BIOFUELS

OVERVIEW

Many biological materials like plants or animal fats can be made into fuels that power vehicles, ships, and aircraft, while producing up to 90% less greenhouse gases than their petroleum-based equivalents.¹ Like domestic oil drilling, adding these home-grown products to America’s fuel mix strengthens our GDP² and reduces our reliance on foreign petroleum.³ Federal tax incentives and demand-drivers like the Renewable Fuel Standard (RFS) helped increase production from 1.8 billion gallons of ethanol and biodiesel in 2001 to 14.9 billion gallons in 2011.⁴ To continue its expansion, the industry will require additional private investment in advanced biofuel technologies, as well a clear regulatory path for bringing new technologies to the market.

ANALYSIS

Though the U.S. biofuels industry was built around corn ethanol, producers have been turning their attention toward higher-performing technologies since 2007.⁵ Cellulosic biofuels, for instance, take advantage of non-food feedstocks—like grasses, wood, and corncobs—that generate 50-90% less GHG emissions per gallon than basic corn ethanol.⁶ Some of these feedstocks are waste products that would otherwise go unused, while others can be grown on marginal lands unsuitable for growing other crops. All told, the U.S. could sustainably harvest enough of these cellulosic materials to produce 37 billion gallons of low-emissions domestic fuel,⁷ enough to replace over one quarter of the gasoline consumed nationwide in 2011.⁸ The Midwest and South are particularly rich in cellulosic materials, giving them additional opportunities for economic development.⁹ Cellulosic fuel technologies are just now reaching commercialization. To increase production levels and lower the cost curve, biofuels producers will need additional access to capital.

Cellulosic feedstocks can be used to produce a variety of advanced fuels. Still, many of the earliest cellulosic facilities will produce ethanol.¹⁰ Unfortunately, America is fast approaching the “blend wall”—the point at which the blending of additional ethanol into our gasoline will require specifically designed vehicles and separate infrastructure for distribution and fueling.¹¹ Overcoming this hurdle will require greater production of “drop-in” biofuels. These fuels are nearly identical to their petroleum-based equivalents at a molecular level, and can be blended with petroleum products at any concentration while still delivering the environmental benefits of ethanol.¹²

Increasing production of drop-in fuels from cellulosic feedstocks will require the U.S. biofuels industry to overcome multiple challenges. Producers will need to attract substantial amounts of private investment in order to initiate and expand their operations. The RFS guarantees a market for advanced biofuels, which helps lower risk and attract investors. But meeting the law’s aggressive targets will require an additional $80 billion for new facilities, feedstock supply chains, and fuel distribution.¹³ Even if producers secure financing, they must still navigate a complex federal regulatory process designed to ensure that their fuels meet the GHG emissions standards set by the RFS.¹⁴ Delays in obtaining this regulatory approval from EPA, known as a “pathway”, can interfere with the business models of these fledgling companies, making them less likely to reach profitability and expansion.

IMPLEMENTATION

Federal policy should encourage investment in advanced biofuels, particularly in fuels that are compatible with standard engines, pipelines, and fueling equipment. It should also reduce the amount of time required to introduce new technologies to the market.

Credit Refiners for Investing in Advanced Biofuels Technology

If EPA develops a New Source Performance Standard for greenhouse gas emissions at petroleum refineries, this standard should credit refiners (or their parent companies) for their investments in advanced biofuel R&D, production, and feedstock supply chain based on the future GHG abatement the investment would eventually produce.¹⁵ This would give refiners additional flexibility in meeting federal requirements, while also steering much-needed capital toward new biofuel plants. Additional credit should be given for investment in the production of drop-in fuels to further encourage these technologies.

Expedite EPA Review of New Pathways

Congressional appropriators should direct an additional $500,000 to EPA’s Office of Transportation and Air Quality. This one-time appropriation would provide for additional personnel and related resources to enable more rapid processing of pathway petitions, prioritizing applicants that are closest to the production stage and those who have received federal funding.¹⁶ EPA should be required to report to Congress on how these additional resources were used and the impact they had on the speed of petition processing. EPA also should be required to submit a quarterly report to Congress on the status of all unresolved petitions that have been in the review process longer than six months, the estimated date of completed review, and the involvement of any other federal offices that could have resulted in a processing delay.

Complete Review of Pathways Using Wood as a Feedstock

EPA began to review the RFS eligibility of fuels made from wood in 2010.¹⁷ While the process was intended to require less than one year, EPA has still not completed its review of this specific feedstock.¹⁸ There are now multiple facilities ready to produce extremely low-carbon fuels using wood from purpose-grown trees.¹⁹ But without a pathway for the feedstock, the profitability and emissions reduction potential of these companies is severely limited.²⁰ Assuming that eligibility requirements are met, EPA could quickly boost the supply of cellulosic fuels by immediately moving forward with pathway review for specific tree species needed by the facilities that are standing by.²¹

Make Advanced Biofuel Production Eligible for Master Limited Partnerships

Inclusion in Master Limited Partnerships could open up cheaper and earlier financing options for biofuel production. Master Limited Partnerships are covered in the Clean Energy Finance Component.²²