EPA lowers cellulosic ethanol standard for 2010

The US Environmental Protection Agency published guidance for the second phase of the renewable fuels standard (RFS2) Feb. 3, directing refiners to ensure that the gasoline pool contains 8.25% ethanol.

Paula Dittrick
OGJ Senior Writer

HOUSTON, Feb. 5– The US Environmental Protection Agency published guidance for the second phase of the renewable fuels standard (RFS2) Feb. 3, directing refiners to ensure that the gasoline pool contains 8.25% ethanol.

The Energy Independence and Security Act of 2007 (EISA) required sales of 12.95 billion gal of renewable fuel in 2010. EISA created a second, expanded version of the RFS, known as RFS2.

The RFS2 rules from EPA originally were scheduled for release Jan. 1, 2009, but EPA delayed the release until this year.

For the first time, EPA announced volume standards for specific categories of renewable fuels. The 2010 cellulosic ethanol standard is 6.5 million gal, down from the 100 million gal that Congress established in 2007.

The RFS2 biomass-based diesel standard is 1.15 billion gal. The biomass-based diesel standard combines the proposed 2009 and 2010 standards, EPA noted. That combination was called retroactive by oil industry groups.

The total advanced biofuel sales level, excluding biomass-based diesel and cellulosic biofuel, must be 950 million gal, and the rest will be corn-based ethanol. EPA defines advanced biofuel as fuel derived from feedstocks other than corn starch.

EPA finalized a rule implementing the EISA’s long-term RFS2 mandate for biofuels production to reach 36 million gal by 2022 from 11.1 billion gal in 2009. Of the 36 billion gal, the mandate calls for 21 billion gal to come from advanced biofuels.

In addition, EPA set the first mandatory greenhouse gas reduction thresholds for various categories of fuels. Fuels must demonstrate that they meet certain minimum GHG reduction standards, based on a lifecycle assessment, in comparison to the petroleum fuels they displace.

Industry responds
The American Petroleum Institute said it was concerned that the EPA announcement could result in higher consumer costs for transportation fuels.

“The US oil and natural gas industry are the biggest consumers of ethanol and other biofuels,” API said. “Almost 80% of all gasoline now produced in the US contains ethanol. API supports a realistic and workable RFS. Given the complexity of this new regulation, we question how realistic and workable it will be.”

API said EPA set retroactive requirements by finalizing the rule on Feb. 3 and making it effective July 1, yet including the mandate for the whole year for refiners rather than prorating it. The RFS1 rule was made effective on Sept. 1, 2007, and EPA prorated it for 4 months.

EPA also was retroactive by including the biomass-based diesel standard from 2009 into the 2010 standard, API said.

Charles Drevna, president of the National Petrochemical & Refiners Association, said NPRA consistently has supported the integration of biofuels into the nation’s fuel mix.

“While we welcome the 2010 guidelines for RFS2 implementation today, our member businesses would have been better served in terms of investment and regulatory certainty to have known these rules months ago,” Drevna said Feb. 3.

Although still reviewing the “lengthy and complex regulations,” Drevna said, NPRA is concerned that “a few key provisions evade sound science and may even be unlawful.

“We are concerned, for example, that politics may have trumped science with regard to the revisions to the greenhouse gas emissions from the production of soy-based biodiesel. We also believe that combining biomass-based diesel volumes from 2009 with 2010 and making portions of the final rule retroactive to Jan. 1, 2010, is unfair and likely unlawful.”

Cellulosic ethanol shortfall
Benjamin Salisbury, an analyst with FBR Capital Markets, said recent moves by the government to boost biofuels are incrementally favorable to corn-based ethanol.

“Although EPA believes that commercial-scale [cellulosic] ethanol capacity will come online in time for 2011, this decision could set an important precedent for corn ethanol in the event of a future advanced biofuel shortfall,” Salisbury said.

Raymond James & Associates Inc. analysts said corn ethanol blending remains essentially the same under RFS2, but that the EPA has outlined a specific annual volume for biodiesel for the first time.

“In 2010, 1.15 billion gal of biodiesel must be blended,” an RJA research note said. “However, with roughly 2.5 billion gal of US biodiesel production capacity already in place, even this target will not do much to boost capacity utilization, which means biodiesel is set to remain a tough business.”

The US Energy Information Administration reported biodiesel production at 414 million gal for the first 10 months of 2009.
Meanwhile, President Barack Obama on Feb. 3 announced a series of steps his administration is taking to boost biofuels production. In May 2009, Obama established the Biofuels Interagency Working Group, cochaired by the secretaries of energy and agriculture along with the EPA Administrator Lisa Jackson.

The group released its first report Feb. 4, outlining a strategy to advance the development and commercialization of what it calls a sustainable biofuels industry to meet or exceed US biofuels targets.

Contact Paula Dittrick at paulad@ogjonline.com

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