RFS2: Working Towards 2012
In mid-June, the U.S. EPA issued proposed 2012 volume requirements for all four nested fuel categories defined by the RFS2 program, as well as 2013 volume requirements for biomass-based diesel. While it remains to be seen if the targets for cellulosic fuel will be finalized at levels above and beyond the target set for 2011, representatives of industry agree that the agency is working diligently to ensure mandated volumes match up with actual production. If all four categories are implemented as proposed, the program’s 2012 volume requirement would increase the amount of renewable fuels that must be blended into our nation’s fuel supply by 1.25 billion gallons when compared to 2011 targets. Much of that increase can be attributed to the advanced biofuel category of the RFS2.
For 2011, the EPA proposed a cellulosic volume requirement in the range of 5 to 17.1 million gallons, with a final target set at 6.6 million gallons. Volume requirements for advanced biofuel, biomass-based diesel and total renewable fuels were proposed and finalized at the respective levels of 1.35 billion, 800 million, and 13.95 billion gallons. For 2012, the agency is proposing to establish a volume requirement for cellulosic biofuels in the range of 3.45 million to 12.9 million gallons. While the proposed range for the year is lower than what was proposed last year, the final mandated volume could demonstrate an increase over the 6.6 million gallon target set for 2011. The industry will find out for certain after the public comment period ends and the agency releases final targets in November. The proposed 2012 volumes for advanced biofuel and biomass-based diesel have been respectively set at 2 billion and 1 billion gallons, bringing the total proposed volume of renewable fuels to 15.2 billion gallons. In addition, the EPA has proposed to set the 2013 target for biomass-based diesel at 1.28 billion gallons.
The 2012 proposed volume range for cellulosic biofuels is not only lower than the range proposed last year, it also represents a significant deficit when compared with the 500 million gallon target set by the Energy Independence and Security Act of 2007, which established the RFS2 program. According to the EPA, the agency will continue to evaluate the market as it works to finalize the cellulosic standard for next year, and remains optimistic that the commercial availability will continue to grow in the years ahead.
Brent Erickson, executive vice president of the Biotechnology Industry Organization, explains that the lower cellulosic range for this year can be attributed to several elements, including the fact that the EPA has had to eliminate a few biofuels companies from its calculations due to the economic climate. “The recession, the lack of capital, and the unwillingness of institutional investors to tolerate risk associated with new technologies have really impacted the plans of cellulosic biofuel producers,” Erickson says. “However, EPA does predict a number of new companies will begin to produce measurable amounts beginning in 2012. USDA loan guarantees for the first commercial biorefineries will help to demonstrate the technology and reduce the perceived risk for investors. The overall to reducing risk for investors is maintenance of the renewable fuel standard.”
Erickson also notes that the goals for cellulosic ethanol production set forth by EISA are appropriately aggressive. It will likely take some time for the industry to catch up with those goals, however. “It would take a huge amount of capital to construct the biorefineries needed to hit [those] numbers,” he says. “Everyone expects that cellulosic biofuel production will expand rapidly, as long as the policy support remains stable at the federal level.”
Evaluating Cellulosic Potential
According to the EPA, it has researched all potential production sources of cellulosic biofuel that could be made available within the U.S. in 2012 by both company and facility. This includes more than 100 facilities that are still in the planning stages, have begun construction or are already producing cellulosic biofuels. However the agency also notes facilities that are primarily focused on research and development activities—and have no intention of marketing the cellulosic fuels that are produced—have not been addressed in its assessment. The final volume requirement set for 2012 will be based on actual volume of cellulosic fuel that is expected to be produced next year by the companies and facilities identified and assessed by the EPA. While it is possible that cellulosic biofuels could be imported into the U.S. from abroad, the agency has not considered these volumes in its estimates as those fuels are overwhelmingly likely to be used locally.
The EPA has identified eight companies, representing nine facilities, that are expected to produce cellulosic fuels in 2012. DuPont Danisco Cellulosic Ethanol LLC, Fiberight LLC, Fulcrom Bioenergy Inc., INEOS Bio, KL Energy Corp., and ZeaChem Inc. are listed as expected producers of cellulosic ethanol. KiOR Inc. and Terrabon Inc. are listed as expected producers of drop-in cellulosic biofuels. If each facility and company produces at the rate expected, that would mean that 15.7 million gallons of cellulosic biofuels would enter the market next year. The agency stresses that none of the facilities on its list are currently producing at these levels, however, and that there are uncertainties associated with each facility’s projected volumes that could result in lower production in 2012.
Four new companies have been added to the EPA’s list of likely cellulosic producers since last year, while one has been removed from this year’s list. In other words, the number of companies that expected to reach commercial production has nearly doubled in the past year, which shows clear progress in the industry. Companies the EPA has identified as likely to produce in both 2011 and 2012 include DuPont Dansico Cellulosic Ethanol, Fiberight, KiOR and KL Energy. Fulcrom Bioenergy, Ineos Bio, ZeaChem and Terrabon are new companies that have been added to the list this year. Although Range Fuels was identified by the EPA as a likely producer in its 2011 rulemaking, the company is not currently expected to produce cellulosic fuels in 2012. According to the agency, the company started up its facility in January, but soon was forced to shut down in order to work through technical difficulties that had been experienced. The EPA notes that while it will continue to monitor development at the plant, no timeline has been provided for the facility’s restart. Therefore, the agency is not projecting the plant will produce any cellulosic biofuel in 2012.
In addition to the biorefineries that are expected to operate commercially next year, the EPA has also notes that EdeniQ’s enzyme technology is another possible source of cellulosic biofuel in 2012. Rather than build its own plants, the company intends to license its technology to third parties. According to the EPA, the agency has not included volumes of the company’s fuel in its estimates because EdeniQ has yet to announce any licensing agreements. The EPA says it will continue to monitor the company’s progress and will include possible volumes from its technology in the final 2012 volume requirements if appropriate. The agency is also actively watching companies and facilities on track to commence cellulosic biofuel production in 2013, including Coskata, Enerkem and Poet.
A Bright Future
Fiberight CEO Craig Stuart-Paul says he thinks the EPA’s projections for cellulosic biofuel production are possible to achieve. His company is currently working to finalize the design of its first commercial-scale plant, and will be breaking ground this summer. “We anticipate producing low levels of cellulosic ethanol by the end of this year,” he said, noting that depending on how the initial phase of production goes, the facility could conceivably expand quickly enough to fulfill the EPA’s current expectations for his company. However, he also notes that the cellulosic biofuels industry is defined by uncertainty. “As with everything in the cellulosic industry, it is an emerging industry,” he says. “It’s very hard to promise…but if everything goes well, we could do that amount.”
Stuart-Paul also notes that he has found the EPA to be highly involved in what is going on the cellulosic biofuels sector. “They’ve taken the time to look into it, they take the time to engage with us and they are very open with us if we have any questions,” he adds. “I think we are all learning together…This is very much a fledgling industry, and as every year goes by and as every additional plant gets built, we’ll get better at forecasting…but I can report that we think the EPA is doing its best to get an accurate score.”
While the economic situation has presented an enormous challenge to the cellulosic industry the past few years, Stuart-Paul says the future seems to be looking up. The one thing all cellulosic plants have in common is that they are expensive to build, and it became impossible to procure funding after the economic crisis hit. “[These plants] are risky, and raising the capital in this kind of funding environment has been very difficult,” he continues. “So many projects—including ours—that we would have hoped to be in full operation by now were delayed because we just couldn’t get the money.”
However, that seems to be changing. Stuart-Paul notes that certain sources of funding, such as angel funds, seem to be getting back into the cellulosic space. “Providing that continues and there is not another financial meltdown, we think…more of these types of facilities will get built. I just get the feeling that 2012 is going to be the year that a lot starts happening from a variety of people.”
Dan Cummings, vice president of Ineos Bio, agrees that the cellulosic industry is showing promise.
“You are starting to see projects like ours come online,” he says. As there is access to capital through programs like the USDA loan guarantee program, you are going to see an acceleration [of development] and additional projects break ground and start being constructed in 2012.”
Cummings also stresses how important the RFS2 program is to the cellulosic biofuel sector. “The volume requirements are important, and it gives expectation—along with rest of the programs out there—to build out the entire industry.” However, he notes that the RFS2 is only one component of the entire portfolio of federal policy that the industry needs to expedite its growth. “I think that short-term areas, like an extension of the production tax credit and additional authorization for money for the USDA loan guarantee program in the next round of the Farm Bill, will only help to improve and accelerate the market.”
Erickson agrees that the RFS2 program is key to ensuring the market for cellulosic fuels remains open, and notes that there are several other actions that can be taken to help expedite development of the cellulosic and advanced biofuels sectors. “Continued funding of federal loan guarantee programs will help get the first few biorefineries constructed and raise the confidence level of investors waiting on the sidelines,” Erickson says. “Extension of tax credits, ensuring that advanced alcohols such as butanol retain tax credits, and making other advanced biofuels, such as algae, eligible for them will help to move new advanced technologies along with cellulsoics.”
Michael McAdams, president of the Advanced Biofuels Association, says that the EPA’s proposal shows clear progress in the cellulosic and advanced biofuel sectors. “I think we’ve got plenty of gallons and it shows great improvement in a very quick period of time,” he says. “When you look at that contextually, it took the corn ethanol industry 20 years to deliver 2 billion gallons, so from a contextual standpoint for advanced biofuels to be able to deliver 2 billion gallons just four years after the statute was enacted would be a great accomplishment.”
Author: Erin Voegele
Associate Editor, Biorefining Magazine