Future of Biofuels in the United States An Examination of the Renewable Fuel Standard Emily Beagle WISE Internship University of Wyoming

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1 Summer 13 Future of Biofuels in the United States An Examination of the Renewable Fuel Standard Emily Beagle WISE Internship University of Wyoming S p o n s o r e d b y

2 Preface About the Author Emily Beagle graduated from the University of Wyoming in May 2012 with Bachelor s degrees in Mechanical Engineering and Energy Systems Engineering. She has completed one year of a Master s program in Mechanical Engineering at the University of Wyoming and anticipates graduating in May She is an NSF Graduate Fellow and will use her funding to pursue a PhD in engineering and public policy. Emily became interested in the relationship between engineering and public policy during her undergraduate career through the Energy Systems Engineering program, which requires students to take classes outside of the engineering college that cover a wide range of energy related issues, including Environmental Politics and Environmental Law. The American Society of Mechanical Engineers sponsored her for the Washington Internships for Students of Engineering (WISE) program during the summer of This paper is the result of nine weeks of research in conjunction with the WISE program. The WISE Program The Washington Internships for Students of Engineering (WISE) Program was founded in 1980 as a way to encourage engineering students to become more interested in public policy and to help educate engineering students on the various ways in which they can use their technical expertise to influence public policy and governmental decisionmaking. The WISE program provides an opportunity for students to spend the summer in DC learning about the policy making process, applying their technical knowledge to a political issue, and learning about the variety of opportunities for engineers to influence and advise on policy making. Throughout the nine-week program, students prepare a final presentation and write a final paper on a public policy issue of their choice that has a strong technical component. During this time, interns also attend meetings with various agencies and departments throughout Washington DC to learn about their involvement in governmental activities. Acknowledgements I would like to thank the American Society of Mechanical Engineers (ASME) for sponsoring me throughout the summer. I would especially like to thank Melissa Carl, of ASME, for all of her hard work in putting the program together and working with all the ASME interns to ensure that we had the best experience possible. I would also like to thank Dr. Gail Marcus for putting together a very interesting schedule of meetings throughout the course of the summer for all the WISE participants and for her hard work and meaningful insights on our papers. I would like to thank my mentor, Dr. Noel Bakhtian, for all of her support throughout the program. I would like to thank all of the individuals and agencies that gave their time throughout the course of the summer to meet with the whole WISE group. ii

3 Paper Citation Beagle, Emily. Future of Biofuels in the United States: An Examination of the Renewable Fuel Standard. Journal of Engineering and Public Policy 17 (2013). < iii

4 Executive Summary The Renewable Fuel Standard (RFS) was first legislated in the Energy Policy Act of 2005 and expanded upon in the Energy Independence and Security Act of The aim of the program was to address a number of the most pressing issues facing energy use in the transportation sector by decreasing total petroleum use, decreasing petroleum imports from foreign countries, decreasing greenhouse gas emissions from the transportation sector and expanding the energy portfolio of transportation fuels beyond petroleum sources. In order to achieve these goals, the RFS sets increasing annual requirements for the volumes of biofuels to be used in the United States through Biofuels are broken into four classifications based on feedstock type and greenhouse gas emission reductions. These four classifications are: total renewable fuels, advanced biofuels, cellulosic biofuels and biodiesel. Each of these classifications has a separate volumetric requirement. Cellulosic biofuels are an emerging industry that has the potential to transform the future of biofuel use because they yield the highest level of emission reductions and are made from non-food based feedstock materials. Since its implementation, a number of issues have arisen that put into question the effectiveness of the RFS and whether it should be continued. Currently, the most widely used biofuel is corn-based ethanol, which has raised concerns regarding corresponding increases in food prices as well as the approach of the blend wall. The blend wall is the point at which ethanol volume requirements cannot be blended into the gasoline supply without surpassing the safe blend level of 10% or E10 fuel. Use of blends above E10 can cause engine damage, requires new infrastructure for storage and distribution and is not covered by automobile warranties. The lack of commercial availability of cellulosic iv

5 biofuels has also required the Environmental Protection Agency (EPA) to issue a number of waivers reducing the volume requirements for cellulosic biofuels. If this trend continues, there is little chance that the RFS will be able to meet its mandated requirements. In light of these concerns, it seems necessary to modify the RFS. In the short term, the EPA should release the 2013 volumetric mandates for the RFS, which have been delayed since November 2012, as quickly as possible. The EPA should also release the 2014 volumetric mandates by the November 30 th deadline of this year. Without these mandates, RFS-obligated parties (petroleum refiners and importers) do not know what their obligations under the RFS will be for the following year, which creates uncertainty and instability in a vital American industry. The EPA should also utilize its authority in terms of waivers and setting the volumetric requirements to address the approaching blend wall and lack of cellulosic biofuels. In the long term, Congress should modify the RFS, so that the mandated requirements are given in percentages of total fuel use instead of volumetric requirements in order to address the problem of the blend wall. Both of these actions would help to maintain market support for the development of advanced and cellulosic biofuels, while still addressing the problems facing the RFS in its current form. Current federal funding levels for advanced and cellulosic biofuel development should be maintained or increased. Private industries should also invest in and encourage research and development of the commercial production of cellulosic and other advanced biofuels. There are a number of pilot plants and commercial plants for cellulosic biofuels that are just beginning production. With the advanced biofuels industry being on the cusp v

6 of commercial production, it is important for there to be stability in the future of the biofuels market in the United States. The RFS goals of reducing petroleum use, imports and greenhouse gas emissions are laudable and important for the future stability of transportation energy in the United States. The RFS has not been successful in meeting these goals thus far, due to the dependence on corn ethanol to meet volume requirements and the slow development of the commercial cellulosic biofuels industry. However, a complete repeal of the RFS would undermine investments and progress that has been made in the advanced and cellulosic biofuels industry. The future of biofuel use in the United States lies in advanced, cellulosic and drop-in biofuels technologies. Providing an atmosphere for increased investment in these industries is vital for the future of transportation energy in the United States. vi

7 Table of Contents PREFACE... II ABOUT THE AUTHOR... II THE WISE PROGRAM... II ACKNOWLEDGEMENTS... II PAPER CITATION... III EXECUTIVE SUMMARY... IV TABLE OF CONTENTS... VII LIST OF FIGURES... IX LIST OF ACRONYMS... X INTRODUCTION... 1 BACKGROUND... 3 BIOFUEL CLASSIFICATIONS AND ANNUAL VOLUMETRIC REQUIREMENTS... 4 Renewable Fuel... 4 Advanced Biofuel... 6 Cellulosic Biofuel... 6 Biomass-based Diesel... 7 STAKEHOLDERS AND RELEVANT AGENCIES... 7 Department of Energy... 8 Environmental Protection Agency... 9 Others KEY CONFLICTS AND CONCERNS ETHANOL Blend Wall Agricultural Concerns Ethanol Grandfathering ADVANCED BIOFUELS CELLULOSIC BIOFUELS ANALYSIS OF SUCCESS OF THE RFS DEPENDENCE ON FOREIGN OIL TOTAL PETROLEUM USE GREENHOUSE GAS EMISSION REDUCTIONS EXPAND ENERGY PORTFOLIO POLICY ALTERNATIVES CRITERIA FOR EVALUATING ALTERNATIVES MAINTAIN STATUS QUO WITH RENEWABLE FUEL STANDARD MODIFY RENEWABLE FUEL STANDARD REPEAL RENEWABLE FUEL STANDARD INCREASE ADVANCED AND CELLULOSIC BIOFUEL USE POLICY RECOMMENDATIONS FOR THE ENVIRONMENTAL PROTECTION AGENCY FOR THE CONGRESS FOR INDUSTRY CONCLUSIONS vii

8 APPENDICES... A APPENDIX A: ADVANCED BIOFUEL INCLUSIONS UNDER EISA... A BIBLIOGRAPHY... B viii

9 List of Figures Figure 1. Diagram of Carbon Cycle for Biofuels... 2 Figure 2. RFS Volumetric Requirements for Total Renewable Fuel through Figure 3. Diagram of Nested Volumetric Fuel Requirements... 5 Figure 4. RFS Volumetric Requirements for Advanced Biofuels through Figure 5. RFS Volumetric Requirements for Cellulosic Biofuels through Figure 6. BETO Research Funding... 8 Figure 7. Actual Volume Production by Fuel Type and Year Figure 8. Comparison of Gasoline Projections and Actual Consumption Figure 9. Map of Fueling Stations in the United States that sell E85 fuel Figure 10. Cost of Gasoline, Ethanol and Ethanol in Gasoline Equivalent Gallons Figure 11. Graph of Petroleum Production, Imports, Consumption and Exports Figure 12. Transportation Sector Energy Consumption Figure 13. Biomass Energy Consumption from the Transportation Sector Figure 14. Carbon Dioxide Emissions from the Transportation Sector for Petroleum, Biomass and Total Emissions Figure 15. Map of Advanced Biofuel Association Member Companies ix

10 List of Acronyms ABFA Advanced Biofuels Association ASME American Society of Mechanical Engineers BETO Bioenergy Technologies Office CAFÉ Corporate Average Fuel Economy DOE Department of Energy E10 Fuel blend of 10% Ethanol and 90% Gasoline E15 Fuel Blend of 15% Ethanol and 85% Gasoline EERE Energy Efficiency and Renewable Energy EIA Energy Information Administration EISA Energy Independence and Security Act EPA Environmental Protection Agency EPAct Energy Policy Act GHG Greenhouse Gas RFS Renewable Fuel Standard RIN Renewable Identification Number RVO Renewable Volume Obligations USDA Department of Agriculture x

11 Introduction Providing energy to a growing worldwide population is one of the largest challenges currently facing global societies. In addition to meeting growing demands, there are a number of other issues facing energy producers and users, such as cost, availability of resources, and the impacts of climate change. In 2011, the transportation sector accounted for 28 percent of total energy usage in the United States i. In that same year, 93 percent of the transportation energy in the United States was derived from petroleum sources ii. Dependence on a single source to provide the majority of energy makes the United States very vulnerable to any market fluctuations of petroleum. Another concern facing transportation energy needs is the heavy dependence on imports of foreign oil to meet fuel demands. On average, over 50 percent of petroleum used for transportation in the United States is imported iii. In order to respond to all of these problems, alternative energy sources need to be implemented for use in the transportation sector. Unlike the electricity generation sector, transportation fuels cannot be directly replaced by the traditional renewable energy forms such as wind and solar. Through the advent of electric vehicles, these renewable energy sources can be indirectly used to power vehicles; however, a more prudent solution would be one that is able to be incorporated into the infrastructure and vehicle fleet currently used in the United States. The need for this type of solution has led to significant interest in developing alternative fuels, such as biofuels. Biofuels are fuels that are derived from a renewable feedstock, also referred to as biomass iv. Though some limitations exist, these biofuels can be used in traditional internal combustion engines and have the potential to address all of the 1

12 concerns associated with the United States heavy dependence on petroleum fuel. Biofuels emit less greenhouse gases (GHGs) during combustion and absorb CO 2 during their growth. This carbon cycle, shown in Figure 1, results in a decrease in carbon dioxide emissions in the transportation sector with increased biofuel use v. Figure 1. Diagram of Carbon Cycle for Biofuels vi The necessary biomass feedstock to produce biofuels can be grown in the United States, thus reducing dependence on foreign oil. Biofuel creation pathways, particularly for advanced and cellulosic biofuels, can be derived from a variety of feedstocks, thus expanding the variety of fuel sources available beyond just a single source, as is the problem today. In order to encourage the use of biofuels in the United States, the Renewable Fuel Standard (RFS) was legislated into law under the Energy Policy Act of 2005 (EPAct). The RFS was expanded upon in the Energy Independence and Security Act of 2007 (EISA), and promotes the use of biofuels in the United States by mandating minimum 2

13 volumetric requirements for biofuel consumption each year through Now, with more than five years since the implementation and expansion of the RFS, and considering the number of rising concerns with the current program, it is a sensible time to begin a review of the RFS s successes and consider the future of biofuel use in the United States. In the years since its implementation, data has been collected that can be used to determine the effectiveness of the RFS in meeting its fundamental goals of decreasing petroleum use, decreasing petroleum imports, decreasing carbon dioxide emissions from the transportation sector and expanding the energy portfolio for transportation fuels. A number of unexpected consequences have arisen as a result of the implementation of the RFS that cause concern regarding the program s effectiveness and long term impacts. Significant discrepancies between projected and actual energy usage have resulted in earlier onset of anticipated concerns. With all of these issues in mind, it is time to begin a review of the Renewable Fuel Standard to determine its effectiveness at meeting its goals and possible means of improvement to ensure the future of biofuel use in the United States occurs in the best manner possible. Background The Renewable Fuel Standard is one of the principle driving forces behind the current market for biofuels in the United States. The expansion of the RFS in the EISA lengthened the time frame over which the standard applies from 2012 to 2022 and also increased total volumetric requirements. The EISA separates biofuels into four different, but nested, classifications for the purposes of measuring volumetric requirements. These four classifications are: total renewable fuels, advanced biofuels, biomass-based diesel and cellulosic biofuels. These classifications are nested such that cellulosic and biodiesel 3

14 billion gallons also qualify as advanced and total renewable fuels. Finally, the total renewable fuels label includes the three previously mentioned classifications plus conventional biofuel, which is traditionally corn ethanol. A schematic of this nested system is shown in Figure 3. Biofuel classifications are determined based on lifecycle greenhouse gas emission reductions and feedstock sources vii. The details of these classifications are discussed below. Biofuel Classifications and Annual Volumetric Requirements Renewable Fuel According to the EISA, a renewable fuel is any fuel that is produced from renewable biomass and that is used to replace or reduce the quantity of fossil fuel present in a transportation fuel viii. This category of biofuels encompasses all the other categories as well. Figure 2 shows the volumetric requirements for total renewable fuels mandated in the EISA through Total Renewable Fuel Year Figure 2. RFS Volumetric Requirements for Total Renewable Fuel through 2022 ix 4

15 The way the EISA establishes the nested volumetric requirements means that there is a minimum total volume of renewable fuels each year that is broken down into the volumes of the other classifications: advanced, cellulosic and bio-diesel. For example, the renewable volume mandate of 36 billion gallons in 2022 could be met by having 16 billion gallons of cellulosic biofuels, 15 billion gallons of corn-based ethanol and 5 billion gallons of advanced biofuels. Figure 3 shows the nested features of these volumetric requirements for the example year of Figure 3. Diagram of Nested Volumetric Fuel Requirements x The RFS also includes volume limits on the amount of corn-based ethanol that can be blended into fuel. After 2015, the maximum amount of corn-based ethanol is capped at 15 billion gallons each year. These limits were established to promote the use of non-corn based biofuels xi. 5

16 Billion Gallons Advanced Biofuel Advanced biofuels are defined by the EISA as renewable fuel, other than ethanol derived from corn starch, that has lifecycle greenhouse gas emissions that are at least 50 percent less than baseline lifecycle greenhouse gas emissions xii. A complete list of the types of fuels that can be considered an advanced biofuel under the EISA can be found in Appendix A: Advanced Biofuel Inclusions under EISA. One important consideration of the advanced biofuels classification is that Brazilian sugar cane ethanol, since it is not derived from corn, qualifies as an advanced biofuel under the EISA. Figure 4 shows the annual volumetric requirements for advanced biofuels mandated in the EISA through Advanced Biofuels Year Figure 4. RFS Volumetric Requirements for Advanced Biofuels through 2022 xiii Cellulosic Biofuel Cellulosic biofuel is defined by the EISA as renewable fuel derived from any cellulose, hemicellulose, or lignin that is derived from renewable biomass and that has lifecycle greenhouse gas emissions that are at least 60 percent less than the baseline 6

17 Billions of Gallons lifecycle greenhouse gas emissions xiv. Figure 5 shows the annual volumetric requirements for cellulosic biofuels mandated in the EISA through Cellulosic Biofuels Year Figure 5. RFS Volumetric Requirements for Cellulosic Biofuels through 2022 xv Cellulosic biofuel is a very attractive form of biofuel because it has significant greenhouse gas emission reductions and is derived from non-food based feedstocks. With an increase in the use of cellulosic biofuels, the impact of biofuel use on food supplies would be decreased. Biomass-based Diesel Biomass-based diesel is any diesel fuel made from biomass feedstocks (including algae), biodiesel and non-ester renewable diesel xvi and that has lifecycle greenhouse gas emissions that are at least 50 percent less than the baseline lifecycle greenhouse gas emissions xvii. Stakeholders and Relevant Agencies The stakeholders and agencies involved in all the various facets of the RFS are widespread and represent a variety of views and organizations. The main stakeholders are: 7

18 United States Department of Energy (DOE) United States Environmental Protection Agency (EPA) United States Department of Agriculture (USDA) Agricultural Industry (particularly corn) Livestock industry Petroleum industry (includes producers and refiners) Department of Energy As a research based agency, the Department of Energy plays a vital role in the improvement of biofuels technologies to meet the advanced and cellulosic biofuel categories of the RFS. The cellulosic biofuels and many of the pathways for the production of advanced biofuels are still in the research and development phases and the DOE helps in supporting the commercial development of these types of fuels xviii. Figure 6 shows the budget breakdown for the Bioenergy Technology Office (BETO) out of the Energy Efficiency and Renewable Energy (EERE) division of the DOE. Figure 6. BETO Research Funding xix 8

19 Environmental Protection Agency The EISA tasks the Environmental Protection Agency with a number of very specific duties regarding the enforcement and monitoring of the RFS xx. In order to determine if the mandated volume of biofuel has been used in the United States each year, the EPA tracks Renewable Identification Numbers (RINs). Every qualifying gallon of renewable fuel is given a corresponding RIN that can be either used during that year to meet the volume requirements, saved for use the following year or sold to another company who has not met their requirements. As a result, a market for RINs has developed xxi. Refiners and importers are considered obligated parties under the EISA and are the groups required to turn in the mandated number of RINs each year to show compliance with the RFS xxii. The EPA uses these RINs to determine if the volumetric requirements of the RFS have been met each year. The EPA is also responsible for approving biofuel production pathways and determining which fuel classification to give each pathway. The GHG emission reductions are determined using a life cycle analysis and compared to a baseline level of equivalent gasoline emissions in 2005 xxiii. The EPA is required to set biofuel volume requirements for each year based on information from the Energy Information Agency regarding the expected total transportation fuel use and projected biofuel production xxiv. If the mandated volumetric requirements are not met, the EPA has the authority to issue waivers or fines. In order for waivers to be granted, the Administrator must determine if implementation of the requirement would severely harm the economy or environment of a State, a region, or the United States xxv. 9

20 Others As the most widely used form of biofuels today is corn-based ethanol xxvi, the corn industry and the United States Department of Agriculture (USDA) have vested interests in maintaining the RFS in its current form. On the other hand, corn consumers such as the livestock industry and restaurants are concerned about the impact of increased ethanol use on food supply and prices and generally do not support the RFS. As the increased use of biofuels offsets petroleum fuel use in the United States, conventional energy companies are also important stakeholders in the future of the RFS. Key Conflicts and Concerns Since its expansion in 2007, a number of issues have arisen that bring into question the effectiveness of the RFS in meeting its goals without significant unintended consequences. Figure 7, which shows the actual production of biofuels for , visually demonstrates many of the issues facing the RFS in its current implementation. The main issues arise from the monopoly of ethanol on biofuel use and the lack of commercial production of cellulosic biofuels. Ethanol Currently, corn-based ethanol is the most commonly used form of biofuels to meet the RFS volumetric requirements by a large margin. Figure 7 shows the actual production of the four different biofuel classifications and break downs by fuel type in each of these classifications as recorded by the EPA for the years As shown, almost the entire renewable fuel volume was provided by ethanol for those years xxvii. However, corn-based ethanol is facing a cap in the amount of allowable volume starting in This means that a substantial increase in the amount of advanced and 10

21 Cellulosic BioDiesel Advanced Biofuel Renewable Fuel Cellulosic BioDiesel Advanced Biofuel Renewable Fuel Cellulosic BioDiesel Advanced Biofuel Renewable Fuel Volume (gallons) cellulosic biofuels will need to occur in order to meet the total renewable fuel requirement. 1.6E E E+10 1E+10 8E+09 6E+09 4E+09 2E+09 0 Fuel Types and Volumes for Years Non-Ester Renewable Diesel (EV 1.7) Non-Ester Renewable Diesel (EV 1.6) Heating Oil Non-ester Renewable Diesel (EV 1.5) Biodiesel Biogas Figure 7. Actual Volume Production by Fuel Type and Year xxviii Blend Wall When the EISA was passed, the volumes of renewable fuels, particularly corn ethanol volumes, were determined based on projections that gasoline consumption in the United States would continue to increase over the next several decades. However, actual gasoline consumption has decreased in that time. Figure 8 shows the disparity between the anticipated gasoline consumption in 2007, when the EISA was passed, and the actual consumption. As a result, gasoline producers are now facing what is called the blend wall, the upper limit at which ethanol can be safely blended into gasoline. 11

22 Figure 8. Comparison of Gasoline Projections and Actual Consumption xxix Internal combustion engines designed for use with gasoline can operate with low level blends of ethanol in the fuel xxx. However, higher blend levels are not suitable. As a result, the EPA has issued maximum blending levels for ethanol for sale in gasoline. Originally this level was set at E10, which is a blend of 10% ethanol and 90% gasoline. Recently, after extensive testing, the EPA determined that vehicles manufactured from 2001 on could safely run on E15 (blend of 15% ethanol and 85% gasoline). However, many automobile manufacturers do not warranty engines, even in newer vehicles, for use with blends higher than E10 because of the potential for engine damage. There are also a number of concerns in regards to the liability in case that an unknowing consumer fills his/her tank with an inappropriate ethanol blend which results in some form of engine failure or damage xxxi. As a result, refiners and producers are unwilling to blend at levels 12

23 higher than E10, despite the EPA s new ruling of E15 being acceptable for newer vehicles. Another possible avenue of increasing ethanol consumption to meet the volume requirements is through the increase in flex-fuel vehicle use. Flex fuel vehicles, which are available from nearly all the popular auto manufactures including Audi, Chevrolet, Ford and Toyota xxxii, are able to run on any type of gasoline. This includes blends as high as E85, which is ethanol blended as high as 85 percent xxxiii. Currently there are approximately 9 million flex fuel vehicles in the United States xxxiv and 2,342 service stations that carry E85 fuel xxxv. Figure 9 shows a map of the locations of those fueling stations. Figure 9. Map of Fueling Stations in the United States that sell E85 fuel xxxvi Because E85 fuel has a higher percentage of ethanol blended into it than E10 fuel, an increase in the amount of E85 sold in the United States would more significantly impact ethanol volumes than increasing sales of E10. However, increasing the penetration of E85 in the gasoline market is unlikely. Many people who currently own 13

24 flex fuel vehicles either do not know that they are able to use E85 fuel or choose to use conventional gasoline instead of E85 xxxvii. Another concern over E85 use results from the low energy density of ethanol. Ethanol only has 66% of the heating value of gasoline xxxviii. As a result, the higher the proportion of ethanol blended into each gallon of gasoline, the lower the total amount of mileage that can be driven on that gallon. For flex fuel vehicles, each tank of E85 can be driven a significantly fewer amount of miles than the same size tank of conventional gasoline. Also, as shown in Figure 10, the price of ethanol per unit energy is greater than gasoline. From a financial perspective, this means that consumers who choose E85 will be paying more on a per energy basis than consumers who choose conventional gasoline. Figure 10. Cost of Gasoline, Ethanol and Ethanol in Gasoline Equivalent Gallons xxxix Agricultural Concerns As shown earlier, corn-based ethanol is the most prevalent form of biofuel currently being used to meet RFS standards by a very large margin xl. Because corn is also a food crop, the growing demand for ethanol production has caused an increase demand 14

25 for corn that has started competing with the food market and having an impact on food prices. In the 2010/2011 agricultural year, 40% of the United States corn crop was used to produce ethanol xli. Ethanol Grandfathering Another concern with the huge proportion of ethanol use to meet the RFS requirements is the impact that this fuel type has on reduction of greenhouse gas emissions. Based on the biofuel classifications, ethanol is only required to have a 20% decrease in lifecycle greenhouse gas emissions to qualify. However, the EISA included a grandfather clause that exempted ethanol facilities that either existed or had commenced construction prior to December of 2007 from having to meet this 20% reduction requirement xlii. As a result, most of the ethanol that is being used does not meet any GHG reduction requirements xliii and therefore is not leading to an overall decrease in greenhouse gas emission reductions from the transportation sector. Advanced Biofuels Under the fuel definitions used by the EPA to determine which fuel types qualify for each fuel category, ethanol produced from sugar cane qualifies as an advanced biofuel. As the limits on corn-based ethanol go into effect in 2015 to make way for increases in volumetric requirements for advanced biofuels, there are concerns that more sugar cane ethanol will be imported from Brazil to meet these requirements xliv. Increasing imports of energy from Brazil would negate the goal of the RFS to decrease imports of fuels from foreign countries. Opponents of the RFS 15

26 also argue that the emissions from transportation of advanced biofuels in the form of sugar cane ethanol from Brazil would also result in greater life cycle emissions of GHGs. Cellulosic Biofuels At the time that the EISA was passed in 2007, there was no commercial production of cellulosic biofuels. Though commercial development still hasn t reached the levels originally set in the EISA, there have been significant advancements towards commercial development. As discussed earlier, Figure 6 shows current funding levels of the Bioenergy Technology Office (BETO) in the Department of Energy s Office of Energy Efficiency and Renewable Energy (EERE) for advanced and cellulosic biofuel development. A number of other funding opportunities and projects to support development of these advanced fuels also exist. For example, the National Advanced Biofuels Consortium, a DOE supported partnership between national laboratories, universities and corporations that works to make cellulosic biofuels commercially available, was granted $35 million by the American Recovery and Reinvestment Act and $12 million in partner funds for biofuel development xlv. Despite the given funding for development of these advanced fuels, commercial deployment of these fuels has not yet taken off and the EPA has been forced to issue waivers reducing the volumetric requirements for cellulosic ethanol on a number of different occasions to account for the lack of commercial availability of this fuel. In 2010, the requirements for cellulosic biofuels were reduced from 100 million gallons to 6.5 million gallons. In 2011, the requirements were reduced from 250 million gallons to 6 million gallons. The 2012 requirements were reduced from 500 million gallons to

27 million gallons, and the EPA has proposed to reduce the 2013 requirements from 1 billion gallons to 14 million gallons. No commercial production of cellulosic biofuel was reported in 2010 or 2011, and only a limited number of RINs for cellulosic biofuel were created in 2012 xlvi. Analysis of Success of the RFS Given the amount of time that has passed since the implementation of the RFS and the problems it is facing, there is need for a review of the effectiveness of the program and questions about the future of the RFS to be answered. Before determining if the RFS needs to be changed, it should be evaluated on the basis of how well it has achieved the initial goals set forth by the program. The primary goals of the RFS were to xlvii : Reduce the United States dependence on imports of petroleum products Reduce the United States total use of petroleum based fuels in the transportation sector Reduce greenhouse gas emissions from the transportation sector Expand energy portfolio of transportation sector beyond petroleum Dependence on Foreign Oil At the time of the implementation of the RFS in 2005, the United States imported 60.3 percent of all petroleum used in the country. By 2011, the percentage of imports decreased to 44.7 percent xlviii. Figure 11 shows the change in petroleum production, imports, exports and total consumption for the years This date range was chosen to give an adequate representation of what was happening in the transportation sector in terms of energy use before the implementation of the RFS in As shown in 17

28 Thousand Barrels per Day the figure, the amount of petroleum production surpassed petroleum imports in Throughout this time period, petroleum consumption decreased. Whether total petroleum consumption or the implementation of the RFS was the cause of the decrease in petroleum imports is difficult to say, but it is clear that petroleum imports have decreased significantly since the implementation of the RFS xlix. A more likely cause of the decrease in imports was the overall decrease in petroleum consumption in the United States, shown in Figure ,000 Petroleum Production, Imports, Consumption and Exports EPAct EISA 20,000 15,000 10,000 5,000 Production Imports Consumption Exports 0 Year Figure 11. Graph of Petroleum Production, Imports, Consumption and Exports l Total Petroleum Use Figure 12 shows the transportation sector energy consumption for biomass, petroleum and total energy use from 2000 to This figure shows a slight decrease in total and petroleum energy consumption in conjunction with an increase in biomass energy consumption in the transportation sector. As expected, given the proportion of 18

29 transportation energy drawn from petroleum sources, the trend of the total energy consumption and petroleum energy consumption are very similar. However, there is not enough information to be able to determine if the decrease in petroleum consumption resulted from an increase in biofuel use and therefore the RFS. A more likely cause for this decline in consumption is the economic recession that occurred in 2007 as well as an increase in Corporate Average Fuel Economy (CAFÉ) standards. EPAct EISA Figure 12. Transportation Sector Energy Consumption li Figure 13 shows the energy consumption in the transportation sector only from biomass sources. The figure clearly shows a significant increase in the amount of biomass-based sources used in the transportation sector since the implementation of the RFS. This indicates that the RFS has indeed increased the biofuels market in the United 19

30 Trillion Btu States. However, even at its peak use in 2011, biomass based energy sources only accounted for 4.3% of total energy consumption in the transportation sector lii. Biomass Energy Consumption EPAct EISA Year Figure 13. Biomass Energy Consumption from the Transportation Sector liii Greenhouse Gas Emission Reductions Figure 14 shows the carbon dioxide emissions from the transportation sector for petroleum, biomass and total emissions. As can be seen in the figure, total greenhouse gas emissions from the transportation sector have decreased since the implementation of the RFS in During that same time, total emissions from biomass sources have increased, as would be expected with the increase in biomass use in the transportation sector shown in Figure 13. One concern with the current RFS implementation and reducing GHG emissions is the grandfathering of ethanol plants discussed earlier. With the vast majority of biofuels being provided by ethanol and most of that ethanol being grandfathered and thus having no GHG emission reduction requirements liv, expected decreases in GHG emissions as a result of the RFS would be negligible. 20

31 EPAct EISA Figure 14. Carbon Dioxide Emissions from the Transportation Sector for Petroleum, Biomass and Total Emissions lv Expand Energy Portfolio Though the transportation sector is still primarily dependent on petroleum-based reserves for providing energy fuel, each new biofuel pathway approved by the EPA represents one other method and fuel source that potentially impacts and displaces petroleum use in the United States. Policy Alternatives Criteria for Evaluating Alternatives A number of different criteria will be used to determine the best of the various alternatives proposed for addressing the issue of the Renewable Fuel Standard. Most importantly, each alternative will be judged on their anticipated ability to meet the goals of the RFS. These goals are: 21

32 Decrease total petroleum energy use in the transportation sector Decrease petroleum energy imports from foreign countries Decrease carbon dioxide emissions from the transportation sector Expand the energy portfolio of the transportation sector beyond petroleum Other important criteria for consideration include financial cost, availability of technology and feasibility of implementation. Maintain Status Quo with Renewable Fuel Standard If the status quo is maintained with regards to the Renewable Fuel Standard, all of the current issues with the RFS will not be addressed. These include primarily the blend wall and lack of commercially available cellulosic biofuels. The best-case scenario for this option would be a rapid increase in the commercial availability of cellulosic and advanced biofuels to meet the volumetric standards as they were originally written in the EISA. However, the Energy Information Administration (EIA) does not anticipate that this will happen lvi. As a result, the EPA will continue to have to issue waivers and decrease volumetric requirements for advanced and cellulosic biofuels each year in response to lack of commercial availability of such fuels. One major problem with these yearly evaluations by the EPA is the lack of certainty it lends to the advanced biofuels and conventional gasoline industries. As the current version of the RFS is already implemented, this would be the easiest of the alternatives in terms of feasibility of implementation. However, there are still concerns with the availability of technology, particularly as the volumetric requirements for ethanol use are capped and volumetric requirements for cellulosic and advanced biofuels increase significantly after

33 Modify Renewable Fuel Standard There are a number of different ways in which the RFS could be modified to address the current problems it is facing. First, the volumetric requirements could be decreased. The decrease in total renewable fuel requirements would help address the issue of the blend wall by decreasing the amount of ethanol that would be required to be blended with conventional gasoline. This modification seems to be necessary given the fact that at the time of its implementation in 2007, EIA estimated increases of gasoline consumption. The reality has been a decrease in consumption. Decreases in the amount of required cellulosic and advanced biofuels would also respond to the lack of commercially available biofuels that meet the qualifications in those categories. Another option for modification of the standard is to change from a volumetric requirement to percentage of total use requirement. This would address the problem of the approaching blend wall as well as ensuring that mandated biofuel use is related to actual gasoline consumption instead of projections, a consideration that is lacking in the current set-up of the RFS. Repeal Renewable Fuel Standard Recently, legislation to repeal the RFS in its entirety (S.1195) was introduced into the Senate. If passed, this bill would amend parts of the Clean Air Act, repeal the sections of the Energy Independence and Security Act that establishes the Renewable Fuel Standard and remove the sections that deal with the RFS out of the Federal Regulations lvii. Proponents of the repeal of the RFS argue that the program is beyond fixing and is facing too many problems, including the blend wall and increases in food prices, to 23

34 justify keeping in place lviii. If the RFS were repealed, the current mandates for biofuels would be cancelled and the market for biofuels would be greatly reduced. This option, though addressing the problems facing the RFS, would not meet any of the goals, such as decreasing carbon dioxide emissions or decreasing petroleum use. In order for the repeal of the RFS to be effective in meeting these goals, another policy to encourage biofuel use would need to be passed as well. Increase Advanced and Cellulosic Biofuel Use The most benefits from biofuel use will result with increased use of advanced, cellulosic and drop-in biofuels technology. Drop-in biofuels are given their name because they are substantially similar to gasoline, diesel and jet fuels and can be dropped into existing infrastructure. This important characteristic minimizes the need for new infrastructure to accommodate increased biofuel use lix. However, these technologies are not yet commercially available, and there is little way to know how long it will be until there is enough production for them to make a significant impact on the market. This alternative has the most potential for resulting in the greatest decreases in both carbon dioxide emissions and overall petroleum use and imports; however, those impacts are dependent on the quick development and commercialization of technologies that are still in their infancy. The economic cost, particularly in research and development, in conjunction with the uncertainty about the availability of technology, makes this alternative less appealing. 24

35 Policy Recommendations The original goals of the RFS are still important today and though the RFS has not been as successful as expected, the importance of achieving these goals should not be disregarded. I believe that a complete repeal of the Renewable Fuel Standard would quell the current market for biofuels, which in turn would slow progress in advanced biofuel development. However, the current RFS program is not working. Also, I believe that the most beneficial impacts from biofuel use will come from the deployment of advanced, cellulosic and drop-in technologies and that encouraging and assisting the commercialization of these technologies should be a top priority. It is for these reasons that I make the following recommendations. For the Environmental Protection Agency As the primary agency of authority for the implementation of the Renewable Fuel Standard, the EPA has the jurisdiction and responsibility to address the current issues facing the program. The EPA can do this both through the use of waivers and in setting the annual volumetric requirements. I make the following recommendations for the EPA: Release the finalized 2013 RFS annual volumetric requirements The EPA is required to release the annual volumetric requirements for each year on November 30 of the previous year. The EPA still has not released the requirements for 2013 that were due last November. This has resulted in a great deal of uncertainty for industry in knowing the number of RINs that will be 25

36 required to meet these requirements, which has in turn led to an increase in the price of RINs. Release the 2014 annual volumetric requirements by the November 30 th deadline In order to provide the necessary certainty to industry regarding the status of the RFS and the volume obligations they will be required to meet for the following year, the EPA should release the 2014 volumetric requirements by the deadline of November 30 th. I believe that a timely release of these requirements will also help to convince industry and consumers that the EPA is capable of fulfilling its obligations regarding the RFS. Use waiver and volumetric requirements authority to address the blend wall and lack of commercial cellulosic production problems Though the EISA sets for volumetric mandates for each year, the EPA has the authority to set the actual volumetric requirements each year based upon current volumetric production and availability. As a result, in the short term, the EPA can modify the annual volumetric requirements to address the current issues facing the RFS. These modifications would need to include a reduction in total renewable fuel requirements in order to reflect actual gasoline consumption and the approaching blend wall. By decreasing these volumetric requirements, oil producers will be able to meet the requirements without being forced to surpass the E10 blend limit. The EPA can address the lack of commercial production of cellulosic biofuels either through the reduction in volumetric requirements or by issuing waivers, as they have done in the past, 26

37 until commercial production has developed. By monitoring the progress of the cellulosic biofuels industry, the EPA can effectively implement these waivers or volumetric requirements to ensure that there is a market for the fuels as they become available, while also safeguarding that oil companies are not penalized for not blending a fuel that does not exist. For the Congress Modify the Renewable Fuel Standard to mandate percentage of total use requirements in place of current volumetric requirements One of the biggest problems facing the future of the Renewable Fuel Standard is the earlier-than-anticipated approach of the blend wall. This blend wall is occurring in part because actual gasoline usage is significantly different than the anticipated fuel usage used to determine the volumetric requirements of the RFS. Modifying the RFS to have a percentage of total use in place of given volumetric requirements would solve this problem, while also ensuring that biofuel use continues to increase in the United States. Maintain current funding levels for advanced and cellulosic biofuel development In order for advancements to be made in the commercial development of cellulosic and advanced biofuels, it is essential for funding to be given to programs that support this kind of development. Appropriations bills, such as S 1245 Energy and Water Development and Related Agencies Appropriations Act of 2014, which includes $2,280,985,000 to be allocated to the DOE for Energy Efficiency and Renewable Energy programs lx, has an appropriate level of funding for these projects. 27

38 Implement a new policy to establish a stable market for cellulosic biofuels as they become commercially available Though the details for this new policy require further research, the primary aim of this policy should be to provide stability and certainty to the advanced and cellulosic biofuels industry by ensuring that a market will exist for their products once they become commercially available. A legislative priority would also encourage investors to continue or begin their support of these industries by providing certainty for the future of the industry. For Industry Invest in advanced, cellulosic and drop-in biofuels technologies Though there has been little to no commercial production of cellulosic and drop-in biofuels in recent years, there are a number of pilot plants in development and some companies that are just now beginning commercial development of these fuels. Shell, in conjunction with Virent, has built a pilot biofuels plant in Houston lxi. Kior also started production of its first commercial scale cellulosic facility in Columbus, MS in 2012 that is now producing drop-in biofuels lxii. These are just a few examples of recent development in the commercial technology for producing advanced biofuels. Figure 15 shows all the member companies of the Advanced Biofuels Association. As shown in the figure, there is a large number of member companies that span across the United States that are working on development and deployment of advanced biofuels. With the industry in its infancy, it is important for financial support not to be reduced at this time. As a result, industry should continue to invest in these technologies. 28

39 Figure 15. Map of Advanced Biofuel Association Member Companies lxiii Conclusions The current form of the Renewable Fuel Standard is not effectively meeting its goals, namely because of the high proportion of biofuel volume requirements being met with the use of corn ethanol. Because of issues like the blend wall, lower energy content, impact on food prices and transportation and storage issues, corn-based ethanol is not a suitable biofuel to be used on the scale required to significantly impact petroleum consumption and transportation sector greenhouse gas emissions. However, the RFS does provide an important and necessary sense of stability and certainty for the biofuels industry. Without the RFS, or another governmental policy to 29

40 ensure the future of a biofuels market in the United States, industry investment and development of advanced, cellulosic and drop-in biofuels would substantially decrease. The development of these fuels is important to the energy future of the United States because they will provide an alternative to petroleum fuels that meets all of the current goals of the Renewable Fuel Standard: decreasing petroleum imports and consumption and decreasing GHG emissions from the transportation sector. Therefore, it is important not to repeal the RFS. In the short term, the EPA should address the most pressing issues facing the RFS, including the blend wall and lack of commercial production of cellulosic biofuels, through their authority with waivers and setting the annual volumetric requirements. In the long term, Congress should modify the RFS to mandate biofuel use in terms of percentage of consumption in place of volume requirements to ensure that biofuel use reflects actual gasoline consumption and not projections and to ensure that the issue of the blend wall does not arise again. Congress should also continue to fund important research programs for cellulosic biofuels while industry continues to invest in development of commercial plants for cellulosic and drop-in biofuels. The future of biofuel use in the United States lies in advanced, cellulosic and drop-in biofuels technologies. Ensuring stability and increasing investment in these industries is vital for the future of transportation energy in the United States. 30