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Finding Pathways for Biofuels

Advocates Say State Low-Carbon Fuel Policies Could Drive More Ethanol Demand

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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A flex-fuel blender pump provides a range of fuel options. Since California developed a low-carbon fuel standard, demand for E85 has grown rapidly among consumers, driven mainly by lower fuel costs. (DTN file photo)

SAN FRANCISCO (DTN) -- Just a few blocks from the commotion and crowds at the Global Climate Action Summit, biofuel advocates gathered Thursday to champion more low-carbon fuel standards that could take the country's biofuels industry in new directions.

While the climate summit focused on all the various ways states, cities and businesses can commit to reducing greenhouse-gas emissions, the "Driving Decarbonization" event highlighted how biofuel demand can grow if more states adopt low-carbon fuel standards.

"The thought leadership is moving in that direction here, and we've been hearing from particular organizations and people involved with the Governors' Biofuels Coalition that there are active discussions going on," said Graham Noyes, executive director of the Low Carbon Fuels Coalition. "People are seeing how valuable California's LCFS (low-carbon fuels standard) is. Midwest producers are asking that same question, 'Why don't we have this here?,' and they are seeing the unfortunate instability in the RFS program and realizing that having a backup or supplemental program is a very good thing to have in times like now."

Talk about low-carbon fuels standards comes, though, as ethanol plants are struggling with large supplies, tight margins and not enough product demand. Just Friday, Ergon BioFuels LLC, a subsidiary of Ergon Inc., announced it will close its 56.5-million-gallon ethanol plant in Vicksburg, Mississippi, in December.

"Ergon management has made significant investments at Ergo Biofuels over the years and had planned additional improvements to increase ethanol and corn oil yields going forward," said Kris Patrick, Ergon COO. "Unfortunately, continued erosion in margins, coupled with underperforming production equipment and the economic challenges of being a destination plant, forced us to make this very difficult decision."

Trying to boost demand through federal policy, traditional ethanol groups launched a Twitter campaign Friday directed at President Donald Trump, EPA Acting Administrator Andrew Wheeler and Agriculture Secretary Sonny Perdue with hashtags, including #IWantMyE15 and #RFSWorks. Ethanol groups are continuing the push to get EPA to commit to year-round E15 sales. The annual summer restrictions on E15 end on Saturday.

Gerard Ostheimer, a senior adviser for the group below50, said one of the issues with the RFS is its "static nature." The RFS does not reward ethanol companies for reducing the carbon intensity of their production, which is why so many Midwest ethanol companies work to export their product to California.

"The carbon intensity of ethanol for a number of plants has been coming way down, but the way the RFS is currently structured, that never gets scored and they will never get a reward for that," Ostheimer said.

Local motivations drive policies such as low-carbon fuel standards. California's LCFS is focused on long-term reduction of greenhouse-gas emissions, but such policies would likely take different motivations in Midwest states that are the major source of most biofuels now.

"Certainly, the Midwest states have very strong ag policies and very strong economic policies and can see using this kind of policy structure that doesn't require an annual appropriation, rewards efficiency and essentially keeps money in the state by sending fuel money to the feedstocks and the producers and all the related industries, that supports itself on the job and the economic side," Noyes said. "To some degree, if the greenhouse-gas reduction is just an ancillary benefit, then great, it gets us there."

Noyes noted California has become a leader in selling products such as E85, which has seen volumes triple in the state. "What's happened is the economics work," Noyes said. "You've got RFS, plus the LCFS and E85 typically selling at an 80-cent-a-gallon discount. So it's the best place in the world to sell E85, and people are switching to it for economic reasons and we're seeing 25% to 30% year-on-year growth every year."

California service stations and convenience stores are adding 25 new flex-fuel stations every year, and the state can now consume roughly 1 billion gallons of E85. "The LCFS is driving that, and it can do the same for mid-level blends and E85 blends in the Midwest," Noyes said.

Low-carbon fuel standards also have the support of health groups such as the American Lung Association. The group in California calculates long-term health benefits of low-carbon fuel standards in the state at $8.3 billion in avoided health impacts by 2025. That translates into reducing asthma attacks by more than 38,000 and avoiding more than 74,000 lost workdays to health issues. The American Lung Association wants to see more states embrace such standards.

Yet, more California startups are also trying to stem the tide of Midwest ethanol to keep California fuel dollars in the state. Companies are working on converting solid waste to biofuels, and at least one company is in the development stage for a sugar-cane ethanol plant. That facility, though, would need farmers in California's Imperial Valley to convert at least 50,000 acres to sugar-cane production to sustain the operation.

"California exports about $2 billion annually to places like Iowa and Nebraska -- I know some of you guys are from there -- and our argument as a state is the only time those dollars come back into the economy is January and February when those guys are freezing and they want to see the Santa Monica Pier or the Golden Gate Bridge," said David Rubenstein, president and CEO of California Ethanol and Power. "So our argument is you keep some of these dollars in the state and the economic reverberation of that is pretty strong. It creates new taxes and job opportunities."

When biofuel companies develop new technologies in advanced biofuels or cellulosic products, a pricing mechanism helps drive demand. That was something companies expected to see from the Renewable Fuel Standard, but the fluctuation companies have seen in renewable identification numbers (RINs) has taken away some of the market.

"That's where individual state programs can come in and fill that gap with their own pricing mechanisms to provide the value for the fuel," said Shailesh Sahay, senior regulatory counsel for ethanol producer Poet.

Sahay later pointed out state policy needs to be steady with its incentives, noting RIN prices under the RFS have moved from $1 to 20 cents a gallon just within this year. "That just doesn't provide the right incentives for commercialization," he said.

The "Driving Decarbonization" event was co-sponsored by the Biotechnology Innovation Organization (Bio), a major backer of the group below50, which came out of the Paris Accords as a global campaign to promote fuels that have emissions 50% below petroleum fuels. Next July, Bio will bring its World Congress on Biotechnology to Des Moines and below50 will hold an affiliated forum again promoting advanced biofuels and low-carbon fuel standards, said Stephanie Batchelor, a director for Bio.

"I think the Midwest is uniquely situated to have a regional LCFS, which is something we have not been able to have before," said Batchelor.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

(AG/CZ)

Chris Clayton

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