Olden Days, Golden Days, and Golden Gripes

by Jim Lane (Biofuels Digest) ... So, how fast did petroleum expand production, in comparison to low-carbon renewable fuels? ... One thing is clear, renewable fuels are moving fast, by comparison. From 1866 through 1899 (a year when negative attention on the Standard Oil monopoly was reaching a zenith), US production increased from 10,000 barrels per day to 156,000 barrels per day, a factor of 15. By contrast, low-carbon renewable fuels have expanded from 11,000 barrels per day in 1981 to 1,037,000 in 2014, a factor of 99.

How fast have advanced biofuels expanded? That is, fuels that reduce greenhouse gas emissions by 50 percent or more? There’s been quite a bit of carping about “fantasy fuels”.

Here’s the chart and the data set, compared to the rise of biofuels as a whole and to the rise of petroleum — again, starting with a comparison point of the first year of reaching 10,000 barrels per day in production capacity, which was 2006 for advanced biofuels.

The data is clear. Advanced biofuels production has grown at a much faster rate than biofuels as a whole, and petroleum. Pro-active public policy is largely to credit.

Despite all the growth, renewable fuels producers are in a funk. Ask them, and they mention two gripes as quickly as a howdy-do. ...

First, a slowdown or reversal of renewable fuel mandates by the US Environmental Protection Agency, which cites a lack of distribution infrastructure — especially, vehicles and pumps that tolerate higher blends of ethanol.

Yet, the so-called ethanol “blend-wall” was talked about for years before the E10 blending saturation point was reached. Though petroleum marketers did little to develop high-blend ethanol infrastructure except where forced to.

Now, you might ask, why should companies like POET build fueling outlets? And we might answer, why did Apple build Apple Stores? Why did Standard Oil build service stations? Our takeaway: no one is going to build the vehicles and pumps for infrastructure-incompatilble renewable fuels, unless industry takes a strong hand in demonstrating the investment returns for end-user delivery.

When Congress wrote the Renewable Fuel Standard, memories of $15 oil killing off alternative energy technology in the 1980s were still fresh. So, protections were built in that, if they are mysterious to investors, could be explained. The ensure market demand and a floor price.

The basic mechanism of the RFS is the RIN. As a renewable fuel producer, you hand a free RIN to your customer. That customer activates that RIN by blending renewable fuel. Then, they can retire it, or sell it. In this way, obligated parties pay all RIN costs, but they receive all RIN revenues.

Eventually, it becomes cheaper to find new markets than buy costly RINs, so markets become less constrained if the RFS is able to operate.

The California Low Carbon Fuel Standard also rewards development of alternative fuels markets. The more than obligated parties develop and sell low-carbon fuels, the less exposure they have to paying for credits.

At the same time, Congress established a counter-signal to oil prices. When oil prices fall, the cellulosic waiver credit value rises — creating a price floor for cellulosic fuels. Tax credits for biomass-based diesel offer support for still-nascent diesel-side fuels.

1. Establish infrastructure for distributing fuels as fast, or faster, than production is growing. That way, production can grow.

2. Expand feedstock supply faster than demand is growing, so margins are strong.

3. Demonstrate end-to-end technology for sufficient hours of operation before deploying at commercial-scale.

4. Maintain floor price and floor market mechanisms to preclude predatory competition from incumbents, and wait for the favorable side of the commodity cycle.

5. Pray for low energy prices, so long as #2 has been accomplished. $20 oil helps renewable fuels and just about nothing else. $100 oil just brings back all the other market responses that had renewable fuel producers scratching for project finance between 2010 and 2014. READ MORE and MORE (Calgary Herald)