Implications of EPA's Renewable Fuels Standard II for Ethanol and Biodiesel
AgMRC Renewable Energy Newsletter
Dr. Robert Wisner
On February 3, 2010, the U.S. Environmental Protection Agency (EPA) announced the required amounts of ethanol and biodiesel that are to be blended with motor fuels for the calendar year 2010. (1) The required quantities were widely anticipated, and except for cellulosic ethanol, were in line with mandated quantities required by the December 2007 Energy Independence and Security Act (EISA). (2) However, the more significant and not fully anticipated announcement by EPA related to estimated green house gas (GHG) emissions from these various biofuels. EPA’s previous assessment of biofuel GHG emissions ruled that biodiesel from soybean oil would not meet GHG requirements specified in the EISA. It also would have limited the ability of the corn-based ethanol industry to expand its capacity. EPA’s February 3 announcement indicated the agency has revised its GHG estimating procedures so that soy biodiesel now more than meets the GHG requirements of EISA. Its revised GHG emissions estimates also indicate existing technology for producing ethanol from corn more than meets EPA standards, thereby allowing the industry to expand with existing technology.
In this article, we review the 2010 mandated quantities of ethanol and biodiesel and their implications. We then examine the updated GHG emissions estimates, how those estimates compare with standards set forth by EISA, and their implications.
Blending requirements for 2010
EPA set the required quantity of biofuels to be blended into motor fuels at 12.95 billion gallons for calendar year 2010. The total is comprised of 1.15 billion gallons of biodiesel, 11.794 billion gallons of corn-based ethanol, and .0065 billion gallons of cellulosic ethanol. One should keep in mind that these are not the maximum allowable blend levels, but are a minimum blend requirement. The corn-based ethanol volume is a 17% increase from the previous year. Last year, the mandated 0.5 billion gallons of biodiesel blending was not enforced. That required volume is included in this year’s volume, along with 0.65 billion gallons mandated for this year by the EISA. Actual volumes produced and blended can vary, depending on whether excess RINs are available to substitute for blending. (3) Excess RINs become available if the biofuels industry produces more than the mandated volume of either ethanol or biodiesel. Substantial excess biodiesel RINs should be available because of the lack of enforcement of last year’s mandated blending.
Cellulosic ethanol mandate sharply reduced
Cellulosic ethanol is EPA’s one major deviation from the quantities mandated in the EISA. The EISA mandated that 100 million gallons of cellulose-derived ethanol be blended with U.S. gasoline in 2010. However, during the past 18 months it became increasingly obvious that potential cellulosic ethanol production would fall far short of the 100 million gallons mandate in cellulosic ethanol technology development. With the reduced cellulosic ethanol mandate, significantly less ethanol will be required to be used for motor fuel this year than was envisioned by Congress when it passed EISA. There had been some uncertainty over whether the reduction in required cellulosic ethanol might be transferred to corn-based ethanol. However, differing GHG emissions apparently prevented this from happening.
Investments in and construction of new cellulosic ethanol plants are lagging well behind the schedule that policy-makers had set for the industry. Thus, it is quite doubtful that the cellulose ethanol component of the biofuels industry will be able to meet mandated goals next year and very possibly for the next several years. (4)
The mandated volume of corn-based ethanol translates into a minimum of about 4.215 billion bushels of corn needed for processing into ethanol in this calendar year, provided all of the U.S. ethanol needs are met without imports. It is supportive of earlier USDA projections for marketing year use of corn for ethanol. The 2009 marketing year runs from September 1, 2009 through August 31, 2010. However, more recent analysis by USDA and a number of private analysts suggest that actual corn use for ethanol may well exceed EPA required blending levels. USDA’s World Ag Outlook Board on February 9 raised its projected current marketing year use of corn for ethanol to 4.3 billion bushels, implying ethanol production of approximately 12.04 billion gallons of corn-based ethanol. Several industry projections are modestly higher than USDA numbers. Upward-revised projections of 2009-10 ethanol production reflect renewed production from a number of formerly bankrupt plants, expanded capacity from new and expanded facilities, and improved ethanol processing margins relative to a year ago. Since the USDA projections include ethanol production for the last four months of 2009 and the first eight months of 2010, they imply that ethanol production in this calendar year will modestly exceed EPA requirements. Most of the ethanol blended into U.S. gasoline is expected to come from domestic production. Brazil, the leading source of U.S. ethanol imports, is reporting a tight supply of ethanol so far this year due in part to high sugar prices that are diverting some sugar from ethanol to the sugar market.
USDA’s latest supply-demand projections indicate corn supplies should be fully adequate for this year for the U.S. ethanol industry as well as for other users of corn. If corn use for ethanol continues to expand in the coming year, as is widely expected, some additional U.S. corn plantings may be needed in 2010 to meet the expanding ethanol demand.
Revised green house gas emissions assessments
The most significant part of the EPA biofuels and RFSII announcement was its revisions in GHG emissions estimates. In response to serious concerns from the biofuels industry and the agricultural sector, EPA re-examined its indirect land use emissions assessments (ILUE). The ILUE concern is based on the concept that diverting an acre of land from food or feed use in the U.S. requires that some portion of that acre be offset by a shift of additional land into crops somewhere else, either in the U.S. or abroad. If the ILUEs were excluded from EPA’s previous GHG emissions assessments, both corn-based ethanol and soybean-based biodiesel would have been shown to reduce GHG emissions by far more than those of the petroleum products that are being used as a base. However, EPA’s previous assessments suggested that expansions in U.S. crop-based biofuels would encourage further encroachment on the South American rain forest, thus offsetting GHG emissions improvements here in the U.S.
EPA’s revised GHG emissions study increased U.S. domestic crop yields and expanded the international analysis to include 165 countries. For corn-based ethanol, the EISA required that any new plants had to reduce GHG emissions by at least 20% below those of the gasoline base used for comparison. Earlier plants not meeting this standard were grandfathered into compliance. The EPA’s revised GHG emissions estimates now indicate that corn-based ethanol, including ILUEs, reduces GHG emissions by 21% below those of the gasoline base. For biodiesel, the EISA emissions reduction standard is a 50% reduction below GHG emissions of petroleum-based diesel fuel. EPA’s revised emissions study now shows that soy-based biodiesel produces 57% fewer GHG emissions than the petroleum product used as a base for comparison. This more favorable soy biodiesel GHG emissions rating also qualifies soy-biodiesel as an advanced biofuel. Advanced biofuels must reduce GHG emissions by at least 50% versus the petroleum base used for comparison. The EISA mandates the minimum volume of advanced biofuels to be blended with motor fuel in the U.S. for each year to 2022. Mandates for advanced biofuels are as follows:
Table 1. Advanced biofuels mandates from the Energy Independence and Security Act of 2007
|Bil. Gal.||Bil. Gal.|
At this stage of technology development, the main types of biofuels qualifying for the “Advanced Biofuels” classification are biodiesel, sugar-cane ethanol (largely from Brazil), and the very small volume of cellulosic ethanol that is expected to be available in 2010 and the next few years. The EISA specifies that ethanol produced from corn-starch will not qualify as an advanced biofuel. Some starch ethanol plants using grain sorghum or other grains than corn might possibly qualify for this designation. The most likely types of plants for this designation would be those using waste energy from electric power generation plants or other sources of waste energy, biomass or biogas for a substantial part of the energy source, selling mostly or entirely wet distillers grain, and use of technology that allows recycling of much of the water used in the ethanol production process. It is not clear whether EPA will allow such plants to be tested individually to see if GHG emissions would qualify them for an advanced biofuels designation.
Some remaining concerns about ILUEs
While the revised GHG emissions are a very positive development for corn and soybean based biofuels, there is still considerable concern in the crop-based agricultural and biofuels industries that EPA may not yet be fully capturing on-going improvements in the efficiency of biofuels industry and row crop production. Current GHG emission estimates show a strong advantage of sugar cane ethanol over corn-starch ethanol, in part because the stalks of sugar cane in Brazil are burned to provide the energy source for ethanol production. Also, sugar cane in that region only needs to be replanted every five or six years rather than annually as with corn and soybeans. Additionally, some have expressed the view that trends in GHG emissions of the petroleum products used as bases for evaluating ethanol and biodiesel are increasing over time. This logic is based in part on a need for deeper drilling for petroleum as readily available supplies are reduced, and also that increasing supplies of “sour” crude and decreasing supplies of “sweet” crude will increase GHG emissions of the resulting products.
Divergence of California Standards from those of EPA
Another concern is the stricter California GHG assessments and standards for ethanol vs. EPA that are proposed to take effect in that state in 2011. California represents the nation’s largest market for gasoline and thus potentially for ethanol as well. It is increasing its mandated average ethanol-gasoline blend from 5.7% to 10% this year. However, the proposed ethanol emissions regulations from the California Air Resources Board (CARB) would exclude use of most Midwest-produced corn-based ethanol in the state. CARB evaluated several different types of ethanol including corn-based ethanol produced in California and in the Midwest with plants that are coal-fired, natural gas-fired, that use biomass for a portion of their heat energy, plants that produce only wet and those that produce dry DGS. It also evaluated a number of other biofuels including sugar cane ethanol from Brazil. Brazilian ethanol, based on CARB’s evaluation, has a much greater GHG emissions reduction than corn-starch ethanol. CARB’s estimates of ILUE from corn-starch ethanol are substantially more restrictive than the new evaluations from EPA. (5) Indications so far are mixed on the question of whether the new EPA GHG evaluations for biofuel will result in modified California evaluations of these fuels. The petroleum and biofuels industries are moving forward with improvements in biofuels infrastructure in that state, with plans to increase imports from the Midwest. The California standards are expected to be tested in court, but the outcome is uncertain.
A recent article in Scientific American indicates CARB views its emission evaluations as based on current technology and crop yields, in contrast to what it views as an EPA analysis based on yields and technology 12 years in the future. (6) This article also presents differing views of various professionals on EPA’s latest GHG assessments.
EPA’s Renewable Fuels Standard II substantially eases earlier restrictions on potential expansion in corn starch and soybean oil derived biofuels. Its new assessments of Greenhouse Gas Emissions due to Indirect Land Use Emissions shows much greater reductions in GHGs than in RFS I, especially for soy biodiesel. Its previous standards had indicated that biodiesel from soybean oil failed to meet the standards spelled out in 2007 Energy Legislation. RFS II also shows that new GHG evaluations for corn starch ethanol reduce GHGs by more than needed to meet standards established in the 2007 energy legislation. These changes are supportive for future expansion in corn-starch ethanol and soy biodiesel production.
RFS II does not change the mandated volume of corn starch ethanol to be blended in U.S. gasoline. Accordingly, the minimum needed volume of this type of ethanol was not a surprise to the industry. For cellulosic ethanol, the mandated volume for 2010 was lowered from 100 million gallons to 6.5 million gallons, due to a lag in technology development and plant investment. The biodiesel mandate was not enforced in 2009, as was scheduled in the 2007 EISA. However, the mandated quantity for 2009 was added to the 2010 EISA mandate. That should set the stage for a significant increase in 2010 U.S. biodiesel production, provided Congress renews its $1.00 per gallon blending tax credit. Renewal of the tax credit is widely expected. The RFS II creates a large divergence of California proposed GHG emissions evaluations versus those of EPA. Since California is the nation’s largest gasoline market, this divergence is a major issue for the biofuels industry and creates some uncertainty about the longer term market potential for Midwest ethanol in that state.
- Energy Independence and Security Act of 2007, U.S. Congress, December 2007.
- For an explanation of RINs and how they work see R. Wisner, “Renewable Identification Numbers (RINs) and Government Biofuels Blending Mandates”, Ag Marketing Resource Center, Renewable Energy Newsletter, April 2009.
- For an update on progress of the cellulosic ethanol industry, see R. Wisner, “Cellulosic Ethanol: Will the Mandates be Met?”, Ag Marketing Resource Center, Renewable Energy Newsletter, September 2009.
- For details and an evaluation of California’s proposed emissions evaluations and regulations, see R. Wisner, “Biofuels and Greenhouse Gas Emissions on a Collision Course”, Ag Marketing Resource Center, Renewable Energy Newsletter, June 2009.
- Doug Fischer, “Is Ethanol from Corn Bad for the Climate?” Scientific American, Feb. 12, 2010.