(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON Nov 1 BP's decision to scrap plans for a
U.S. cellulosic ethanol refinery is a setback for second
generation biofuels and opens the door to alternatives including
Brazilian sugar ethanol, biodiesel and electric vehicles.
The United States wants to cut dependence on foreign oil
through a combination of more domestic oil drilling, improved
vehicle fuel economy and local alternatives including biofuels,
gas and electricity.
Biofuel makes by far the biggest contribution from
alternative fuels, projected to account this year for 9.23
percent of non-renewable gasoline and diesel by volume.
Cellulosic biofuels, made from non-food crops, were supposed
gradually to supplant corn ethanol in the United States, as an
alternative to help lower carbon emissions.
Made from raw plant biomass rather than cereal grain, they
have been dogged by the cost of breaking down cellulose into
sugar and by unreliable feedstock sources.
As a result, registered cellulosic ethanol production until
this year was zero a nd it seems is likely to miss mandated
blended volumes for years to come.
U.S. cellulosic biofuel sales (EIA, page 21):
Existing cellulosic projects (EIA, page 22):
Cellulosic ethanol has fallen far behind mandated blending
targets since these were launched in 2010, partly because these
were so ambitious from a standing start for an untested
technology in the teeth of a financial crisis.
The Environmental Protection Agency (EPA) downgraded this
year's blending requirement to just 10.45 million
ethanol-equivalent gallons, nearly 490 million gallons short of
the 500 million mandated volume.
The U.S. Energy Information Administration last month cast
doubt on even that: "Production of cellulosic biofuel in 2012 is
likely to be well short of the reduced 2012 requirement," it
said, in its report, "Biofuels Issues and Trends".
EPA will announce the revised cellulosic target for 2013 by
the end of this month.
The U.S. Renewable Fuel Standard (RFS), expanded under the
Energy Independence and Security Act (EISA), sets biofuel
targets for minimum blending until 2022.
The target is split between conventional and advanced
biofuels, defined according to how far the fuels cut greenhouse
gas emissions compared with conventional gasoline.
Advanced biofuel includes sugarcane ethanol, biodiesel and
Cellulosic biofuel has its own mandate, within advanced
biofuels, to make up almost half total, mandated annual biofuel
consumption of 36 billion gallons by 2022.
The trouble is that cellulosic ethanol has failed to live up
to those projections.
BP's cancellation last week of a planned refinery in
Florida is a blow as it was to be the biggest cellulosic ethanol
plant, with production of 36 million gallons annually from the
end of 2014.
Remaining commercial-scale plans total about 100 million
gallons annual production in the next year or two.
Presented with a cellulosic shortfall, the EPA has the
option either to cut wider biofuel mandates by the same amount,
or allow other biofuels to make up the difference.
The regulator makes no secret that it expects to maintain
overall biofuels targets, and for advanced biofuels and
especially Brazilian sugar ethanol to make up a large part of
"The most likely sources of additional advanced biofuel
would be imported sugarcane ethanol and additional biomass-based
diesel," it said in January, in its 2012 RFS ruling.
"We believe that the broader view of historical data on
sugarcane ethanol imports supports our view that Brazil has
significant export potential under the appropriate economic
EPA argues that a significant shortfall will raise the price
of tradable renewable identification numbers (RINs), until now
in surplus, and so raise the price paid to biofuel producers.
Fuel blenders collect RINs with each gallon of biofuel they
buy and must submit them at the end of each year enough to show
that they have blended the required share of biofuel.
If they blend more biofuel than they have to, then they can
keep the RINs for future compliance or to trade.
The wider, advanced biofuel quota is scheduled to grow
rapidly, under the EISA act, to 5.5 billion gallons i n 2015, of
which 3 billion is supposed to be cellulosic ethanol.
It would take extraordinary growth for cellulosic production
to reach 500 million gallons (from zero registered production
last year), and that would still leave 5 billion gallons to be
met by biodiesel and imported, mostly Brazilian, sugar ethanol.
EPA forecasts biodiesel blending next year of 1.28 billion
gallons, equivalent to nearly 2 billion gallons of ethanol
because it has a higher energy content.
Yet total U.S. ethanol imports have averaged 348 million
gallons annually over the last six years, and reached an
all-time high of 731 million gallons in 2006, EIA data show.
One alternative gap filler not yet explored are electric
vehicles (EVs), where these are powered by electricity generated
from burning biomass.
While it is not simple to prove the origin of the
electricity used to charge an EV battery, the potential reward
from higher RIN prices could make this worthwhile.
"Expected increases in the number of ... electric vehicles
and plug-in hybrids has the potential to dramatically increase
the degree to which electricity is able to be used as a
transportation fuel," EPA said in January.
"Verifying that the renewable electricity produced is used
as a transportation fuel would still remain a challenge, however
the potential for capitalizing on the RIN value ... may be a
large enough incentive to overcome this challenge."
Other policy options include cutting cellulosic mandates or
terminating the entire RFS, given wider problems which include
possible impacts on food prices and the problem of a "blend
wall" where not much more biofuel can be blended anyway using
existing refuelling infrastructure.
Meanwhile, waiting in the wings is compressed natural gas,
the cheapest available road fuel (before accounting for added
vehicle and infrastructure costs) and a potential new use for
burgeoning shale gas.
(Reporting by Gerard Wynn; editing by Jason Neely)