Would Things Be Different without RFS1or2? Not Really.

February 25, 2010

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by Robert E. Kozak (Advanced Biofuels USA) Since the provisions of the RFS were written into the Energy Independence and Security Act (EISA) of 2007 without a realistic funding provision, RFS and RFS2 are, as a practical matter, “Sense of the Congress” provisions stating accepted aspirations.

In reality: 1) market demand (pricing), 2) government regulations, and 3) the availability of vehicles that can use fuels with more ethanol than E-10 without a fuel mileage penalty are the real drivers behind increasing biofuel production and use in the United States.

Market Demand/Pricing: When gasoline prices reached $4.00/gallon after Katrina in 2005, ethanol, produced from corn crops (1^st generation) or plant biomass (2^nd generation) and biodiesel produced from food crops became viable since they could be sold profitably for less than $4.00/gallon. Investment money flowed into ethanol plants and by 2008, the US had become the largest producer of ethanol, even larger than Brazil.

Hence, there was demand for E-85, even though it produced about 25% less mileage in current generation “Flex-Fuel” vehicles, because it could be sold at a price 25% less than gasoline. However, once gasoline prices dipped below $3.00/gallon, E-85 demand evaporated as did biodiesel demand with the concurrent drop in diesel prices.

Government Regulations: One reason E-10 is now the standard gasoline blend in most of the country is an EPA regulation. The Clean Air Act of 1990 required states with ozone (smog) pollution problems to use an oxygenated form of gasoline. The initial chemical used to meet this requirement was MTBE. However, once MTBE was found to be a persistent pollutant a non-polluting replacement was needed. This was ethanol. Refineries stopped adding MTBE and instead ethanol was blended at distribution terminals. With the VEETC also encouraging ethanol blending, the resulting demand for E-10 also drove the investment in ethanol plants. Currently, the national demand for E-10 is slightly less than the corn ethanol production level “allowed” in the RFS. So without changes in vehicle technology (see below) US ethanol demand is stuck at this level.

Vehicle Technology: Since ethanol has about 21% less energy per gallon than gasoline, current “Flex-Fuel” vehicles will get about 24% less mileage.

BTU information from US EIA/DOE

Fuel	BTUs/Gallon	Percent
Gasoline	124,000	100%
E-10	120,280	97%
E-85	94,190	76%

However, new technology engines such as the Ricardo EDBI and Ford’s “eco-boost” engines can make up much of that mileage penalty by utilizing the higher octane of ethanol to increase thermal efficiency. Introduction of these engines in cars, SUVs, and light trucks would create a market based demand for E-85. This would significantly increase the commercial demand for all ethanol, including cellulosic ethanol, which would spur funding of the technologies needed to reduce the cost of cellulosic ethanol to corn-ethanol levels.

This price and performance based demand would also overcome the current dilemma of installing an E-85 distribution and dispensing network without a real demand for the fuel.

As for advanced drop-in biofuels, the RFS has had no positive effect. As with cellulosic ethanol entrepreneurs are developing technologies that “have never been done before.” Financing pilot plants and demonstration plants to prove the worth of such innovation without a clear (not just aspirational) demand is pretty much impossible. Venture capitalists would rather put their money into something that promises a significant return on investment in 2-3 years; not a project that requires years of permitting and millions in capital/construction costs for profit margins that are dependent on the vicissitudes of commodities markets not only for feedstock supplies, but also for selling the finished product.

The RFS2, even with the appropriate revisions related to algae and biodiesel, will accomplish nothing without serious federal financial muscle pushing commercialization of technologies.

Gasoline at $4.00/gallon and new engine technologies will do more, in a practical sense, to spur advanced biofuels development and distribution than RFS2 because there will be a real demand for product—something RFS2 alone, without strong federal financial investment, has not been able to provide.

One significant concern is the use of not-ready-for-prime-time international indirect land use change analysis.

The Energy Independence and Security Act of 2007, Section 202 (a) requires the EPA administrator to revise regulations to ensure that renewable US transportation fuel achieves stated “reduction(s) in lifecycle greenhouse gas emissions compared to baseline lifecycle greenhouse gas emissions.”

As defined in the Act, “The term ‘lifecycle greenhouse gas emissions’ means the aggregate quantity of greenhouse gas emissions (including direct emissions and significant indirect emissions such as significant emissions from land use changes), … related to the full fuel lifecycle, including all stages of fuel and feedstock production and distribution, from feedstock generation or extraction through the distribution and delivery and use of the finished fuel to the ultimate consumer…”

The most troubling issue resulting from the RSF2 regulations created to implement this legislation is the direction taken to assess “significant emissions from land use changes” by postulating an international indirect land use change (IILUC) analysis. The theory is based on the assumption that there is a direct one-to-one relationship between US agricultural production and that of all other countries on the planet.

The example most commonly used by proponents of IILUC, is that an acre of land converted from food or feed crop use to a biofuel crop (even a dual use food/fuel grass) by a US grower will result in one less acre of food being produced to feed a village in sub-Saharan Africa or rainforested Brazil. The unsubstantiated theory is that crops grown in the US which are used to produce biofuels take land out of food production; and that food production must be “made up” somewhere else in the world. The contingent assumption is that land somewhere in the world that was never in crop production will be transformed into food crop land to make up the difference.

No data supports these assumptions. No solid data is available to make a clear analysis that could support enforceable regulations. What data is available tends to controvert these assumptions. Click here for a list of studies, papers and explanatory articles.

For example, the US has seen record corn crops on less land over the past few years. This has been sufficient to meet food/feed/fiber/fuel/fun needs in the US and has resulted in no decrease of amounts of corn exported. There just doesn’t seem to be a need to “make up” for lost food production.

Certainly, the world will have to contend with the need for agricultural land to provide for food/feed/fiber/fuel and fun (corn syrup in sodas, grapes for wine, hops for beer, land for golf courses). Punishing the biofuels industry in the US based on uncertain analysis for the international weaknesses and complexities of land ownership, land use planning and decision-making about community or nation state priorities around the world will be ineffective in achieving real agricultural improvements that will help meet these needs.

The provisions of EISA should not be interpreted to require an international indirect land use change analysis.

And if there is an analysis of emissions from changing land use attributed to biofuels production; the same analysis should be included in the calculations of the gasoline or other fossil fuels to which the biofuels are compared. Thus, the land use change related to oil for gasoline coming from destruction of land for shale oil extraction, or for electrical power resulting from mountaintop removal and valley fill for coal production should be incorporated into the formula to determine the indirect land use change contribution to their green house gas emissions.