Up in the Air

The Energy Independence & Security Act of 2007 was passed in December, and the U.S. EPA is scrambling to meet its December 2008 deadline to issue the rule. Answers to the myriad of questions on the rule's details will have to wait until then.
By Anduin Kirkbride McElroy | May 09, 2008
The ethanol industry has received more than its fair share of scrutiny in the past few months regarding the fuel's sustainability and emissions profile. Even cellulosic biofuels have been criticized for their potential to cause greenhouse gas emitting land use change. While industry experts, scientists, environmentalists, petroleum representatives and the media debate the merits of every argument, the federal government finds itself asking similar questions. It has been only six months since the passage of the Energy Independence & Security Act of 2007, and the U.S. EPA has just six more months to resolve major questions about the greenhouse gas emissions reduction requirements that are included in the bill. The EPA is required to develop a federal rulemaking on the 310-page document by Dec. 19, 2008, and make it effective Jan. 1, 2009.

Just as the Energy Policy Act of 2005 was heralded as a boost for the ethanol industry, EISA has been promoted as the catalyst for advanced biofuels, cellulosic biofuels and environmental sustainability criteria. "While the RFS (renewable fuels standard) program established under EPAct 2005 provides a solid foundation from which to begin developing the new regulations, EISA includes new elements which add complexity to the program," said Robert Meyers, principal deputy assistant administrator for the EPA office of air and radiation, in his testimony to the Senate Committee on Energy and Natural Resources in February. The new bill raised the bar for all renewable fuel; it increased the new RFS to 36 billion gallons per year by 2022. It differentiates between starch-based ethanol and other feedstock sources, capping conventional biofuel (starch-based ethanol) at 15 MMgy in 2015, thus requiring that other fuels fill the gap and eventually take over for what's often been called a transitional fuel.

EISA Renewable Fuels Standard
The reason for the advanced biofuel and cellulosic biofuel requirement (beyond the limitations of corn acreage) is to improve greenhouse gas emissions. In order to qualify as "cellulosic biofuel," the renewable fuel's lifecycle greenhouse gas emissions must be at least 60 percent less than baseline lifecycle greenhouse gas emissions of the gasoline or diesel fuel it replaces. Cellulosic biofuels are part of a broader group of "advanced biofuels" that require a 50 percent reduction. EISA also requires starch-based ethanol to clean up its act. Renewable fuels must now meet a 20 percent lifecycle greenhouse gas threshold relative to the gasoline or diesel fuel they displace.

It's possible that these percentages were derived from previous EPA calculations of fuel emissions reductions. In April 2007, the EPA released a fact sheet, "Greenhouse Gas Impacts of Expanded Renewable and Alternative Fuels Use." The EPA used the Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model of lifecycle analysis to estimate the percent change in lifecycle greenhouse gas emissions, relative to the petroleum fuel that is displaced, of a range of alternative and renewable fuels and then compared them on an energy equivalent basis. Under this analysis, a typical existing starch-ethanol plant qualifies under the EISA regulations; the EPA found that for every British thermal unit (Btu) of gasoline that is replaced by corn ethanol, the total lifecycle greenhouse gas emissions that would have been produced from that Btu of gasoline would be reduced by 21.8 percent. The percent change in greenhouse gases for corn ethanol can range from a 54 percent decrease for a biomass-fired dry-mill plant to a 4 percent increase for a coal-fired wet-mill plant. Sugar ethanol, which is considered an advanced biofuel in EISA, had a 56 percent reduction and cellulosic ethanol had a 90.9 percent reduction.

In April 2007, the U.S. EPA analyzed the greenhouse gas emissions of alternative and renewable fuels, using the GREET model. The results were published in the fact sheet, "Greenhouse Gas Impacts of Expanded Renewable and Alternative Fuels Use." According to the EPA, "This chart represents the best available information about current or projected production practices and the impact of those practices on lifecycle greenhouse gas emissions."

It's important to note that these calculations may not matter under the final rule. Each of the fuel definitions in the legislation includes the caveat that the lifecycle greenhouse gas emissions criteria will be determined by the administrator and opened for comment. The bill doesn't specify the models or mechanisms to be used. "The agency has done a substantial amount of work on lifecycle analysis over the past year, and has made significant advances, honing the overall methodology, updating data inputs and including new inputs for land use, in particular from corn production," Meyers said. "However, even with these advances, additional new and improved analyses will be necessary to implement the statute's lifecycle greenhouse gas performance standards. Given our experience in this area and the statute's utilization of lifecycle greenhouse gas performance standards as part of the definitions of different renewable fuels mandated in the act, we would anticipate extensive comment from all stakeholders on both lifecycle analysis inputs and methodology."

Paul Machiele, fuels center director for the EPA's office of transportation and air quality, agreed that determining the lifecycle performance of each fuel and accounting for factors such as emissions resulting from international land use changes will require significant effort from the EPA. "The most challenging issue is going to be direct and indirect land use change impacts, in my opinion," says Michael Wang of the U.S. DOE's Argonne National Laboratory and the brain behind the GREET model.

"Any lifecycle calculation will be a very contentious process," says Kevin Book, senior analyst for Friedman, Billings, Ramsey & Co. Inc. an institutional brokerage, research and investment banking firm. "It's a major hot button. The notion of lifecycle analysis is understood in the abstract but it's not articulated in law in any finite way. Everyone will agree that there's a way to go from the well to the wheels for liquid fuels, but not everyone agrees on the same way."

Therein is the rub. Depending on whose numbers are used, ethanol either has a good or a bad emissions profile. "We're sure that EPA will be the arbiter," Book says. "There's no uniformly agreed upon international standard. Debate has careened from one extreme to the other—from ethanol is salvation to a growing suspicion that ethanol is damnation." Science across the spectrum will likely be used to influence what criteria will be used to measure greenhouse gas emissions.

Can this contentious debate, which is ricocheting through the international media, be resolved in the next few months so the EPA can write this rule? Because this legislation preceded enactment of federal greenhouse gas regulations it presents a major challenge for those writing the rule. "I would suggest this puts the FFV (flexible-fuel vehicle) before the horse," Book quips. "It's a regulatory challenge. Articulating these standards with no guidance from the administration, and prior to codification of lifecycle is going to be unclear unless we have swift codification somewhere else. If they establish standards under administrative law and those standards are overruled or obviated by subsequent law, you're going to have conflicts with businesses predicated on these standards." In light of this, Book says the EPA could defer judgment until it has an informed basis for decision making.

More Questions
There are many more questions about the scope of the rule as it relates to greenhouse gas reductions that the EPA is evaluating. How does this rule apply to imported fuel? To whom will these standards specifically apply? According to the legislation, facilities that have commenced construction prior to the enactment of EISA are exempt from the 20 percent emissions reduction requirement. Machiele told attendees at the 2008 National Ethanol Conference that "commenced construction" has yet to be defined, meaning that plants in development may or may not be exempt. Based on other energy policies, Book says, "The earliest it could be is the first time you spent money, and the latest could be the first time you broke ground." Another issue Machiele said that is yet to be determined, is what changes to an existing starch-ethanol plant—expansions, feedstock changes, energy source changes—warrant it to fall under the new 20 percent emissions reduction requirement.

So what happens if a plant doesn't meet these emissions reductions requirements? "The requirements are enforced by the EPA, which accepts renewable identification numbers for compliance purposes," Book says. "You might be able to produce and sell ethanol, but you might not be able to earn RINs for compliance purposes." The compliance onus is on refiners, blenders and importers, who must own a certain number of RINs to comply with the RFS and may be less inclined to purchase renewable fuel that is not attached to a RIN.

Mandatory emissions reductions requirements may eventually affect how ethanol plants are handled in carbon trading markets. Right now, a plant could theoretically get credit for voluntary emissions reductions, which is called additionality. For example, Corn Plus LLLP was able to qualify for carbon credits on the Chicago Climate Exchange because it voluntarily reduced its natural gas consumption through the use of a biomass gasification system. Will the requirement of emissions reductions negate a plant's ability to qualify for emissions reductions credits? Book says these questions are premature, as the United States doesn't have a federal carbon regulatory market. "The Chicago Climate Exchange, while a clear pioneer in U.S. voluntary markets, is not the final arbiter of additionality," he says. "They may have determined that they were going to admit something like a biomass boiler for an ethanol plant, but there's no guarantee that federal law will admit it."

Because the time is so short between when the rule is issued and when it must go into effect—just two weeks—there is considerable interest in knowing what's being developed in advance of the rule's issue. All plants in development need to know what will be required in order to be recognized as having reduced greenhouse gas emissions. It will be of particular interest to plants considering a source of energy other than natural gas. Indeed, the entire industry wants to know how these percentages were arrived at, how they will be defined and how those definitions will affect new construction—and ultimately the future of the industry.

The answers to these and other questions are in deliberation right now. The effect of this legislation on this industry could be great, but those who are in a position to forecast details on just how great cannot comment. As usual, while it's in the rulemaking process, the EPA is mum on details of the rulemaking, as are those who are working with the agency. Several sources contacted for this story declined to comment, as there is no public information available. The EPA says it is working diligently to gather stakeholder input. However, information on stakeholder meetings was also not available at press time.

What was available was a sea of information ready to influence the formation of this rule. Perhaps it's coincidental, or perhaps it was inspired by EISA, but discussion of ethanol's greenhouse gas emissions has dramatically increased in the past few months. Stakeholders who will comment on this rule include all kinds of special interests who are opponents and proponents of ethanol, as well as the majority looking for a way to responsibly develop a renewable fuel.

Meyers, the EPA administrator, assured the Senate committee that his agency would draw from its experience in developing the original RFS regulations, and that stakeholders would be involved. The challenge for the ethanol industry is to participate as a stakeholder, as it did before.

Anduin Kirkbride McElroy is an Ethanol Producer Magazine staff writer. Reach her at amcelroy@bbibiofuels.com or (701) 738-4962.