Advanced biofuel group breaks with traditional allies on federal mandates

WASHINGTON — The makers of advanced biofuels created with algae, animal fat and non-edible plant materials on Wednesday broke with traditional corn-based ethanol producers to call for sweeping changes to the nation’s biofuels mandates.

The appeal, delivered by Advanced Biofuels Association President Michael McAdams in a speech Wednesday, marks a major shift in the strategy for the diverse industry supporters of the 10-year-old renewable fuel standard, who have long stuck together in lobbying Congress to maintain the mandates.

Together, they have successfully beaten back stiff opposition from the oil industry and its leading trade group, the American Petroleum Institute, which have argued that the renewable fuels requirement is fundamentally broken and should be scrapped altogether.

But with his remarks Wednesday, McAdams signaled that the advanced biofuel sector believes its best hope for preserving a federal mandate for its innovative new renewable fuels comes by distancing itself from the first-generation ethanol that currently fulfills most of the mandate.

While the RFS “may be working for some” it “is not equally helpful to all sectors of the biofuels industry,” McAdams said. “The current RFS simply doesn’t work as well for companies trying to move cutting-edge technology from a demonstration plant to commercial scale.”

Although the American Petroleum Institute previously maintained a repeal-only approach to the RFS, some refiners have quietly signaled they could back more modest reforms to the mandates that would preserve a path for cellulosic and other advanced biofuels, while scaling back or completely undoing the requirement for traditional renewable fuels that are typically made from corn.

Creates an opening

The advanced biofuels group’s move creates an opening for a new collaboration — this time with staunch RFS critics whose ire has been focused on the federal mandates for conventional corn-based ethanol.

The renewable fuel standard obligates refiners to add steadily increasing amounts of ethanol and other alternatives into the nation’s transportation fuel supply — up to 36 billion gallons in 2022, with the amount of traditional corn-based renewable fuel essentially capped at 15 billion gallons. Although Congress set out the basic framework in 2005 and then updated it again two years later, it is up to the Environmental Protection Agency to establish annual quotas for the biofuels mandated under the law, including traditional renewable fuel, advanced biofuels that aren’t derived from corn starch, biodiesel and cellulosic biofuel.

The law does not require cellulosic and advanced biofuel targets for years after 2022, instead directing the EPA to set any quotas based on a review of the program and its environmental and economic benefits. Renewable fuel backers across the spectrum want to see a longer lifespan for the program.

McAdams said the uncertainty about the very existence of a renewable fuel mandate after 2022 discourages investment in advanced biofuels.

“Capital markets now question whether the support provided by the RFS will exist after 2022,” he said. “Today’s RFS uncertainty would have lenders requiring advanced and cellulosic companies to look at paying it off in seven years.”

The Advanced Biofuels Association wants changes to the RFS that would prod the oil industry to buy and use actual cellulosic fuel — instead of buying a waiver credit to get around the mandate.

“Perversely, with EPA’s current implementation, it is usually a much better deal for obligated parties to purchase a refundable waiver credit from the EPA than it is to buy your actual gallons with the cellulosic credit,” McAdams said. As a result, he said, some 33 million gallons of cellulosic biofuel compliance credits “were left sitting on the sidelines in 2014 because it was cheaper for oil companies to buy EPA cellulosic waiver credits.”

Under the Advanced Biofuels Association’s proposal:

  • The RFS compliance credits for cellulosic fuels would have a minimum value sufficient to provide “certainty and stability” for advanced biofuel producers “to build facilities and commercialize their innovative products.” Those cellulosic complicance credits also should be indexed to the price of oil, insulating the sector from drops in crude prices.
  • Congress would extend the program for advanced and cellulosic fuels beyond 2022.
  • Refiners would be discouraged from using waiver credits to satisfy cellulosic and advanced biofuel requirements.

RFS critics on Wednesday hailed the development, saying it illustrated that the policy was failing its prime intended beneficiary. Scott Faber, vice president of governmental affairs for the Environmental Working Group, called it “a huge political game changer.”

“Now we know that RFS has failed the industry it was designed to help build,” Faber said.

‘Real departure’

“This represents a real departure for ABA, and it’s a public recognition that the RFS is so badly broken that the industry the legislation was designed to develop has now thrown in the towel and asked Congress for help,” Faber said. “Today’s announcement is sort of the ultimate recognition that RFS has failed and that Congress needs to revisit RFS if we hope to have a fuels mandate that delivers what Congress intended and what consumers expected.”

When Congress expanded the renewable fuel standard in 2007, some lawmakers expected it to help propel next-generation biofuels, with traditional ethanol serving as a stepping stone.

Bob Greco, the downstream director for the American Petroleum Institute, told reporters the Advanced Biofuels Association’s endorsement of RFS changes “further narrows the coalition of people who support this RFS.”

“It’s basically the corn growers and the corn ethanol manufacturers at this point,” Greco said.

Some analysts suggested that the Advanced Biofuels Association’s endorsement of legislative changes would lift the chances of congressional action on the RFS — though it is unclear how much.

The move provoked swift rebukes from conventional renewable fuel supporters. Growth Energy CEO Tom Buis warned that any attempt by Congress to rewrite the renewable fuel standard opens a can of worms and “will create further uncertainty for the industry.”

“This is a shortsighted proposal that would set the entire renewable fuels industry on the path to a rollback of the RFS,” Buis said.

The Advanced Biofuels Associations’ push for legislative changes may represent a bid to stay relevant in the RFS debate, said Michael McKenna, a GOP strategist and energy lobbyist.

Any congressional compromise on the RFS is likely to involve both corn and oil interests, he said, noting that refiners are broadly expected to continue using ethanol as an inexpensive octane booster for gasoline, with or without a federal mandate.

“Most refiners understand that if a deal is gong to be made, it’s going to be a deal with the corn guys, not the advanced guys,” he said. “Eventually the corn guys and refiners are going to overcome the personalities involved…and make a deal.”

Environmental groups have criticize the greenhouse gas emissions associated with ethanol made from corn, factoring in land-use impacts and other considerations.

But a recent World Resources Institute report threw doubt on all biofuels produced using land crops — even next-generation alternatives produced with waste products, switchgrass and other non-food materials. They can crowd out traditional food production and do not yield the promised climate benefits, according to the WRI analysis.

On Capitol Hill, several bills have been proposed to make changes to the renewable fuel standard, with some repealing it altogether. A measure advanced by Feinstein and Sen. Pat Toomey, R-Pa., would do away with the traditional renewable fuel mandate, keeping quotas alive for cellulosic and advanced biofuels.

Read more: Broad coalition takes aim at renewable fuel requirements

That approach could benefit refiners in California, who still must comply with that state’s low-carbon fuel standard, even if the federal RFS were scrapped.

“To the extent that today’s announcement facilitates a discussion of reform thoughts, it certainly will be far more productive than the head-in-the-sand approach that the conventional biofuels crowd continues to take,” said Stephen Brown, vice president of government affairs for Tesoro Corp. “At the end of the day, facing a likely future that calls for less carbon-intensive fuels, a viable advanced biofuel industry that offers a menu of fully fungible alternative fuels is a desirable outcome for many refiners.”

But Brown noted that there are still questions about “how long it takes them to get to commercially available quantities at a competitive price.”

The American Fuel and Petrochemical Manufacturers blasted the biofuels association’s approach, with president Charles Drevna saying it would “force the oil industry to finance the cellulosic biofuel industry’s future.”