New Energy Economics: Feds Lower Cellulosic Production Targets

By Cole Gustafson, Biofuels Economist

NDSU Extension Service

The Environmental Protection Agency (EPA) has just announced its RFS2 (renewable fuel standards) blending mandates for 2012. While the EPA kept the overall target of blending 1.35 billion gallons of advanced biofuels in place, it slashed expected production levels of cellulosic biofuel from 250 million gallons to less than 25 million.

The EPA had no choice in lowering the target because the development of cellulosic biofuel has been slower than initially expected. Several root causes have been the lack of financial capital for investment and commercialization of cellulosic biofuel production, gaps in U.S. Department of Energy loan guarantee programs supporting industry growth and increased availability of sugarcane ethanol that competes as an advanced biofuel.

Two years ago in this column, I wrote that imported sugar-based biofuel would be the “filler” if federal renewable mandates could not be achieved or were too costly. It appears that this will be true at least in 2011 because the mandate has not been renewed as of yet.

There has been quite a debate if the EPA should have kept its original renewable fuel mandates. In doing so, market prices for cellulosic biofuel RINS (trading system EPA uses to track biofuel blending) would have risen, which would have increased the profitability of cellulosic biofuel investment projects. On the other hand, the mandate also includes several loopholes that give blenders credit for cellulosic biofuel they have blended in past years. This would have lessened the price increase.

During the EPA’s analysis, it surveyed the industry and determined that these firms have the following cellulosic biofuel production potential in 2011:

• AE Advanced Fuels (Keyes, Calif.) - 0.5 million gallons
• Agresti Biofuels (Pike County, Ky.) - 1 million gallons
• Bell Bio-Energy (Atlanta, Ga.) - 11.9 million gallons
• Cello Energy (Bay Minette, Ala.) - 8.5 million gallons
• DuPont Dansico (Vonore, Tenn.) - 0.15 million gallons
• Fiberight (Blairstown, Iowa) - 2.8 million gallons
• Iogen (Ottawa, Ontario) - 0.25 million gallons
• KL Energy WBE (Upton, Wyo.) - 0.4 million gallons

There are several other firms in the northern Plains actively working to produce cellulosic biofuel. Most notable is POET with its Project Liberty corn cob plant. However, that facility is not expected to go commercial until 2012.

Another key expectation of the EPA when it set the 2011 advanced biofuel mandate relates to biodiesel. To meet the advanced biofuel mandate, the EPA assumes that 800 million gallons of biodiesel will be produced in 2011. It will be interesting to see how this works out because there is almost no biodiesel being produced in 2010. Existing biodiesel plants are mothballed because the biodiesel tax credit has not been extended by the U.S. Congress. To obtain the 800 million gallon biodiesel goal, the EPA must be assuming the biodiesel tax credit will be restored.

NDSU Agriculture Communication