Renewable Fuel Standard: Low Expected Production Volumes Make It Unlikely That Advanced Biofuels Can Meet Increasing Targets

(U.S. Government Accountability Office) The Renewable Fuel Standard program calls for greater use of advanced biofuels—fuel made from waste fats and oils or crop residues, for example—in the transportation fuel supply through 2022.

Yet, there is not nearly enough of this fuel to meet the program's targets—nor will there likely be enough in the near future. Experts we interviewed cited the high costs of creating advanced biofuel, the relatively low price of fossil fuel, the timing and cost to bring new tech to commercial-scale production, regulatory uncertainty, and other issues as challenges to increased production. READ MORE / MORE and MORE (DTN Progressive Farmer) and MORE (Biodiesel Magazine) and MORE (Washington Examiner) and MORE (Biomass Magazine; includes correction--see below) and MORE (Heartland.org) and MORE (Personal Liberty) and MORE (US News and World Report) and MORE (Daily Caller) and MORE (Daily Signal) Download Report

Excerpt from Report Summary: Biofuels that are technologically well understood include biodiesel, renewable diesel, renewable natural gas, cellulosic ethanol, and some drop-in fuels. A few of these fuels, such as biodiesel and renewable diesel, are being produced in significant volumes, but it is unlikely that production of these fuels can expand much in the next few years because of feedstock limitations.

Current production of cellulosic biofuels is far below the statutory volumes and, according to experts, there is limited potential for expanded production to meet future higher targets, in part because production costs are currently too high. Experts told GAO that technologies for producing other fuels, such as some drop-in fuels, are technologically well understood but that these fuels are not being produced because production is too costly.

Among the factors that will affect the speed and volume of production, experts cited the low price of fossil fuels relative to advanced biofuels. This disparity in costs is a disincentive for consumers to adopt greater use of biofuels and also a deterrent for private investors entering the advanced biofuels market.

Experts also cited uncertainty about government policy, including whether the RFS and federal tax credits that support advanced biofuels will remain in effect. While such policies should encourage investment, investors do not see them as reliable and thus discount their potential benefits when considering whether to invest. READ MORE

Excerpts from DTN Progressive Farmer: "These experts told us that investment in cellulosic biofuels could be encouraged, in part, by maintaining the second generation biofuel producer tax credit consistently, rather than allowing it to periodically lapse and be reinstated," GAO said.

One expert, the GAO said, suggested three changes to the credit. One would be to make the credit more long-term up to 10 years. A second idea is to make the credit refundable to make sure biofuel producers receive the subsidy in early years when they are sustaining financial losses. Third would be to couple the producer tax credit with an investment tax credit to decrease capital costs and improve the financial incentives for building cellulosic biofuel plants.

Since corn ethanol's place in the RFS is capped at 15 billion gallons -- the volume implied in the 2017 numbers finalized by EPA -- the overall uncertainty about the future of the RFS weighs most heavily on cellulosic ethanol and other advanced biofuels technologies.

"Many experts told us that uncertainty about the future of the RFS is limiting investment in advanced biofuels," the GAO said.

"In particular, some experts stated that the possibility of a repeal of the RFS has caused potential investors to question whether the RFS will continue to exist until 2022 and beyond. According to these experts, however, in the current political climate little can be done to address the threat of a repeal of the RFS. EPA may be able to improve the investment climate for advanced biofuels by clarifying its plans for managing the program in upcoming years."

GAO said several experts it interviewed said the RFS was not the most efficient way to achieve the goal of greenhouse gas emissions reductions.

"They suggested policy alternatives -- in particular, a carbon tax and a low-carbon fuel standard," GAO said.

"Some experts stated that the design of the RFS may undermine its ability to achieve the greatest greenhouse gas emissions reductions. Specifically, some experts said that the RFS does not incentivize the production of advanced biofuels, which achieve the greatest greenhouse gas emission reductions."

The GAO said cellulosic fuels that reduce greenhouse gas emissions by 80% receive "no more credit under the RFS than one that reduces greenhouse gas emissions by 60%, the baseline for the cellulosic category.

"As a result, fuels that may be slightly more costly to produce but achieve far greater greenhouse gas reductions may not be developed and brought to the market. READ MORE

Excerpt from Biomass Magazine: The GAO initially incorrectly reported that “less than 5 percent of the 3 billion gallon advanced biofuel RFS target was produced in 2015, and additional investments for commercialization seem unlikely.” Biodiesel Magazine contacted Frank Rusco with the GAO to advise him of this error. Rusco admitted this was a mistake, as it should have read “less than 5 percent of the 3 billion gallon cellulosic biofuel RFS target was produced in 2015.” Rusco thanked Biodiesel Magazine for pointing out the inaccuracy and the statement was subsequently corrected on the GAO website. Several media outlets, however, took this initial error as fact and reported the incorrect figures. READ MORE