Letter from Byzantium: Answers to Your Questions about Byzantine Biofuels Budgets and Policy Moves

July 03, 2018

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by Jim Lane (Biofuels Digest) ... Yes, Virginia, there is cant, pettifoggery, self-dealing, obfuscation, and downright dirty pool when it comes to the deployment of biofuels, chemicals and advanced biomaterials — but there are also some mysteries which can unraveled and resolved.

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The mechanism that the EPA uses to enforce a mandate comes in two steps. First, there is the gallonage, which indeed calls for 15 billion gallons of ethanol. Then, they translate that gallonage into a blending percentage which is given as a mandate to obligated refiners. Then, each refiner must meet that ratio of fossil and renewable fuels either by blending wet gallons or buying RIN credits.

It’s the second step that causes problems. Let me illustrate with a made-up example. Let’s say the US needs 150 billion gallons of E10 gasoline, and Congress called for a 15 billion gallon corn ethanol mandate. That’s 10.00%, and EPA can assign that as a blending mandate to refiners.

But what if small refiners are exempted, and they represent 20 billion gallons of refining capacity between them. Then, the pool is reduced to 130 billion gallons, and the obligated refiners have to utilize 10.00%, or 13 billion between them.

That’s how 15 billion gallons on the surface of an RVO can become 13 billion gallons in reality.

Now, the EPA can remedy that by taking into account all the waivers, and mandating (in our fictional example) 11.53% blending rates. That way, the obligated parties would be required to blend the full 15 billion gallons.

But where does the ethanol actually go, in that example? That’s 2 billion gallons above the E10 saturation point for the gallons made by those refiners. Option one is to blend something like E12, another option is to discount the price of E85 and incentivize more distribution via the flex-fuel fleet. Neither option is a favorite of refiners, though retailers are generally fine with either option.

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Biodiesel numbers are reaching 2.4 billion gallons by 2021 — far less than industry capacity, but the first expansion of the market in some time. And the advanced pool is also on a positive march, though the 400 million gallons or so is not exactly going to create an avalanche of new plant construction, ti’s a step in the right direction.

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Enter Senator Chuck Grassley of Iowa to explain:

“Buried in this proposal is the alarming admission that Administrator Pruitt has already cut at least 2.25 billion gallons of conventional biofuels from the Renewable Fuel Standard. That’s a gut punch to Midwest farmers, to President Trump and to the rule of law. Congress intended 15 billion gallons, President Trump promised 15 billion gallons, and it’s up to Administrator Pruitt to achieve 15 billion gallons. So far, Administrator Pruitt has failed. But he can make it right by reallocating waived obligations in the final rule. Otherwise, Administrator Pruitt should let someone else do the job who won’t continue to undermine the President. This would be a commonsense step to repairing the damage already done and rebuilding trust between Administrator Pruitt and Midwest farmers.

“The top-line numbers are encouraging, but I’m highly skeptical. As we’ve seen over the last year, it’s not the proposal or even the final rule that matters as much as what actually happens. Last year, EPA’s initial proposal wasn’t perfect, but we could’ve lived with it. Then in the fall, we got word that EPA planned to cut the rates significantly. After a lot of back-and-forth with the Administration, EPA upheld the President’s commitment to 15 billion gallons for conventional biofuels. But many months later, we found out that EPA was secretly cutting billions of gallons from the Renewable Fuel Standard by issuing so-called ‘hardship’ waivers to multibillion dollar oil refining companies, exempting them from their legal obligations. The situation is made worse by reports that show EPA is ignoring Department of Energy advice on these waivers and again overstepping its authority and undermining the spirit and letter of the law. EPA was giving with one hand and taking with the other. At this point, it’s hard to take any announcement on the Renewable Fuel Standard seriously until after it’s been implemented.

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The Senator said:

“As chairman of the Senate Judiciary Committee, I also have concerns that EPA may be ignoring or abusing the Administrative Procedure Act as they continue to grant waivers in secret and refuse to respond to congressional oversight and public information requests regarding the practice. The public’s business ought to be public, and hiding behind bureaucracy and poor excuses isn’t going to work.”

What you can read into that, citizens of Byzantium, is a not-very-veiled threat of Judiciary Committee hearings into abuses of the Administrative Procedure Act, which Act is under the oversight of the Judiciary Committee, and as committee chairman, Senator Grassley is in a perfect position to call hearings and require sworn and open testimony on the topic of EPA waiver transparency.

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Earlier this year, the House passed an Energy appropriations bill allocating $2.322 billion for EERE, same as for 2018. The bill didn’t have in the main text any specific allocation for BETO, but the Committee Report on the Bill did. Here’s what it said:

Bioenergy Technologies.–Within available funds, $27,000,000 is for feedstock supply and logistics, of which $14,000,000 is for the national lab consortium and $5,000,000 is for upgrades at the Biomass Feedstock National User Facility to extend its capabilities and maximize benefits. The recommendation provides $32,000,000 for algal biofuels, of which $2,000,000 is for further research and development activities to support carbon capture from the atmosphere (ambient air) using algae-to-energy technologies.

Within available funds for Conversion Technologies, the recommendation provides $20,000,000 to continue the Agile Biology Foundry and $5,000,000 to improve the efficiency of community and smaller digesters that accept both farm and food wastes.

The Committee is appreciative of research the Bioenergy Technologies Office has supported regarding wet and gaseous waste streams in waste-to-energy projects. The Committee is interested in understanding how further research and development activities can support baseload power generation using municipal solid waste-to-energy technologies. The Department is reminded that the fiscal year 2018 Act required, not later than 180 days after the enactment of that Act, a report on research and development activities that can improve the economic viability of municipal solid waste-to-energy facilities.

Now, if you added all this up, you’d probably get to $105 million. But there’s no total, really. And that reference to “Within available funds for Conversion Technologies” is weird, because there is no exact funding for Conversion technologies, that you can actually find in the report. More or less.

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To help us, the Senate passed its energy appropriations bill earlier this week, and pegged the exact same $2.322 billion number for EERE. Good so far.And the Senate Committee report looks like this:

BIOENERGY TECHNOLOGIES

The Committee recommends $215,000,000 for Bioenergy Technologies. Within available funds, the Committee recommends not less than $30,000,000 for Advanced Algal Systems to sustain the investment in development of algal biofuels.

The Committee further recommends $30,000,000 for Feedstock Supply and Logistics, $50,000,000 for Demonstration and Market Transformation, and $10,000,000 for Analysis and Sustainability.

The Committee further recommends $95,000,000 for Conversion Technologies. Within this amount, $20,000,000 is recommended to continue activities of the Agile Biology Foundry intended to achieve substantial improvements in conversion efficiencies and the scale-up of biological processes with lower development costs and lead times.

Within available funds, the Committee recommends $5,000,000 within Conversion Technologies to continue the research biopower program, which makes full and innovative use of biomass, municipally-derived biosolids, municipal solid waste, and livestock waste.

Within available funds the Committee recommends $5,000,000 to support the development and testing of new domestic manufactured low-emission, high-efficiency, residential wood heaters that supply easily accessed and affordable renewable energy and have the potential to reduce the national costs associated with thermal energy.

Q. So, there’s a $215 million total, that’s a $10 million increase over last year, right?

A. Right you are. With a “so far, so good caveat”.

Q. What happens next?

A. Since the House and Senate passed separate bills, this goes to a conference committee for resolution. But the good news is that there’s almost no difference between the Senate and House bills when it comes to Bioenergy R&D. So, we’re likely to see these numbers in the final bill, unless strange Washington political forces are brought to bear. READ MORE