Washington dreaming in technicolor in cellulosic-biofuel forecasts

Every year the U.S. Environmental Protection Agency forecasts millions of gallons of cellulosic 
biofuel will be produced, but so far production has been virtually non-existent

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The U.S. Environmental Protection Agency has consistently overestimated the prospects for production of advanced biofuels from non-food crops, adding to the impression its biofuel policy is out of step with reality.

By law, fuel producers must blend a certain portion of biofuels with gasoline. Some of it must be “advanced” (ethanol is classed as non-advanced) or the refiners must buy compliance credits called Renewable Identification Numbers (RINs).

The trouble is that one of the hoped-for biofuels — cellulosic, which is made from woody fibre — is still in a test phase with negligible commercial sales.

EPA can downgrade the cellulosic biofuel target where output is expected to fall short, but it has still, perplexingly, consistently overestimated volumes.

It seems plausible that EPA wants to provide an extra support for cellulosic ethanol producers by driving demand for cellulosic biofuel RINs from refiners.

The overestimate only inflicts a small penalty on the U.S. refining industry (less than $5 million in 2011), but more importantly adds to the impression of a policy lagging reality, where the separate corn ethanol mandate is on the cusp of exceeding distribution capacity at filling stations.

That so-called blend wall has been blamed for driving up gasoline prices.

Overestimate

Under the Clean Air Act, the EPA is required to set the renewable fuel standards each November for the following year.

In general, the standards reflect production capacity, but in the case of cellulosic biofuel, the statute specifies that EPA must base the standard on projected volumes, if the latter are less than the original mandated volume.

Accordingly for 2010, EPA downgraded the target to six million gallons of cellulosic ethanol from the 100 million gallons anticipated under the energy act. In the end, there was zero commercial production.

Notwithstanding, EPA anticipated six million gallons again in 2011, down from the mandate for that year of 250 million gallons. Again, there was no output.

EPA cut the mandate again in 2012, this time to 10.45 million gallons from an original mandate target of 500 million gallons.

For the first time, the industry produced some commercial volume — 20,069 gallons.

EPA has targeted 14 million gallons this year, a volume which again appears hopelessly optimistic.

The problem is making the fuel profitably, as cellulose must be pre-treated with expensive enzymes to dissolve the tough network of lignin within the cell walls of wood.

But the EPA says four companies — Abengoa, Fiberight, INEOS Bio, and KiOR — will be capable of producing 14 million gallons this year.

“If these facilities are able to operate as anticipated, the uncertainty associated with commercial-scale cellulosic biofuel production will decrease, and the expansion of the industry could be rapid,” EPA said in its rule published in February.

However, it made a similar prediction last year and they had nearly zero production.

It is another sign of a biofuel policy which appears out of touch. It also contributed to higher corn prices following a major U.S. drought last year, and has failed to anticipate an impending ethanol blend wall at the gas pump.

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