“Wrong-Way Obama” scores one for the oilcos with renewable fuels policy

Eight years after then-Senator Obama co-sponsored a bill in Congress calling for a 60 billion gallon biofuels target, President Obama’s EPA slashes the Renewable Fuel Standard targets to wimpy levels, despite ample production capacity, bumper crops, and foreign investors waiting to pump capacity-building dollars into the US economy. 

Then the EPA cancels the slashed mandate order, but doesn’t restore the original one. Leaving investors, scientists, farmers and energy-security hawks aghast.

What’s up, what might restore the RFS?

In Roll Call this week, Ryan Fitzpatrick, a senior policy adviser at Third Way, a centrist think tank based in Washington, writes:

When it comes to the emerging advanced biofuels industry…the Obama administration may have killed a [Foreign Direct Investment] goose that was preparing to lay hefty golden eggs. While overall FDI numbers fell during the past decade, projects in this sector began to attract hundreds of millions of dollars from around the world. And this was just the first batch of “golden eggs”…The expected result was more than 100 additional projects, tens of billions in FDI, and all of the jobs and residual economic benefits that come along with that.

Then came the axe — swung by the Obama administration itself…[when] EPA issued a proposal to adjust the way it administers the Renewable Fuel Standard, effectively eliminating the growth potential for second generation biofuels. The loss of market…quickly dried up interest in this promising sector. EPA announced last November that it would delay a decision on its controversial proposal until 2015, perhaps recognizing the damage it was inflicting.

But foreign investors appear to be waiting for the Obama administration to recommit to the RFS before they pour more cash into U.S. biofuels….If EPA sends the right message now, he has a good shot at wooing back these companies. His odds are definitely better than waiting for Congress to help promote his economic growth agenda.

Readers may ask, why is it so difficult to have a Renewable Fuel Standard mandate that supports second-generation biofuels? Um, those fuels that reduce greenhouse gas emissions by between 50-90% (compared to 2005 benchmark gasoline), create domestic jobs, generate foreign direct investment and generally utilize non-food energy crops and residues like corn or sugarcane trash, or municipal solid waste, or waste fats & oils.

The trouble lies not so much in what the Renewable Fuel Standard says, but what it doesn’t say. And one factor counts more than the others.

Infrastructure: the problem holding back the RFS

The first is infrastructure to deliver fuels to vehicles. Congress certainly knew in 2007 when establishing the RFS that passenger cars built between 1995 and 2007 were only at that time approved for (up to) 10 percent blends of ethanol. The RFS targeted 36 billion gallons of biofuels into (at the time) about 140 billion gallons of gasoline demand and 35 billion for road transport diesel. There was no expectation that gasoline demand would magically spike to 300 billion gallons and ethanol could simply be blended at 10 percent.

Certainly, then-Senator Obama would have had no such illusions, in co-sponsoring the Biofuels Security Act of 2007, which targeted 60 billion gallons of renewable fuels by 2030.

The expectation was that a combination of auto manufacturers would make enough “flex-fuel” cars that can handle up to 85 percent ethanol blends, and that a network of stations would emerge to supply the fuels. The former sort of happened — auto manufacturers have made more than 10 million flex-fuel cars but few of them are robustly designed to take advantage of ethanol’s positive properties. The latter didn’t happen much at all — roughly 3,000 E85 stations emerged, not always well-located in terms of where the flex-fuel cars were, and E85 pricing policies have ensured that drivers will have to pay 10-20% more per mile to use E85, compared to gasoline. The result has been less than 1 billion gallons of demand for higher ethanol blends.

New advanced high-blending fuels

One way to solve the E10 saturation problem is to introduce new advanced fuels that naturally blend with gasoline at higher rates. Three of these are renewable gasoline blendstocks, renewable diesel and isobutanol — and all of them are being manufactured in the United States, and work fine. Renewable diesel has even generated some scale, with more than 1 billion gallons of capacity in place, under construction or in planning around the globe. Isobutanol and renewable gasoline are certainly headed for scale, but are not quite to market yet in appreciable quantities.

Overall, isobutanol is the most intriguing transitional alternative fuel, because it can be produced by retrofitting a conventional corn ethanol facility. Isobutanol blends at 16 percent instead of 10 percent, and has a higher energy density than ethanol. The US could blend 20.8 billion gallons of isobutanol into a 130 billion gallon gasoline pool, and these molecules would count for 27 billion gallons in ethanol-equivalence terms, which is how the RFS counts the mandate.

Which gives you two options. One, simply blend a lot of isobutanol en route to meeting RFS targets. Or, deploy a combination of isobutanol and cellulosic ethanol. That way, you don’t need to harvest more corn sugars to meet mandates — corn stover, municipal solid waste and the like could be utilized. And authorities tell the Digest identify as much as 15 billion gallons could be produced from currently available MSW and corn stover.

Ethanol-hungry advanced engines?

Help is on the way, in the longer term, from advanced manufacturing of passenger cars. There’s a dispute going on between manufacturers and the EPA over whether E15 ethanol can be safely blended into cars made between 2001 and 2010, but from 2011 on there’s little disagreement, and in the future E30 blends may well be tolerated by advanced engine designs. That’s because manufacturers have strict new CAFE standards coming aimed at pushing average fuel economy up to 50 miles per gallon in the 2020s. For larger gasoline-powered cars, one way to improve mileage is to increase the engine compression. Normally that causes engine knock unless you have a high-octane fuel and E30 supplies the octane needed.

But it will be a while before any of those advanced engines reach the market, and it is difficult to persuade fuel retailers to add an E15 pump to service the cars that can tolerate the fuel, at this time. By the late 2020s, the fuels could simply be blended in safely to regular unleaded gasoline, but not yet (according to fuel marketers).

Rosier days over on Diesel-side Island

On the diesel side, the picture looks rosier in terms of capacity and blending saturation points. Most manufacturers at trucks and cars that accept B20 or higher biodiesel blends, now or soon. Renewable diesel is used in 50 percent blends, or higher. And diesel use is on the rise, so in the long-term we might  see quantities of 7-10 billion gallons of renewable fuels going into the diesel side of the pool.

Those diesel gallons count for a lot in terms of the Renewable Fuel Standard, because of higher energy density. Each biodiesel gallon counts for 1.5 gallons of ethanol, and a renewable diesel gallon counts for 1.7 gallons.

So, where does that leave us?

Bottom line, there are quite a number of pathways to meeting a 36 billion gallon RFS target in 2022 without reinventing fuel distribution infrastructure. Consider this scenario (which includes 1 billion gallons of E85 or other high-blend fuel).

Now, defining an achievable pathway that fits the infrastructure doesn’t mean that all problems go away. This is an illustration, not a business case. That’s a lot of new manufacturing capacity to be built, and a lot of affordable feedstock that has to be sourced. The scenario leans heavily on the diesel side, and affordable feedstock is a challenge there. But think, as Fitzpatrick does, about all that foreign direct investment, and all those good paying domestic jobs.

“Make the case for investing in America”

But let’s, for the moment, make the assumption that American know-how might source the feedstock, and the financial markets might support the investment.

What could a US government do  to “make the case for investing in America” through regulatory policy and organizational change — as Fitzpatrick pointed out that President Obama pledged he would, to foreign investors at a 2013 White House Summit?

Here are some key potential steps.

1. Make aviation biofuels a compliance pathway for obligated parties. In our scenario above, we didn’t mention aviation biofuels, but airlines want to reduce emissions by 50% by 2050, and there’s no solar widebody jet on the horizon.

Note this, you don’t have to put a mandate on airlines, you don’t have to consider their consumption of fuels as part of the pool for setting targets for obligated parties. But the EPA could decide that aviation biofuels are an acceptable path for compliance. And that opens up more than 10 billion gallons of demand, and aviation biofuels blend at 50 percent with conventional fuels.

2. Make affordable cellulosic and renewable jet/diesel/biodiesel feedstock the number one mission of the USDA in terms of advanced biofuels. Right now. the USDA is loaded down with a whole bunch of missions, including supporting first-of-kind technologies with loan guarantees — because DOE has had a tough time fitting biofuels into their risk criteria when it comes to deployment. Getting the costs low for these critical feedstocks is essential to turning an illustration of a pathway into a financeable solution.

3. Make deployment through loan guarantees of first commercial plants a priority for the DOE Loan Programs Office — the team there under Peter Davidson is willing, they just need political support from the Administration to “make the case for America” to Congress that it is worth the risk to get 8-10 technologies deployed.

4. Make isobutanol and aviation biofuels technical readiness the number one mission of the Bioenergy Technologies Office. BETO has done amazing work moving cellulosic technologies forward. There are many deserving fuels, feedstocks and processing technologies that need support — but none of them benefit from the policy uncertainty that follows from fears that the RFS is unworkable. It has to be made to work, through focus.

5. Reinvigorate the RFS by declaring that the near-term targets can be met, and should be met, and sticking to them or at least resetting the targets to an out year of, say, 2025.

Consider how the picture for RFS compliance could change if aviation biofuels were in the picture (again, not in terms of a new mandate, but in terms of compliance with existing mandates).

As you see, 2 billion gallons of renewable jet fuel would reduce the need for 3 billion gallons of butanol retrofits and 1 billion gallons of renewable gasoline deployment. And there’s a ready market for an affordable jet fuel.

Possible, probable?

It comes down to costs. DOE and USDA have shown that they can lead industry towards beating down costs, if they have the time and focus. Given that the US has around 17 billions gallons of renewable fuel capacity in place, putting in an additional 11 billion gallons is not an easy task. (Today, there is roughly 17 billion gallons – conventional ethanol, 2+ billion gallons – biodiesel; sub 1 billion – everything else). But it’s only another 40% compared to what has already been achieved.

The US set out on an ambitious journey in 2005 when it reset energy policy and started to accelerate biofuels. We’re almost two thirds of the way. Abandoning the program, or taking its momentum away — well, it would be sort of like abandoning the Moon program after the Gemini project was completed, because the complexities and the costs of Apollo looked suddenly unappetizing.

As President John F. Kennedy once observed: “We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.”

In an earlier day, Senator Barack Obama proposed a 50 billion gallon biofuels mandate, and pledged as noted above to ““make the case for investing in America” through regulatory policy and organizational change. The time is nigh to demonstrate that all the talk was not just talk, and that the President will refocus on these challenges and, before the end of his term, establishes a legacy for himself because he set the US on a path to win.