Senate panel splits on cause of renewable fuel quota shortfalls

A US Senate Homeland Security and Government Affairs subcommittee divided over two reports the Government Accountability Office issued 2 days earlier about the US biofuels industry’s ability to produce enough supplies to meet future Renewable Fuel Standard (RFS) quotas and to reach the RFS’s greenhouse gas (GHG) reduction goals (OGJ Online, Nov. 29, 2016).

“GAO’s first report determined that advanced biofuels production is unlikely to meet the RFS’s increasing production targets,” said Sen. James Lankford (R-Okla.) in his opening statement at the Dec. 1 hearing. Lankford, who chairs the committee’s Regulatory and Governmental Affairs Subcommittee, said, “[The first report] noted that advanced biofuels are still too expensive for stakeholders to produce at necessary levels to meet the RFS’s increasing targets through 2022, even with government funded research and development and mandated subsidies.”

The congressional watchdog service’s second report concluded that production of advance biofuels will remain too limited to meet the RFS’s GHG reduction targets, Lankford said. The program yields few benefits but inflicts substantial costs on consumers, he said. “Rather than continuing with an unwieldy program which consistently fails to meet its targets and goals, it is time for Congress, the next administration, and the American public to do away with the RFS.”

Ranking Minority Member Heidi Heitkamp (D-ND) and member Jodi Ernst (R-Iowa) disagreed. They say tax and regulatory uncertainties kept outside investors from supporting research and development (R&D) and commercialization to help advanced and cellulosic biofuels manufacturers hit the RFS’s targets.

“I think that something which gives us diversity in our fuel choices fits well into an all-of-the-above energy strategy,” Heitkamp said. “We also have to recognize that this is technology that can be transferred to other kinds of renewable manufacturing.”

What discouraged investment

When Heitkamp asked witness Frank Rusco, GAO’s natural resources and environment director, if regulatory uncertainty discouraged outside investment in biofuels R&D, Rusco responded that more people who were interviewed blamed the crude oil price plunge. “When the bottom fell out of the oil market, and with reductions and slower growth in US motor fuel demand, investors looked at biofuels as not a viable investment and put their money elsewhere,” he said.

“I do think that in the margin, things like uncertainty about regulations and tax credits play a role,” Rusco said. “What we found is that, for example, cellulosic ethanol—which is probably the most likely advanced biofuel to be technologically and commercially ready in the near-to-mid-term—will require multiple generations of plants to achieve the kinds of efficiencies that might bring [its costs] down to where it’s commercially viable. But it also will depend, again, on the underlying price of motor fuels.”

Congress put provisions in the 2007 Energy Independence and Security Act, which expanded the RFS a few years after the 2005 Energy Policy Act established it, to bring cellulosic fuels onto the US motor fuels market where corn-based ethanol was already becoming established, a second witness told the subcommittee.

“I think we should also be willing to open up new discussions and talk about how we can do things better,” said Janet McCabe, the US Environmental Protection Agency’s acting assistant administrator for air and radiation.

Fuel source variety growing

“I think a variety of fuel sources, particularly in transportation fuel, that we haven’t seen until recently is growing,” McCabe said. “We’re seeing more electric vehicles. Railroads are looking at using [LNG] for their locomotives. We need to have a broader discussion, but we haven’t had the time to take a look at the system’s big picture.”

In her testimony, McCabe said the 2017 renewable fuel quotas that EPA recently announced would increase total required volumes by nearly 1.2 billion gal from 2016’s level (OGJ Online, Nov. 23, 2016). Advanced renewable fuel, which requires a minimum 50% GHG reduction, would increase by nearly 700 million gal year-to-year, while cellulosic biofuel, which requires 60% fewer lifecycle carbon emissions, would increase by 81 million gal during the same period.

Ernst said she visited one cellulosic biofuels plant in Iowa earlier this year that produces corn fiber, a corn ethanol byproduct, to make cellulosic motor fuel. “This is a great example of what this was originally intended to do. It was to support the expansion of conventional biofuels as a springboard for advanced biofuels,” she said. “If we create further uncertainty about the future of the RFS and our commitment to biofuels, it will only slow our research and investment down toward reaching these goals Congress originally set.”

Officials from the American Petroleum Institute and American Fuel & Petrochemical Manufacturers separately said the Dec. 1 hearing confirmed that the RFS needs to be repealed or substantially reformed. “The government findings that the ethanol mandate is not working only strengthen our case to significantly overhaul the program,” observed API Downstream Group Director Frank Macchiarola.

AFPM Pres. Chet Thompson, meanwhile, said, “Coming on the heels of this week’s GAO reports underscoring the failure of these mandates, today’s hearing demonstrates yet again that Congress needs to end this fatally flawed program.”

Contact Nick Snow at nicks@pennwell.com.

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