GAO Review for Congress Offers Few Solutions for Advanced Biofuels

11.29.16 | Blog | By:

The GAO released a report this week finding it is “unlikely that the goals of the Renewable Fuel Standard (RFS)—reduce greenhouse gas emissions and expand the nation’s renewable fuels sector—will be met as envisioned because there is limited production of advanced biofuels to be blended into domestic transportation fuels and limited potential for expanded production by 2022.” There is substantial production of biodiesel and renewable diesel, but not for other advanced biofuels and cellulosic biofuels, to be clear. The GAO interviewed 24 experts of the National Academy of Sciences, industry representatives and consulted with EPA in preparing the report.

No one who has any familiarity with the RFS program would likely be surprised by the above finding.  We know what the problems are, which were also highlighted in the report:

  • Production costs: They are simply too high right now, particularly for cellulosic biofuels and drop-in fuels and the gap has only widened with the decline in oil prices over the last two years. Not only is this a deterrent for consumer uptake, it is also one for the investor community which was also burned by disastrous investments in companies that failed (in some cases, spectacularly, e.g. Kior).
  • Policy uncertainty: Experts interviewed by GAO cited uncertainty about government policy, including whether the RFS and federal tax credits that support advanced biofuels will remain in effect. One producer told the GAO that policy uncertainty has increased since 2013 when EPA used its waiver authority to reduce the RFS statutory volumes, causing investors to lose confidence and interest in investing commercial-scale plants. The figure below shows the discrepancy between the RFS volumes Congress originally legislated in the Energy Independence and Security Act of 2007 (EISA) and the volumes as actually set by EPA using its waiver authority under EISA as applied to advanced biofuels, cellulosic biofuel and biomass-based diesel.

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  • The high cost of converting cellulosic feedstocks: Experts told the GAO that conversion costs are a function of (1) the number of processing steps it takes to convert a raw feedstock to a fuel; (2) the difficulty of transporting and handling solid feedstocks as compared with liquid or gaseous feedstocks; (3) the difficulty of handling and disposing of waste products from the conversion process; and (4) infrastructure challenges associated with a plant’s location, such as access to a steady feedstock supply and rail lines to transport fuel.
  • Time horizon issues: Experts told the GAO that developing a biofuel technology and bringing it from laboratory scale to commercial scale may take 12 years if every step works out well, and could take considerably longer. One industry representative told the GAO it could take 15-25 years.
  • Time to get fuel certification and acceptance: One expert said that passing the EPA registration for a new fuel costs millions of dollars, while another noted that ASTM certification of a new fuel is a longer and more expensive process. Oil companies and vehicle manufacturers must also approve a new fuel before they will be willing to blend it for use in transportation fuels.
  • Underdeveloped feedstock supply chain: Without a developed commodity market for advanced biofuel feedstocks, producers must negotiate contracts with individual farmers, which is costly and time consuming.

I read this report because it said it would provide solutions and I’m interested in what those are. But few were provided to the report’s requestor, Senator James Lankford, Chairman Subcommittee on Regulatory Affairs and Federal Management Committee on Homeland Security and Governmental Affairs. I saw problem identification, noted above, and which are well known. I did not see much in the way of solutions, except for one suggestion. And that concerned putting a carbon tax or similar mechanism in place (like a LCFS) to overcome the oil price disadvantage noted above. That was all I could find. Surely that’s not the only one?

The topic of advanced biofuels, and what could be needed to more effectively support the industry, will be covered in more depth in an upcoming report of the Future Fuels Outlook service.

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