Lesser Expectations
The EPA slashed its cellulosic biofuel target for 2013. That’s good news for companies trying to turn grass into gas. Here’s why.

Last week the Environmental Protection Agency set new annual quotas for the use of renewable fuels by U.S. refineries. Those targets included a major drop in the expected production of cellulosic biofuel—a low-carbon, next-gen fuel that, unlike corn-based ethanol, is refined from non-food products like switchgrass, corn stover, and wood.

And by “major drop” I mean a cliff dive. The original cellulosic target, set back in 2007, foresaw U.S. refiners pumping out 1 billion (with-a-b) gallons of the stuff by 2013. An EPA draft rule put out earlier this year ratcheted that projection back to 14 million gallons. By the time the final rule emerged last week, the number had been winnowed to 6 million.

Bad news? Hardly. That incredible shrinking number may be the best thing to happen to the cellulosic biofuel industry since the introduction of the renewable fuel standard itself.

A little background: the renewable fuel standard, or RFS, is a biofuel mandate that Congress established in 2005. Lawmakers were seeking to boost fuels that contribute less to global warming pollution while also curbing the nation’s dependency on foreign oil. The law requires fuel refiners to blend steadily increasing amounts of biofuels into the nation’s transportation fuel supply.

In 2007, Congress added cellulosic biofuel to the mix in response to concerns that the renewable fuel standard was driving up food prices by vacuuming up corn for ethanol. Cellulosic fuels, because they’re made from plants that aren’t eaten, wouldn’t have that same problem—although there are potential concerns about their environmental impact. It would be counterproductive, for instance, if the biofuel market were to provide an incentive for planting single-species tree plantations, displacing biodiverse natural forests, or clear-cutting large swaths of forest to use as fuel.

Cellulosic refining isn’t just corn ethanol with a twist.

From an economic and image standpoint, the flaw in the 2007 update to the renewable fuel standard was a massive overestimation of the amount of cellulosic fuel that refiners could produce. In 2007, not a single commercial-scale cellulosic refinery existed in the United States. Yet officials at the Environmental Protection Agency, which administers the RFS, expected hundreds of millions of gallons to flow within just a few years. Cellulosic industry executives enabled the overshoot by feeding EPA staffers blue-sky estimates that bore little connection to reality.

Cellulosic refining isn’t just corn ethanol with a twist. It’s a complex process that takes years (and hundreds of millions of dollars) to build up, test, tweak, and perfect. (I look at the process, and how close we are to achieving it, in an upcoming feature story for OnEarth.) There’s no standard process—each company is kind of inventing its own wheel.

Because cellulosic refining has never been done on the scale contemplated by the RFS, those billion-gallon expectations eventually caught up with the industry. When the cellulosic goals went unmet (2012 target = 500 million gallons, 2012 actual = 20,069 gallons), critics started screaming about the “cellulosic ethanol debacle” and the American Petroleum Institute convinced a federal judge to vacate the cellulosic portion of the RFS mandate for 2012. In Congress, there is serious talk about revising the RFS this fall, and the cellulosic component is sure to get a hard look.

By over-promising and under-delivering, the cellulosic industry put the RFS mandate—its lifeline—in jeopardy.

The lowered 2013 target, then, is being seen as a boon by cellulosic refiners. For the first time ever, the EPA’s estimate of cellulosic production actually bears a resemblance to reality. That may go a long way toward reframing the industry’s one-word story from “debacle” to “emerging.” Brooke Coleman, director of the Advanced Ethanol Council, a cellulosic industry group, praised the EPA for having “done its homework” in setting the 2013 targets, which finally “reflect the number of actual gallons expected to be available through the end of the year.” Michael McAdams, head of the ethanol-friendly Advanced Biofuels Association, said the more realistic cellulosic number “should put to an end the argument that refiners are being taxed to pay for phantom fuels.”

The EPA’s action should also show Congress that the agency is capable of adjusting biofuel standards on its own, without the need for revising the RFS through legislation, wrote Brian Siu, an energy policy analyst at NRDC, which publishes OnEarth. “This is preferable to congressional interference, which could have disastrous consequences,” Siu writes, if lawmakers were to tamper with safeguards built into the RFS to protect wildlife and land.

There are a couple dozen U.S. companies hoping to eventually produce cellulosic biofuel, but the truth is that only five have a real shot at putting fuel in barrels in the coming year: Kior, a Texas-based startup; Ineos Bio, a Florida subsidiary of the multinational energy company; POET, one of the nation’s largest producers of conventional ethanol; Abengoa, the Spanish energy player; and DuPont, the chemical giant. Kior has already begun production at its commercial-scale refinery in Columbus, Mississippi, and much of the EPA’s 2013 target rests on its shoulders. Ineos Bio recently announced a first-batch shipment from its Vero Beach, Florida, refinery. The other three are expected to bring their refineries online by mid-2014.

Why’s it taking so long? Refining ethanol from corn kernels is easy. It’s essentially like distilling grain alcohol, something humans have done for millennia. Refining biofuel from the rest of the corn stalk has been done in science labs, but never on an industrial scale. Today’s biorefineries are attempting a massive scale-up, leaping from small pilot plants to 10-million-gallon commercial facilities. Even the backing of a deep-pocketed parent like DuPont or Abengoa can’t rush the process. At an industry conference earlier this year, I asked Peter Williams, the CEO of Ineos’s bioenergy subsidiary, why it was taking so long to produce fuel at his company’s Vero Beach plant. “It took us four years to build it,” he said. “Now we’re figuring out how to drive the machine.”

Even with a more realistic target, the industry is almost certain to come up short this year. The EPA expects Kior to produce 5 million of the 6 million it projects for 2013, but the company recently announced that 1-2 million gallons were more likely. The disconnect is a result of the EPA’s rulemaking process, which operates in a timeframe of months, versus Kior’s experience with its refinery in Columbus, Mississippi, where engineers encounter success and setback on a day-to-day, week-to-week basis.

It’s imperfect, but the EPA’s more realistic 2013 cellulosic target will give Kior, Ineos Bio, and other biorefiners the time and space needed to get their machines humming.

Bruce Barcott’s feature story on the cellulosic biofuel industry will appear in the Fall 2013 issue of OnEarth. Look for it online next week.

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