As follow-up to my June 23rd blog, on November 30th, the EPA issued the volume requirements and associated percentage standards for conventional and advanced biofuels for 2014, 2015, and 2016 in the United States. The volume requirement for biomass-based diesel, a sub-category of advanced biofuels was also set for 2017. The volumes are slightly higher than those proposed in June but still significantly below those originally established in the 2007 Energy Independence and Security Act (EISA).
As soon as the finalized standards were announced, they were criticized by both the fossil fuel and renewable fuels industries. The American Petroleum Institute called on Congress to “step in to repeal or significantly reform the RFS.” The President of the American Fuel and Petrochemical Manufacturers (AFPM) said that establishing standards retroactively for 2014 and for 2015 in November “is indicative of just how dysfunctional the program has become.”
The Renewable Fuels Association expressed concern that the standards did not address the so-called “blend wall” limiting the ethanol concentration in gasoline to 10% and thus inhibiting investments in additional ethanol infrastructure. (See my June 23rd blog for further discussion of E10 and E85)
In the original 2007 EISA Standards, conventional biofuels (i.e. essentially corn-based ethanol) were capped at 15 billion gallons from 2015 through 2022. The largest growth in renewable fuels was expected to come from advanced biofuels: cellulosic biofuels, biomass-based diesel and other advanced fuels: all together supplying 22 billion gallons per year of the 36 billion gallons of total renewable fuels projected for 2022. However, progress in these advanced biofuels technologies has been extremely disappointing.
Cellulosic biofuels were expected to provide 3 billion gallons per year in 2015 and 16 billion gallons in 2022. As indicated in the recently issued RFS, the actual amount of cellulosic ethanol in both 2014 and 2015 is only a small fraction of what was projected in the EISA. To date there are less than half a dozen commercial scale cellulosic biofuel plants in the United States and most if not all have experienced difficulties in achieving stable operations. Producing ethanol from cellulosic feedstocks; such as corn stover (leaves and stalks of maize left in the field), for example, is technically challenging and so far the results have been disappointing.
Recently, DuPont started up a $225 million 30 million gallon per year cellulosic ethanol plant in Iowa. Full capacity is expected in 2016, so it will be interesting to see how this plant based on corn husks as feedstock fares. However most if not all of the ethanol product is not destined for the renewable fuels market as DuPont will sell the ethanol to Procter & Gamble for use in laundry detergent.
Whether additional cellulosic plants are planned and built in the next few years is still an open question. While all existing tax incentives made available by the U.S. government for the production, blending and/or sale of ethanol and ethanol blends expired in December 2014, the $1.1 trillion Spending Bill recently passed by Congress and signed by President Obama did provide the following incentives:
- A two year extension of the 2nd Generation Biofuel Producer Tax Credit
- Special Depreciation Allowance for 2nd Generation Biofuel Plant Property
- Alternative Fuel Mixture Tax Credit
Offsetting these is the current low price of crude oil and resultant gasoline price which impacts the economics of both existing and any new plants being considered.
The situation regarding biodiesel is somewhat brighter. According to the EIA’s database, there are 97 U.S. biodiesel producers with a total capacity of 2.15 billion gallons per year. Soybean oil is by far the largest of the vegetable oils used as feedstock for these biodiesel plants. Canola and corm oils along with small amounts of poultry and tallow oils are also used. The process includes extraction of fatty acids from the oils and then reaction with methanol to form methyl esters. These methyl esters have very similar properties to crude oil derived diesel fuels and can be used directly or blended into conventional diesel fuels.
Over the last three years, production of biodiesel has averaged around 100 million gallons per month (see below chart) or approximately 1.2-1.3 billion gallons per year; equivalent to just over 50% of production capacity. These production figures are lower than the above biodiesel standards set for 2014 and 2015 which are based on actual reported quantities. While it is not clear why, most likely imports of biodiesel accounts for the difference.
Assuming imports remain around the same level, and no new biodiesel plants are constructed over the next two years, existing U.S. biodiesel plants will need to operate at close to existing capacity in order to achieve the above biodiesel 2016 and 2017 standards. As with cellulosic ethanol plants, low crude oil prices also inhibit the construction of new biodiesel facilities.
Total Renewable Fuels
The likelihood of achieving anywhere close to the projections of renewable fuel use in the original EISA seem very remote unless the concentration of ethanol in gasoline is allowed to increase above 10%. While the EPA has approved E15 in conventional light-duty cars and trucks in model year 2001 and newer, the petroleum industry is vehemently opposed. Further, many auto manufacturers’ warranties do not approve of ethanol blends above 10%.
This may be changing. An analysis by the Renewable Fuels Association of 2016 model year warranty statements and owner’s manuals indicated approval of E15 use in more than 70% of new vehicles. Included in this list are the Big Three Detroit automakers: GM, Ford, and Fiat Chrysler. However, there are still hold-outs such as Nissan, Hyundai, Kia, and Subaru. There is also the issue of earlier model year cars still on the road that would not be covered.
It is best to stay tuned to see what develops, especially with the U.S. agreement at the recent Paris climate summit to reduce 2005 greenhouse gas emissions 28% by 2025.