Renewable Fuel Standard Update

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On July 5, the U.S. Environmental Protection Agency (EPA) released its proposed Renewable Volume Obligations (RVOs) for 2018 including biomass-based diesel for 2019. The following table and figure summarize the amounts along with the RVOs for the previous four years:

EPA is proposing a 25 % reduction in cellulosic biofuel from the previous year’s volume requirements. Also proposed is a small reduction in the advanced biofuel total from 4.28 to 4.24 billion gallons. All renewable fuels within the advanced biofuel standard must be capable of achieving a 50 % lifecycle reduction in greenhouse gas emissions. The RVOs of cellulosic biofuel and biomass-based diesel are subcategories within the advanced biofuel total. Also counted as part of advanced biofuels are renewable fuels using feedstocks and production process requirements as described in the following table:

As included in my previous blog,(Challenges to EPA’s Revised Renewable Fuel Standard Requirements, June 23, 2015), the following figure shows the volume requirements of the four different biofuel categories as established in the Energy Independence and Security Act of 2007 (EISA).

Other than biomass-based diesel, the actual volumes of total advanced biofuel and individual cellulosic biofuel for the previous three years and proposed for 2017 and 2018 are substantially below the quantities anticipated in the 2007 EISA:

In the 2007 EISA, there is no standard for conventional renewable fuel: i.e. corn-based ethanol. The yearly totals are calculated by subtracting the volumes of advanced biofuel from the legislated Total Renewable Fuels:

As shown, EPA has proposed no increase over the 2017 15 billion gallons for 2018. The historical conventional renewable fuel volumes correspond very closely with the actual consumption of ethanol as reported by the Energy Information Agency (EIA). The following table summarizes historical consumptions of ethanol, motor gasoline and biodiesel for the last four years:

Based on these historical data, the fuel ethanol industry has been unable to break through the mythical 10% “blend wall.” As discussed in my Jan. 14, 2016 blog, (EPA Finalized Renewable Fuel Standards for 2014 to 2016 and Biodiesel for 2017,) even though the EPA has approved ethanol blends up to 15% in conventional light-duty cars and trucks in model year 2001 and newer, and there are now many automakers honoring their warranties if owners use gasoline with ethanol concentrations up to 15%, the petroleum industry has resisted making such higher concentration blends available.

The other option for increased ethanol usage is with E85 in flexible fuel vehicles (FFVs) that can run on any mixture of gasoline and ethanol from 10% to 85%. Even though somewhere between 6 and 20 million such vehicles are part of the US’s 263 million motor vehicles on the roads currently, many owners do not realize that they are capable of using higher ethanol gasoline blends, and furthermore there are very few gasoline service stations, outside the corn-growing ethanol producing states of the Mid-West, that offer E85 refill pumps.

There are other inhibiting factors to the ultimate goal of renewable fuels achieving 36 billion gallons by 2022 as mandated in the 2007 EISA. According to EIA projections, gasoline consumption is forecast to decrease in large part due to increasing corporate average fuel economy (CAFÉ) standards. As enacted by the Obama administration auto makers are required to meet a CAFÉ standard of 54.5 miles per gallon by 2025. Based on the current CAFÉ standards, the EIA used the below light duty fleet averages in developing its projections of future gasoline consumption.

Bowing to pressure from US auto manufacturers who claim these standards will be too expensive to implement and therefore will result in loss of jobs, President Trump recently ordered the EPA to review the current regulations with the aim of reducing the standards or eliminating them all together. However even if the CAFE standards are reduced or eliminated by the current administration, the increasing popularity of electric cars may offset any reduction in the fuel economy standards. Just recently Tesla announced the introduction of its Tesla 3, a mass market lower priced option.

Basic economics is also another factor inhibiting the growth of advanced renewable fuels. Producing ethanol or other renewable fuels from cellulosic feedstocks is expensive and technically challenging. At current crude oil prices of $50/bbl, it is difficult for such plants to produce renewable fuels economically competitive with conventional fossil fuels.

Based on these factors, it seems highly unlikely that the 2007 EISA lofty goal of 21 billion gallons per year of Advanced Biofuels by 2022 will be achieved.

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Marshall Frank

Marshall E. Frank retired from Chem Systems, where he was President and Managing Director, responsible for international consulting activities in North and South America and Asia Pacific. During his more than thirty years with the company, he had technical and administrative responsibility for a large number of multidisciplinary projects, both single-client and multi-client sponsored. Mr. Frank’s areas of expertise include natural gas utilization and conversion, the petrochemical industry, the refining and petrochemical interface, and alternative fuels. He also directed Chem Systems’ Financial Practice, which provided assistance to lenders in assessing the various risks associated with the financing of major international energy, petrochemical, and polymer projects. Prior to joining Chem Systems, Mr. Frank was involved in process evaluation, process engineering, and the startup of many of Halcon/SD’s proprietary processes at Scientific Design Company. Mr. Frank received a B.S. in Chemical Engineering from Cornell University.

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