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Changing Landscape for Biofuels in 2012

January 12, 2012

A number of actions at the end of 2011 and early 2012 may result in a changed landscape for biofuels in 2012.

EPA Sets Renewable Fuel Standards for 2012

On January 9, EPA issued a final rule with standards for the Renewable Fuel Standards Program (RFS2) in 2012.  A link to the final rule, a fact sheet and other information are available on the EPA webpage for the RFS2.

The RFS2 was established by the 2007 Energy Independence and Security Act (EISA) to support the use of renewable fuels within the transportation sector.  Its stated purposes include encouraging innovation, ensuring domestic energy security, and decreasing greenhouse gas emissions (GHGs) from vehicles.  The EISA definition of various types of biofuel includes a measure of the reduction in lifecycle GHG emissions compared to the fossil fuels gasoline or diesel.  Reductions include a 20% reduction in lifecycle GHG emissions for renewable fuel produced at new facilities constructed after the EISA enactment; a 50% reduction for biomass-based diesel or advanced biofuel; and a 60% reduction for cellulosic biofuel.

Under the RFS2, EPA establishes mandatory goals for the use of various biofuels in U.S. transportation fuel.  The overall goal is to reach 36 billion gallons of biofuel use by 2022.  The 2011 RFS2 mandated the use of 13.95 billion gallons of renewable fuel.  The 2012 RFS increases the total to 15.2 billion gallons or 9.23 percent of total fuels.

The 2012 percentage standards for various types of biofuels include:

• Biomass-based diesel: 1.0 billion gallons / 0.91 percent of total fuel
• Advanced biofuels: 2.0 billion gallons / 1.21 percent of total fuel
• Cellulosic biofuels: 8.65 million gallons / 0.006 percent of total fuel
• Biofuels (primarily corn ethanol): 11.3 billion gallons / 7.10 percent of total fuel

EPA Approves New Biofuel Feedstocks

On January 5, EPA issued a direct final rule with an evaluation of the GHG emissions from biofuels produced from a number of feedstocks.  This direct final rule describes EPA’s evaluation and approval of biofuels from camelina oil, which qualify as biomass-based diesel or advanced biofuel, as well as biofuels from energy cane, giant reed, and napier grass – all of which EPA determined qualify as cellulosic biofuel.

The direct final rule becomes effective March 5, 2012 without further notice, unless EPA receives adverse comment by February 6, 2012 or a request for a hearing by January 20, 2012.  If EPA receives a timely adverse comment or a hearing request, the agency will issue a withdrawal in the Federal Register informing the public that the portions of the rule with adverse comment will not take effect.  There is likely to be controversy over the approval because both giant reed grass and napier grass have been designated as invasive species in some states.

Key Federal Subsidies for Biofuels Expire

On December 31, 2011 two key subsidies for U.S. produced ethanol expired without major protest from past supporters.  The first is the Volume Ethanol Excise Tax Credit (VEETC) that gave gasoline refiners $0.45-per-gallon tax credit for ethanol blended with the gasoline.  A $0.54-per-gallon tariff on imported ethanol that had given U.S. ethanol producers an advantage in the U.S. ethanol market also expired.  In addition, Congress did not renew biodiesel tax credits that were implemented in 2005, including a $1-per-gallon credit for biodiesel and renewable diesel, a 10-cents-per-gallon small agri-biodiesel producer credit, and the $1-per-gallon credit for diesel fuel created from biomass.

Growth Energy, the major lobbyist for U.S. corn ethanol producers, did not oppose expiration of the ethanol subsidies but did call for the subsidies to be redirected to pay for pumps for blended fuels at gasoline stations.  This proposal was rejected by Congress but USDA Secretary Vilsack did establish a goal of using funding from the Rural Energy for America Program to help pay for 10,000 blender pumps over the next 5 years.  In 2011, USDA provided $4.256 million in FY2011 REAP funding to a total of 65 REAP projects for blender pumps.

Legal Challenge to California’s Low Carbon Fuel Standard

On December 29, 2011, a California federal court  issued a ruling in the case Rocky Mountain Farmers Union v. Goldstene that may have significant impacts on the nation’s biofuel markets.  The plaintiffs challenged a Low Carbon Fuel Standard (LCFS) issued by the California Air Resources Board.  The LCFS requires that a full life-cycle analysis be made of the “carbon intensity” of various fuels that will be used in the state.  The carbon intensity provides a measure of the amount of lifecycle GHGs generated per unit of energy.  Fuel sources whose carbon intensity is lower than a statewide average would be able to get GHG credits.  Those who carbon intensity is higher than the state average must purchase credits or generate credits.

The LCFS life cycle analysis for the GHG emissions includes, among other measures, GHG from energy sources used to process the fuel and emissions from transportation of the fuel.   Because of these measures, corn ethanol processed in the Midwest with energy from coal and then transported to California did not score well in comparison to corn ethanol from corn grown and processed in California.  The plaintiffs included numerous farm groups with an interest in ethanol, corn ethanol associations, oil refiners, and trucking associations.

The judge agreed with the plaintiffs’ contention that California’s LCFS framework overtly discriminates against out of state ethanol.  The judge then found that, even though the LCFS substantially serves a legitimate local purpose, the purpose could be served as well by a non-discriminatory measure such as a carbon tax.  The judge enjoined California’s implementation of the LCFS.

On January 5, 2012, the California Air Resources Board filed a notice of appeal of the judge’s ruling with the federal Ninth Circuit Court of Appeals.  As of January 1, 2010, California had more than 23 million licensed drivers and almost 32 million registered vehicles, more vehicles than in any other state.  An adverse appeals ruling on the California LCFS could have a significant impact on the corn ethanol market and could weaken state efforts to lower GHG emissions from fuels.

Categories: Conservation, Energy & Environment

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