While some aspects of the final rules for the federal Renewable Fuels Standard are being praised, there's a problem with the indirect land-use provision. That's how people involved in agriculture and the biofuels industry view EPA's decision this past week when the agency issued the RFS2 rules.
The biodiesel industry got a jolt back to life on February 3 as the Obama administration reversed itself and found that the fuel meets federal carbon emissions rules. That decision by the federal Environmental Protection Agency clears the way for biodiesel made from soybean oil to qualify toward meeting a new national usage mandate.
The requirement guarantees a market for the fuel and will require the industry to ramp up production this year. EPA's decision on the carbon standard was a "make or break" decision for biodiesel producers, says Monte Shaw, executive director of the Iowa Renewable Fuels Association.
Biodiesel plants will now have to start producing again
All but one or two of Iowa's 15 biodiesel plants have been shut down in recent weeks because of the industry's poor economics and because Congress let the industry's federal subsidy, a $1 per gallon tax credit, expire at the end of 2009. Members of Congress have promised to restore the subsidy early this year—in February or March.
"There will have to be a number of plants that have been idled or that have significantly cutback on production that will have to get back up and running again," says Jon Scharingson, director of sales for Renewable Energy Group Inc. of Ames. The company owns or manages nine biodiesel plants in Iowa, Illinois, Minnesota and Texas.
Under rules EPA proposed last spring, neither soy-based biodiesel nor corn ethanol met the carbon emission limits set by Congress. But under pressure from ethanol and biodiesel supporters, EPA recalculated and announced February 3, 2010 that both fuels meet the standards. EPA administrator Lisa Jackson said her agency factored in new data on crop yields and biofuel byproducts and reworked its analysis of how biofuels affect land use globally.
Biodiesel plants will have to start producing more to meet mandate
The 2007 federal energy law set annual requirements for biofuel usage, but it required the fuels to meet targets for reducing carbon emissions below those of conventional gasoline and diesel. The biggest impact of the rules was on biodiesel, because existing ethanol plants and facilities under construction were exempted from having to meet the carbon targets. Biodiesel plants were not.
At the same time, EPA required refiners to use 1.15 billion gallons of biodiesel by the end of this year. Last year's usage counts toward that target, but the industry may have to produce as much as 750 million gallons this year to meet the mandate, says Iowa State University economist Bruce Babcock. If international biodiesel producers have a large advantage in the cost of production, then they can ship biodiesel into the U.S. and imports can meet the mandate. If not, then U.S. producers will meet the mandate, he says.
Shift by EPA will let biodiesel producers use more soyoil
Soybean oil is still a relatively pricey feedstock for making biodiesel, but it's more abundant than cheaper alternatives, mainly waste fats from slaughter plants and restaurant grease. The EPA's shift on the emissions issue will allow biodiesel producers to use more soyoil in their production than they otherwise would.
In calculating the carbon footprint of biofuels, EPA was required by Congress to consider the impact that using food crops for biofuels has on land use. When corn or soybeans are diverted to fuel, more land may be needed to grow those crops elsewhere, which can lead to destruction of rain forests and the release of carbon into the atmosphere.
Using EPA's latest calculations, soy biodiesel meets the standard, which is a 50% reduction in emissions compared with conventional diesel, and so do natural gas-fired ethanol plants using newer technologies, says Jackson. The emission reduction limit for corn ethanol is 20%.
EPA still has "indirect land use" assumptions in its calculations
The ethanol and biodiesel industry still isn't pleased that EPA is figuring land-use impacts into its assessments of biofuels. "We think the research on that is highly inconclusive," says Jeff Broin, chief executive of Poet LLC, a large ethanol producer. However, now that EPA has made these decisions, it could be easier for the ethanol industry to argue that the usage mandate for corn ethanol should be raised. It's now capped at 15 billion gallons a year under the 2007 law.
Also, as part of its Feb. 3 announcement, EPA sharply lowered this year's mandate for use of next-generation ethanol made from crop residue and other sources of plant cellulose. Because the cellulosic ethanol industry has yet to get into production, the mandate was cut from 100 million to just 6.5 million gallons.