Major study says “Cut cellulosic ethanol out”, RFA says “No Way Jose”

In Iowa, a new tractable multi-market model study finds that the RFS has substantially benefited the U.S. economy by lowering gasoline, crude oil prices, and crude oil imports, while increasing prices and benefits for corn and soy farmers and reducing U.S. greenhouse gas emissions.

But in their ‘what if there was no RFS?’ scenarios and predictions for the future, Iowa State University researchers made the recommendation that we increase ethanol production but decrease biodiesel and totally eliminate cellulosic ethanol in future mandates. Yep, you heard that right – totally cut out cellulosic ethanol from our future and lower biodiesel production, because it just ain’t worth it.

Those in the cellulosic ethanol and biodiesel industries, like the Renewable Fuels Association and National Biodiesel Board, are picking their chins up off the floor and asking “say what?” to those chopping block recommendations.

The backstory

In case you’ve missed what this study is all about, here’s a quick run-down. Iowa State University researchers asked what if there was no RFS in 2015 and projects 2022 mandates. They recommended a 2022 “biodiesel mandate of 1.8 billion gallons, zero mandates for cellulosic biofuel, and an overall renewable fuel mandate of 18.6 billion gallons implying an effective corn-based ethanol mandate of approximately 16.8 billion gallons).”

That’s an 18% increase in corn-based ethanol mandate and a drastic reduction of the advanced biofuel mandate, including zero cellulosic biofuel. That’s something a lot of us would have a hard time biting our teeth into.

Predicting the future is not easy, and while using history, data, market conditions, and pricing helps, the Digest, as well as the RFA and NBB, just don’t have 100% confidence in the 2022 predictions and recommendations that the study offers. As we’ve learned in the recent past, so many unexpected things can happen with markets, politics, and more, yet the study recommends totally obliterating cellulosic ethanol, decreasing biodiesel and only increasing corn-based ethanol. Really? Really.

The Digest caught up with Renewable Fuels Association VP Geoff Cooper who said, “The real value of this study is its 2015 results because it compares what actually happened in the real world with the RFS to a “counterfactual” scenario where the RFS didn’t exist.”

So what about the study’s recommendations for 2022? Cooper told the Digest, “The 2022 results are much less relevant and we don’t put much stock in them because both the “baseline” (with RFS) and no-RFS case are totally assumption-driven. They include some fairly pessimistic assumptions regarding the future development and economics of cellulosic and advanced biofuels between now and 2022, and there is too much uncertainty around those assumptions to put much stock in the 2022 numbers.”

What about the total annihilation of cellulosic ethanol? How does RFA feel about that? “We disagree with the study’s conclusion that there is only a limited role for cellulosic and advanced biofuels in the optimal scenario,” Cooper told the Digest. “Cellulosic and advanced biofuels will result in further GHG reductions and the costs of production for these fuels are falling and will continue to do so into the future.”

Why the hate towards biodiesel?

All is not hunky dory with biodiesel either as the study concludes that while we can shout hurray for ethanol, we should boo down biodiesel. Why does the study recommend “that corn ethanol production should be increased, whereas biodiesel production should be decreased”?

They assume that biodiesel is coming mostly from soybeans and “Because biodiesel biases demand of soybean products, the RFS increases soybean oil price by 49% whereas soybean meal price actually declines (by 3.6%).”

As we all know, biodiesel uses a variety of feedstocks like tallow, used cooking oil, vegetable oils and more, but the study assumed that 71% of biodiesel in 2015 was coming from vegetable oils with soybean oil the most widely used. The study then assumed that further expansions of biodiesel production would have to rely on redirecting vegetable oils from other uses and assumes much of it would come from virgin soy oil, but that isn’t necessarily the case.

For their 2022 forecast, the study predicts that biodiesel prices go up by $0.83 per gallon compared to only $0.05 per gallon price increase for ethanol, leading the researchers to say that “biodiesel produced from vegetable oil turns out to be a costly way to increase biofuel supply.” However, the study didn’t consider how RIN values have helped, and could further help, with competitive consumer pricing.

The Digest caught up with Jessica Robinson, Director of Communications for the National Biodiesel Board who agreed something seems amiss in the study’s slamming of biodiesel. Robinson told the Digest, “Countless environmental studies show biodiesel significantly reduces greenhouse gas emissions compared to petroleum diesel, and economic studies show positive impacts on rural communities and U.S. markets, due in part to the diversity of the feedstocks we can utilize. Though the study reinforces crop and livestock producers have benefited from biodiesel production, several assumptions miss the mark.”

The NBB was very clear in voicing its disagreement with the study and said “Created in a bipartisan law, the RFS is an effective method to create a renewable-fuels market and related high-value jobs here in the United States. This is a successful program worthy of continued support and growth.”

No agreement on GHG emissions either

But what about the environmental impact of the RFS? Surely the study finds that the RFS benefits the U.S. economy as well as GHG emissions, right?

Think again. “The RFS impact on reducing carbon emission, on the other hand, turns out to be nil once we account for the leakage effect (due to the induced increase in the rest of the world’s fossil fuel consumption),” according to the study.

RFA’s Cooper thinks the study’s environmental analysis on U.S. GHG emissions is a bit flawed and called this “rebound effect” as “twisted logic.” Cooper also points out that “the study appears to have neglected the likely effects of the Paris agreement” and that “the study’s GHG emissions are based on very conservative assumptions…they assume a 21% reduction for corn ethanol, when the latest study from Argonne says 35% and the latest from USDA says 43%.”

Apparently, the use of more biofuels does reduce U.S. carbon emissions by about 29 million tCO2e – hip, hip, hooray! However, the study said it is offset by increased worldwide emissions caused by the RFS based on lower crude oil prices which would increase the consumption of crude oil elsewhere in the world. Say what?!

This kind of logic is a bit strange – do we not continue the RFS or any policies that reduce oil consumption and prices because that will make everyone else in the world buy and use more oil? It’s like saying don’t stop buying plastic water bottles because it will make everyone else in the world buy more plastic water bottles and increase pollution.

Cooper is confident that “if the study had used more current assumptions from Argonne or USDA, we have no doubt that the U.S. GHG reductions would far outweigh any supposed GHG increases in the rest of the world.”

The numbers

Overall, the study finds that “Aggregate welfare at current mandate levels is larger than in the “No RFS” scenario by about $2.6 billion,” demonstrating that it sure was a good thing to have the RFS in 2015 with its assistance in boosting the U.S. economy.

As expected, the study found the biggest winner to be the U.S. agriculture sector which was boosted by $14.1 billion with the RFS compared to a case where no RFS existed in 2015. Corn prices with the RFS in 2015 were $3.68 per bushel, but in their scenario without the RFS corn prices would be just $2.75 per bushel, lower than the cost of production. Soybean prices would have been at just $9.23 per bushel without the RFS versus $10.10 with the RFS in 2015. That’s a 34% increase in corn price and a 9% increase in soybean price thanks to the RFS.

Gasoline consumers (that’s pretty much all of us, folks) made out pretty well with the RFS too. The study found that the RFS caused crude oil price to decline by 1.4% and gasoline prices to decline by 9.5% in 2015. Even better, the RFS helped create a small contraction domestic crude oil production and a larger decline in imports of crude oil of about 6%, meaning we rely less on oil from overseas improving our country’s energy security.

Bottom line

This study is sure to cause lots of controversy, especially in the cellulosic ethanol and biodiesel sectors. We expect to see others reviewing and critiquing the study in the coming weeks as they try to sort out the what-if scenarios presented in the study.

While the 2015 results show real data and benefits and is a pretty cool way to see what it would have been like without the RFS, we just can’t be certain about the study’s 2022 numbers and recommendations that are based on unpredictable futuristic assumptions.

In the meantime, Cooper from the RFA is confident that “the industry will soon have the capacity to produce the “optimal” volume of corn ethanol discussed in the study,” making at least the study’s recommended increased corn ethanol mandate for 2022 feasible and realistic.