Advanced BioFuels USA

by Jim Lane (Biofuels Digest)  Food vs Fuel, biofuels causing corn planting to skyrocket, low oil prices killing off renewable fuels, the subsidy myth, the emissions myth, the “people won’t buy the fuels” myth, and the Insanity myth.

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In the world of renewable fuels, there are 7 widely held societal beliefs that have no more grounding in hard data than the Official NORAD tracking of Santa Claus’ annual journey. And, they are considerably less enchanting. …

So, let’s dump them off Santa’s Sleigh.

Myth #1. Biofuels cause corn planting to skyrocket to historic levels.

We see this one a lot. Most recently, a report out of the University of Vermont that correlates a drop in wild bee populations with habitat destruction caused by “the expansion of corn for ethanol”.

US corn plantings are up, no doubt about it. In fact, since the mid-1980s, when ethanol first appeared om the horizon, they’re up 5%.

Whoops. 5%. Surely that’s a typo? ‘Fraid not. In fact, overall US grain acreage is down substantially from its historical highs. And in the case of the wild bees, it’s cultivated grain acreage that we need to look at, not just one crop, as bees would be just as affected, wouldn’t they, by a massive expansion of barley if it destroyed habitat, right?)

Here’s the hard data. US grain production hit its peak, at 185 million acres, in 1932-33. One of the reasons that the farm sector went into a tremendous downward price spiral that year. Today, US grain acreage is down to 103 million acres. almost 45% off the historic high.

Corn itself? 1932-33 was the high, 113 million acres. Today? 88 million, or 22% off the historic high.

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Myth #2. Renewable fuels are heavily subsidized.

Myth. Ethanol only makes money for its producers because they get a whole bunch of money from RINs — renewable fuel credits — and that’s a hidden form of subsidy.

Reality? Actually, ethanol producers don’t see a dime from RINs. When ethanol is sold by a producer, the customer receives a free RIN with each gallon.  If RINs have any price at all, it’s only because of a demand for them in lieu of renewable fuels production. So, they are a penalty applied to the production of gasoline or fossil diesel. Were no one to produce fossil fuels, RINs would have no value. A penalty on one behavior is not a subsidy for another. For example, a fine for stock fraud is not a subsidy paid to ethical stock traders.

There are real reasons that RINs have value. Gasoline marketers are smart advertisers and they have successfully sparked demand for ethanol-free gasoline, which they sell for roughly 20 cents more per gallon than E10. For that reason, they can easily afford to pay $1.00 for a RIN to avoid blending gasoline. You see how that works? They pay the $1.00 for the RIN, blend no ethanol into 10 gallon of gasoline (remember, that ethanol was blended at 10%, so a one-gallon RIN goes a long ways), and they sell those 10 gallons of ethanol-free gasoline for a $2 premium.

Myth #3. People only buy renewable fuels if they have to.

Reality. This year, Propel Fuels reported a 15X jump in per-outlet sales of renewable fuel for diesel engines, based on a 3X increase in gallons sold of its new Diesel HPR fuel and 5X increase in renewable content for Diesel HPR (100% renewable content, vs the 20 percent renewable content in B20 biodiesel, which Propel formerly sold).

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Myth #4. Low oil prices will kill off renewable fuels.

Oil prices have crashed, no doubt about it. From a high around $100 a barrel 2 years ago to around $40 today. Gasoline prices have come down considerably, though not quite as much. The theory goes, low gasoline prices will make it impossible for renewable fuels to compete.

Well, first of all, let’s refer ourselves to that Propel Fuels hard data. Note that the 15% jump in renewable fuels demand is in 2015, right in the middle of this price fall.

But let’s think about the drivers at a macro level. At $100 oil, all kinds of enhanced oil recovery technologies look very profitable, and that’s where the money goes. The dry-up of renewable fuels financing in 2009-2014 was right during a period of high oil prices, and that’s why. In fact, renewable fuels technologies were broadly repurposing towards fossil souyrces of carbon — Primus Green Energy and Coskata switched to fossil natgas as a feedstock, though neither ended up building a commercial-scale plant.

What happens with $40 oil? All those competing technologies start to fall away. Yet, the carbon, energy security and rural development benefits of renewable fuels are still there, and they are still reflected in the economics of the Renewable Fuel Standards and California’s Low Carbon Fuel Standard. At a time when low fuel prices are sparking rapid increases in fuel demand (gasoline was up 4% this year), renewables fill a niche and have the carbon pricing to help offset low oil prices, which fracking does not have.

At $10 oil, only the Kingdom of Saudi Arabia and ISIS could make money selling fossil fuels, but renewables would do well — carbon pricing mechanisms like the Cellulosic Waiver Credit would soar in value as the price of gasoline dropped. Leaving renewables in a great position.

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Myth #5. Spiking RIN prices will spike the cost of fuel.

At the Center for Agricultural and Rural Development, Bruce Babcock and Sebastien Pouliot write:

We find two direct effects of a binding ethanol mandate. The first is an increase in the wholesale price of gasoline because positive RIN prices increase the cost of producing gasoline. The second is a decrease in the ethanol price paid by blenders net of the RIN value. The net price of ethanol will decrease to induce consumers to consume enough ethanol to meet the mandate. Because most US consumers buy E10, the lower price of ethanol in the blend offsets at least some portion of the increased gasoline price. In addition to these two direct effects on the price of E10, there exists an indirect effect that works to lower E10 prices. To meet mandates beyond E10 requires an increase in E85 consumption, which results in a decrease in E10 consumption because some owners of flex vehicles switch fuels. The effect of substituting E85 for E10 is a net decrease in gasoline demand, which results in some reduction in wholesale gasoline prices.

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Myth #6. Food vs fuel.

The world’s poorest people are starving to death, and a great deal of blame should be placed on the conversion of corn starch into ethanol, instead of food products.

Reality, it’s not what you might have heard elsewhere. As these charts from the FAO demonstrate, people around the world aren’t getting fewer calories, they’re getting more and more. You might not know it, but the average caloric intake in the poorest region of the world, Sub-Saharan Africa, is higher now in 2015 than the average global daily intake of calories in 1965, fifty years ago.

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The world, generally speaking, is not suffering from a food availability crisis, but a food distribution crisis …

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Myth #7. Corn starch ethanol creates more net carbon emissions than gasoline.

Reality. Not so, and beware of outdates or skewed studies on this topic, they’re everywhere. Even the initial 2008 assessment by the California Air Resources Board showed that any midwestern corn starch plant could deliver 10% reductions compared to baseline RBOB gasoline.

According to a white paper released this week:

“Since 2008, innovation in energy use and conversion technology at ethanol production facilities, innovation in enhanced efficiency fertilizers and in corn production management, and improved accuracy of GHG modeling assumptions have reduced current corn ethanol fuel CI by more than 50%.” READ MORE and MORE (Ethanol Across America) and MORE (University of Virginia)