Hearing requested on renewable fuel standard’s impact

Dec 9, 2011

In a letter to the Senate Environment and Public Works (EPW) Committee, a coalition of the U.S. livestock and poultry industry associations, including the National Cattlemen’s Beef Association, the American Meat Institute, the National Chicken Council, the National Meat Association, the National Pork Producers Council and the National Turkey Federation, requested a hearing to discuss the Renewable Fuel Standard’s (RFS) impact on the economy. The groups cited ongoing pressure on domestic feed grain supplies and a discovery of $9 million of fraudulent renewable identification numbers as justifications for a hearing.

“In light of the ongoing pressures that the RFS is placing on the domestic feed grain supplies, something must be done to protect livestock and poultry producers from excessively high corn prices because of the rigid RFS compliance system,” the groups told Committee Chair Barbara Boxer, D-CA, and Ranking Member James Inhofe, R-OK. “Therefore, we request that the Senate hold a

hearing to examine the continued pressure on grain supplies and the impact that it is having on the bottom line of livestock and poultry producers.”

The letter noted that a 2011 National Academy of Sciences (NAS) study found that since 2007, the diversion of portions of the corn crop to ethanol production has been a contributing factor to the increased strain on livestock and poultry producers. While other factors play a role, the RFS mandate is the sole area the U.S. government can control, the groups said.

“Not only are the meat and poultry industries asking the Senate committee to make an attempt to understand the impact on farmers and ranchers, but we also are asking the committee to consider the impact on the American consumer,” the groups said. “The livestock and meat and poultry coalition thinks an EPW committee hearing to examine the continued merits and impact of this broad reaching policy would be timely and relevant.”

In October, NAS released a report on the feasibility of meeting the RFS passed during the Bush administration.

NAS found that the U.S. could not meet the mandated 2022 biofuels targets for cellulosic ethanol without unexpected technological breakthroughs. The report also concludes that the RFS “may be an ineffective policy for reducing global greenhouse gas emissions,” since the full life cycle of the fuel, including its transport, could result in higher emissions than conventional petroleum.

In 2005, during the Bush administration, Congress passed RFS as part of the 2005 Energy Policy Act. In 2007, the RFS was amended in the Energy Independence and Security Act. To evaluate these policies, Congress asked NAS to evaluate the RFS goals, the potential environmental benefits and harm from biofuels production, and barriers to achieving the RFS mandate.

The Energy Independence and Security Act mandates 36 billion gallons of biofuels to be produced by 2022, of which 21 billion gallons must come from advanced biofuels by 2022 and the remainder, 15 billion gallons, from cornbased ethanol. Of the 21 billion gallons of advanced biofuels, 16 billion gallons must come from cellulosic biofuel by 2022 and 1 billion gallons must come from biomassbased diesel by 2012. Because cellulosic biofuel is not yet commercially viable, the Environmental Protection Agency (EPA) “is required to set the cellulosic biofuel standard each year based on the volume projected to be available during the following year.”

In 2011, EPA reduced the mandated level of 250 million gallons of cellulosic biofuel to 6.6 million gallons.

EPA’s proposed 2012 standard sets the cellulosic ethanol level at 3.45 to 12.9 million gallons, well below the 500 million gallons mandated¬† in the 2007 law.

The NAS study

The study was authored by a commission of researchers in transportation, economics and environmental studies and is not connected with the government. It is an independent group of specialists and experts that Congress can consult for expertise on issues. They were tasked to: • Describe the biofuels that were produced in 2010 and expected to be produced and consumed in 2022. • Discuss the environmental harm and benefits of biofuels production and the barriers to achieving the mandates. • Review estimates of achieving the mandates on the prices on land, food, feed, and forest products; imports and exports of relevant commodities, and federal revenue and spending.

Their major findings are: • Without major technological breakthroughs, the cellulosic biofuel mandate of 16 billion gallons in 2022 is unlikely to be met because no commercially viable bio-refineries exist for converting cellulosic biomass to fuels. The 2022 mandate for cornbased ethanol of 15 billion gallons is achievable since the U.S. had the capacity to produce 14.1 billion gallons from corn grain at the end of 2010. And, the mandate for biodiesel of 1 billion gallons is also achievable since the U.S. had the capacity to produce 2.7 billion gallons of biodiesel from vegetable oils and animal fats at the end of 2010. In 2010, 13.2 billion gallons of corn-based ethanol and 311 million gallons of biodiesel were produced.

• The RFS may be an ineffective policy for reducing greenhouse gas emissions because the impact of biofuel production on those emissions depends on a wide range of land-use and other management factors. The production of biofuels could result in an increase in greenhouse gas emissions compared to conventional petroleum because manufacturing and transporting the biofuel burns additional fossil fuels. Displacing current crops with biofuel crops could result in other land being converted for farming that carries with it a large one-time greenhouse gas emission increase. Depending on how feedstocks are planted, they can have a negative or positive environment on water quality, soil and biodiversity. And, the use of fertilizers and certain water treatments to grow the feedstocks could harm the local ecosystem.

• Biofuels would only be cost effective with conventional petroleum in an environment of high oil prices, high carbon prices, technological breakthroughs, or a combination thereof. The study found that they would become economic if oil prices hit $191 per barrel in 2022 (2008 dollars), which is the Energy Information Administration’s (EIA) high oil price case; a carbon price of $118 to $138 per metric ton of carbon dioxide equivalent with an oil price of $111 per barrel, EIA’s reference case oil price; or if government subsidies are high enough. The current subsidy of $1.01 per gallon of cellulosic biofuel blended with fossil fuels is insufficient at the $111 per barrel oil price to make them economic.

• Because additional land (30 to 60 million acres) would be required for cellulosic feedstock production, the mandates are expected to increase competition between land uses and increase land prices and the cost of feed.

• The mandate would increase federal budget outlays due to increased spending on payments, grant, loans, and loan guarantees and foregone revenue from biofuel tax credits, which currently end in 2012 but have historically been renewed. Federal programs that could be affected by increased spending are Agricultural Commodity Payments; Conservation Reserve Program; Nutritional and Other Income Assistance Program; and Grants, Loans, and Loan Guarantees.

• The major barriers to cellulosic biofuel production are the high cost of production and the uncertainty regarding future markets. For example, bio-refineries are only willing to pay $25 for a ton of corn byproducts used in cellulosic ethanol production, but suppliers (farmers) say they need $92 to break even assuming a world oil price of $111 per barrel and no policy incentives. Likewise, there is a $106-per-ton price gap for switchgrass produced in the Midwest. Further, if the biofuel is ethanol, infrastructure and blending issues need to be resolved. Currently, gasoline can be a blend of 90 percent petroleum and 10 percent ethanol that would amount to an ethanol demand of about 14 billion gallons, lower than the mandate in 2022. Thus, either the blending level would need to be raised or flex fuel vehicles would need to make a major headway into U.S. auto market sales, raising infrastructure issues for sale of E85, a blend of 85 percent ethanol and 15 percent petroleum.

Earlier this year, EPA upped the blending share for ethanol in gasoline to 15 percent for vehicles of model year 2001 or newer, but the agency is facing lawsuits that claim it violated the Clean Air Act by approving E15 for use in some vehicles, but not in others. The cost of producing biodiesel Neste Oil, the world’s largest renewable diesel firm, just upped its production costs for producing biodiesel from feedstocks consisting of oils, greases and fats. Production costs, excluding feedstock costs, increased 25 percent from its 2009 level. The increased production cost is primarily due to elevated utility costs and the increasing price of hydrogen, which are unlikely to decline. The communications manager of sustainability, oil products and renewables at Neste Oil stated: “The production costs of our conventional fossil diesel are significantly lower than those of renewable NExBTL diesel. Petrodiesel is a “bulk product” produced at large refineries. NExBTL, on the other hand, is a small-volume specialty product when compared to fossil diesel. This is naturally reflected in the higher cost per unit.”

Obama administration investment in biofuels

The Obama administration is spending up to $510 million in advanced biofuels over the next three years to fuel military and commercial ships and jets. Under the agreement, the Department of Energy, USDA and the U.S. Navy will each contribute $170 million to the program, which is to be matched by industry. The Navy sees this investment as part of the way to meet its portion of the administration’s goal of cutting the federal government’s dependence on fossil fuels by 50 percent by 2020, and it is expected to contribute to President Obama’s goal of cutting foreign oil imports by one-third by 2025.

Clearly, cellulosic ethanol is not ready for prime time, nor will it be by 2022 without an unexpected major breakthrough, according to the NAS report. Wallace Tyner, co-chair of the NAS panel, a professor of agricultural economics at Purdue University and co-director of the Center for Research on Energy Systems and Policy, sums up the study as follows: “Whereas the technology and costs of making ethanol fuel from corn are well known, cellulosic on the other hand is new technology. We don’t know how it works. We don’t know how much it will cost. There are no plants in operation. Here we are in 2011 at zero gallons and we have to get to 16 billion gallons by 2022. That’s double or triple how fast ethanol fuel became commercially viable. Everybody in the industry wants to build the fourth or fifth plant. Nobody wants to build the first.” — WLJ