5 Minutes with Novozymes Americas president Adam Monroe on the EPA and the Renewable Fuel Standard

We look at EPA delays on RFS, the consequences, the hoped-for silver lining, fueling infrastructure at the heart of the dispute, and the RFS’ strategic intent.

Have no doubt about it, the troubles with the United States’ Renewable Fuel Standard has very little to do with carbon, or energy security, or mandates, or renewable fuel technology.

It comes down to money, we’re told. As in, who is exactly supposed to pay for the fuel infrastructure needed to blend parity-cost alcohol fuels such as first-gen or advanced ethanol, while drop-in fuels make their way down a decade-long cost curve until they are competitive on cost?

Were the infrastructure in place — a combination of vehicles and blender pumps, and in the same geography — observers say that there would be virtually no discussion of an E10 ethanol blend wall, and few delays on the EPA’s volume targets. But delays there are, and they have turned into 16-month delays that have rattled biofuels markets and chilled investment ardor.

To understand the ramifications of the EPA’s decision, we turned to Novozymes North America president Adam Monroe.

BD: Adam Monroe, most of the industry was cheering after the EPA’s decision not to finalize a 2014 RVO ruling. Why?

AM: The hope is for a silver lining, the evidence we have is that the discussions we’ve had with the EPA at the beginning of this process, and towards the end, suggested to us that they are hearing us on the adverse impacts of the proposed rule.

BD: The lack of the ruling means more uncertainty for the industry moving into 2015.

AM: It’s a balance. Balancing against the uncertainty in the US is the pickup in the rest of the world. Our activity there is definitely keeping us busy. Plus, our efforts and technology keep advancing even with the uncertainty, and we are still adding innovation, not sitting down.

BD: In your analysis of the radically new direction the EPA took in the draft rule, now abandoned, was there anything at all in there you liked?

AM: (Long pause). We understood the strategic intent, the aim for stability. We agree with the premise. We are all waiting for a methodology from the EPA that achieves that intent.

BD: There’s been much written about the comparative benefits of, say, a Low Carbon Fuel Standard or the EU’s Fuel Quality Directive. recently, Shell’s Matthew Tipper said that, for them, the RFS2 was still by far the best because it increased certainty on price and volumes. Do you agree, is RFS2 still the best?

AM: RFS2 is still the best, without a doubt. But it all depends on where you are. For example, the Low Carbon Fuel Standard puts all the emphasis on carbon, and in the US there is an unbelievable debate over the price of carbon. A low-carbon approach works in California to a degree, but it would be difficult to see expanding that across the US.

With RFS2, lawmakers said this: for a variety of strategic reasons, we’d like an alternative fuel. You guys will determine the technology, but if you show up with fuel there will be a market for it. In looking at that market, I can also probably imagine that the value of the fuel should be similar to what we are trying to displace. It’s unique in that it established a marketplace that businesses understand.

Other methodologies can be a little more complex and harder to understand. The simplicity of the RFS, while controversial, it works.

BD: A weakness identified in the RFS — again, from observations by Shell, is that it incentivizes a lot of actions and provides a signal for supply and demand, but not in the case of fuel infrastructure. And here we have E10 saturation — and a barrier to growth that is solved by investment in fuel infrastructure. Do you see that as an area of the RFS which can be improved.

AM: Certainly we need more infrastructure for alternative fuels. While I don’t think you would do it via the RFS, the funding side of infrastructure, that’s something that could be considered as an add on to the RFS.

When we passed this law, it was a clear strategic penalizing signal to the oil industry. It said “I’m sorry, but for these very important strategic reasons we are going to supplant some of your supply. A Republican president said it twice. They knew we are going to take market from the oil guys, and it will have consequences for them. How could it not?

But if the EPA just published what’s in the law every year, I have no doubt there would be a lot of infrastructure built. But if you make the bet that you think you can challenge the law, then it’s not likely you’ll see any built. And that’s kind of where we are.

Infrastructure is a tough part of the strategic decision that was made. If someone got there and got it done like was done with the railroads, that would be welcome.”