathway approval process that used to average 2.9 years, each new company still must continually engage with EPA for an extended time to get approval or wait for years without being told they are rejected. For example, the program’s potential to utilize more feedstocks from a broader number of states has been significantly restricted by the inability to use certain types of wood and municipal solid waste as well as the inability to define the term “waste.” I have been told repeatedly by EPA staff that these fixes must be made statutorily to render different results under the program.

The third major issue that needs to be addressed is the over-burdensome compliance requirements focused more on preventing RIN fraud from a few bad apples at the expense of developing the industry. For instance, a regulatory proposal from EPA would require carbon-14 dating to determine bio-content when intermediate feedstocks are co-processed into renewable fuels. This is an extremely complicated and expensive process, and may render a result which is not conclusive. Moreover, the requirement would apply to less than 10% of the processed fuels. This creates a barrier for renewable fuels, making it even less competitive than petroleum by requiring a measurement technique with which the oil industry does not need to comply. Even the California Air Resources Board (CARB) rejected this requirement because of its excessive cost and unreliability.

With Congress looking to create new manufacturing jobs across America, while enhancing the ability to make sustainable fuels of the future to fly airplanes, power large ocean-going vessels, and heavy-duty trucks, it’s time to address these challenges. We must address the existing statute to develop the drop-in advanced biofuels of the future. These jet fuels, diesel, heating oils, and gasoline—all with high energy density—are identical to traditional fuels and require no changes to infrastructure. Fuels that are desired by the Department of Defense have been demonstrated in fighter jets and navy war ships. This world can exist. But, to develop these advanced and cellulosic fuels, we must fix the RFS. Congress must step in and send a strong signal of support.

I applaud the Congressional leaders who are currently reviewing the RFS, seeking reform writ large. Already there are Senators and Members of Congress who are currently discussing these changes along with how to make the RFS work smarter and better in the future. If our vision is a world powered by next generation fuels—that is certainly mine—let’s reach out, giving Congress our full support to build on the success of the first generation and write a law that will deliver the advanced biofuels of our future.

 

Category: Thought Leadership

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