EPA finalizes 2011 RFS volumes

By Kris Bevill | November 15, 2010
Posted Nov. 29, 2010

On Nov. 29, the U.S. EPA finalized the volume requirements for next year's renewable fuel standard (RFS), reducing the requirements for cellulosic biofuels while maintaining the overall volume requirement.

The EPA said in the final rule it has determined that 6.6 million gallons of cellulosic biofuel, equivalent to 6 million gallons of ethanol, is a high enough target to provide incentive for growth within the industry but low enough to balance the uncertainty surrounding actual production levels. "The task of projecting the volume of cellulosic biofuels that could be produced in 2011 is challenging," the EPA stated in its ruling. "Announcements of new projects, changes in project plans, project delays and cancellations occur with great regularity. Biofuel producers face not only the challenge of the scale-up of innovative, first-of-a-kind technology, but also the challenge of securing funding in a difficult economy."

The EPA's proposed cellulosic biofuel volume, released this summer, targeted a range of between 5 and 17.1 million actual gallons of cellulosic biofuels for next year's RFS. Six U.S. producers and one Canadian company were initially pegged to contribute cellulosic ethanol next year. In the final rule, the EPA said it now expects only four companies to produce cellulosic biofuels next year - DuPont Danisco Cellulosic Ethanol LLC, Fiberight LLC, KL Energy Corp. and Range Fuels Inc. Newly mentioned in the final rule is potential cellulosic diesel fuel producer KiOR, which the EPA believes could also contribute to next year's cellulosic requirements.

In order to reach its final cellulosic volume requirements, the EPA combined the U.S. DOE's Energy Information Administration actual volume projections with its own evaluations of what volumes are potentially attainable. In October, the EIA suggested that actual cellulosic biofuels production next year is likely to be 3.94 million gallons, far shy of the EPA's final requirements. The EPA indicated in its rule that it views the EIA's prediction as a floor for production amounts next year and the EPA's 2011 RFS requirements are meant to provide assurance that there will be a market for additional cellulosic biofuels if they come online. "By basing the 2011 cellulosic biofuel standard on the attainable volumes rather than discounting project volumes to account for uncertainty, we aim to avoid the undesirable scenario in which cellulosic biofuel production exceeds the mandated volume," the EPA stated. "Such a scenario would result in weak demand for cellulosic biofuels and RINs [renewable identification numbers]."

The EPA set a price of $1.13 for each 2011 cellulosic biofuel waiver credit, based upon an average gasoline price of $1.97 per gallon over 12 months. Waiver credits for 2011 will only be allowed to be used to meet 2011 cellulosic biofuel requirements and may not be used to meet advanced biofuel or total RFS requirements, unlike cellulosic biofuel RINs.

The EPA also addressed fuel pathways in its final ruling and said it is continuing to evaluate certain pathways and fuels. There is currently no pathway for methanol to generate cellulosic RINs, which is what Range Fuels is currently producing at its Soperton, Ga., facility. The EPA said it has engaged Range Fuels to discuss adding a pathway for its cellulosic methanol. "For the purposes of projecting cellulosic volumes for 2011, we believe that the methanol from Range Fuels has the potential for being approved for generation of cellulosic RINs and is therefore appropriate for being included in the volumes that we believe are potentially attainable in 2011."

Over the course of the commentary period, several commenters suggested that the EPA should lower the overall RFS to match a reduction in anticipated cellulosic biofuel volumes. The EPA did not agree with those suggestions and is maintaining an overall volume requirement of 13.95 million gallons. The agency also said it believes there is a sufficient amount of advanced biofuels available, including biodiesel, renewable diesel and sugarcane ethanol, to maintain the initial 1.35 billion gallon requirement. Therefore, the EPA also does not agree with suggestions made by the ethanol industry that seek to allow corn ethanol to make up for any potential shortfall of advanced biofuel production and will not allow corn ethanol to be used for that portion of the RFS. "As a result, the demand for corn ethanol will not be greater as a result of today's action than it would be if all applicable volumes as specified in the statute were used in deriving the 2011 standards," the EPA stated in its final rule.

While the final 2011 cellulosic biofuel volume is drastically less than the original statutory goal of 250 million gallons, the EPA said it "remains optimistic" that the industry will continue to grow. It said it is currently tracking more than 20 facilities representing more than 300 million gallons of production scheduled to come online in 2012.