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Uncertainty clouds the future of biofuels

Rising use of biodiesel is hampered by uncertainty over rules from the US Environmental Protection Agency
<p>Rising use of biodiesel is hampered by uncertainty over rules from the U.S. Environmental Protection Agency.</p>
EPA delays its ROV decision in the Renewable Fuel Standard for 2014. The uncertainty has impacted the biodiesel industry, too. EPA&rsquo;s slow move on the renewable fuel standard is creating uncertainty.

Uncertainty over EPA’s final deci­sion on renewable volume obligations, or ROV, in the Renewable Fuel Standard for 2014 has clouded the outlook for biofu­els. At this writing in mid-October, the industry was still waiting to hear wheth­er the U.S. Environmental Protection Agency would reduce the conventional renewable fuel requirement from the stat­utory level of 14.4 billion gallons to 13.01 billion gallons. Also at this writing, EPA’s final rule was awaiting approval from the Office of Management and Budget.

After an extended comment period and multiple debates, EPA could make changes to the proposal it issued last year about this time. The reduction may not be as steep as originally proposed.

Wally Tyner, Purdue University agri­cultural econo­mist, says EPA could announce a level of 13.5 billion gallons or somewhat higher. The 13.01 billion-gallon level proposed last fall is considerably lower than the so-called blend wall, given that the Depart­ment of Energy has forecast an increase in domestic gasoline consumption, Tyner says.

Ethanol has been running an average of $1 per gallon less than gasoline over the last year, he says. “There is also po­tential to blend more E85 with the cur­rent infrastructure. Therefore, it would be difficult for EPA to justify just 13 bil­lion gallons.”

While the outlook for the domestic market remains cloudy, ethanol exports have been going well and could con­tinue to do so in 2015. Tyner attributes this in part to Brazil having reduced its export activity to keep up with domestic demand. “Moving forward, exports will depend on what happens around the world, as well as the weather in Brazil,” Tyner says.

On the home front, the ethanol industry would benefit if more E85 pumps would be installed on both the East and West coasts. Most of the coun­try’s 12 million flex-fuel vehicles on the road today belong to people living on either coast, Tyner says.

Longer term, Tyner says the outlook for drop-in aviation biofuels (not con­ventional ethanol) could be significant. This summer, the U.S. Department of Defense released its annual procure­ment plans for bulk fuels. The procure­ment requested military-specification diesel fuel and jet fuel to be blended with biofuels. The U.S. Energy Informa­tion Administration reported that the Navy’s interest in biofuels is part of its goal to generate 50% of its energy from alternative sources by 2020.

It also should be pointed out that Tyner has been working on a task force to develop estimates for the global po­tential of aviation biofuels out to the year 2050. “While not cost-competitive with fossil fuel yet, the technology for producing drop-in biofuels is progress­ing,” Tyner says. “This is important be­cause corn stover and other ag residues could be viable feedstocks for aviation biofuels and provide additional markets for farmers.”

Tyner added that United Airlines re­cently bought aviation fuel containing 3 million gallons of biofuels, and that Alaska Airlines is also testing it.

Biodiesel cutbacks

The loss of the biodiesel tax incentive at the beginning of the year combined with EPA’s proposal concerning the RFS has “created tremendous uncertainty resulting in a weak domestic market,” says Ben Evans, director of public af­fairs and federal communications, Na­tional Biodiesel Board. Many biodiesel producers have reduced production or have idled plants as a result.

“This could be reversed quickly if Congress restores the tax incentive, and the administration finalizes this year’s RFS rules with meaningful growth for biodiesel,” Evans says.

The Military Sealift Command fleet replenishment oiler USNS Henry J. Kaiser (left) deliv¬ers a 50-50 blend of advanced biofuels and traditional petroleum-based fuel to the guided-missile cruiser USS Princeton during the Great Green Fleet demonstration portion of the Rim of the Pacific exercise. The Navy’s interest in biofuels is part of its goal to generate 50% of its energy from alternative sources by 2020. Photo: U.S. Navy photo by Ryan J. Mayes

After a difficult five-year implemen­tation period, the RFS has been working as intended, Evans says. “It had finally hit its stride, with steady production gains over the last few years and a re­cord of nearly 1.8 billion gallons of bio­diesel last year. That has come to a halt, however, after the inexplicable proposal from EPA to cut biodiesel production under the RFS this year, even though it is the first advanced biofuel under the program to reach commercial-scale production nationwide.”

Evans adds, “It is difficult to make projections about 2015 until we know where things stand with the RFS. With stable policy, we do know the industry will continue to grow.”

He pointed out that successful imple­mentation of the RFS has spurred de­velopment in biofuels infrastructure at every level, from production to retail.

The U.S. market for biodiesel in 2013 was nearly 1.8 billion gallons with room to grow, Evans says. “That volume amounted to about 5% of on-road diesel use. With off-road markets like agricul­ture, construction, mining, railroads and others expanding their use of bio­diesel blends, the domestic market re­mains the primary destination for U.S. biodiesel.”

Biodiesel blends have made huge strides in the retail over-the-road truck market, Evans notes. “Love’s Truck­stops, one of the country’s largest truck stop companies, began offering B20 in virtually all of its retail locations nation­wide. This occurred with no changes to their infrastructure — including stor­age, blending and distribution equip­ment.”

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