Senate energy committee explores biofuel infrastructure expansion

By Kris Bevill | April 07, 2011

The Senate energy committee held a two-hour hearing April 7 to discuss proposed legislation to expand the domestic biofuels market, but expanded its scope through testimony and committee member questions to cover nearly every major issue related to biofuels production and market expansion.

Committee Chairman Jeff Bingaman, D-N.M., expressed cautious optimism for biofuels expansion during his opening statement. While domestically produced biofuels “are the best near-term option for replacing oil,” he is concerned that infrastructure built to support biofuels will become obsolete when drop-in fuels such as algae-based biocrude or biobutanol are ready for the market.

Sen. Tom Harkin, D-Iowa, testified in support of the Biofuels Market Expansion Act of 2011, a bill he co-sponsored that would mandate flex-fuel vehicle production, require one half of all U.S. gas stations to install at least one blender pump by 2020 and offer a federal loan guarantee for a biofuels pipeline. He reminded committee members that ethanol is a viable fuel replacement now, whereas drop-in fuels will not be commercially ready for perhaps 20 years. “By all means, we should continue apace with the development of drop-in fuels, but this is not an either-or proposition,” he said. “Until drop-in fuels are commercially viable, we should continue to support ethanol.”

To that end, Harkin testified that the biggest challenge facing the ethanol industry is marketplace expansion. The Biofuels Market Expansion Act, which has been co-sponsored by Sens. Tim Johnson, D-S.D., Amy Klobuchar, D-Minn., and Al Franken, D-Minn., addresses the marketplace and infrastructure challenges associated with supporting the expansion of biofuels, he said. However, he expressed a willingness to modify the bill if more broadly acceptable provisions are presented and said he agrees that the entire policy framework for biofuels, including ethanol tax incentives, deserves to be revised. “I understand that the ethanol industry intends to propose biofuels policy reform, including possible reductions in tax credits for ethanol coupled with provisions to support market expansion. I think that’s commendable,” he said. “I only wish that other industries would do the same—including the oil industry, which is getting very lucrative and unnecessary subsidies.”

Renewable Fuels Association President and CEO Bob Dinneen told committee members that his group supports Harkin’s bill. “At a minimum, federal policies should maintain and extend existing tax incentives for higher level ethanol blends to allow for continued growth, expand tax incentives for refueling infrastructure, and create new consumer-based tax incentives to encourage the purchase of FFVs,” he said. “The RFA supports legislative action to require a percentage of new vehicles sold in the U.S. be flexible fuel capable. Further, the RFA supports legislation requiring the installation of higher level ethanol blends refueling infrastructure.”

Dinneen also again urged the U.S. EPA to expand its E15 waiver approval to include all passenger vehicles and encouraged Congress to restore funds to the U.S. DOE loan guarantee program and re-tool the program to make it more effective for advanced biofuels expansion projects.

Bill Brady, CEO of cellulosic ethanol firm Mascoma Corp. and chairman of the recently formed Advanced Ethanol Council, took the witness stand to represent the advanced biofuels industry and told committee members that, without continued federal policy support, many advanced biofuel companies will not make it past the so-called “valley of death” to reach commercialization. He highlighted three areas of federal support that he said are critical for continued advancement of the industry: the DOE loan guarantee program, the renewable fuel standard (which includes the cellulosic biofuels production tax credit), and infrastructure expansion. “Investors are very aware of the limitations of the existing blend wall,” he said. “While EPA, with the support of DOE and other agencies, have spent significant time working to approve increased ethanol blends in the existing automobile fleet from E10 to E15, focus needs to shift to removing infrastructure hurdles preventing the use of even higher ethanol blends in the future.”

Representatives from the automobile manufacturing industry and the National Association of Convenience Stores were also on hand to offer their respective views on expanding the biofuels market. Both were somewhat skeptic of public demand for increased ethanol blends. “In 2008, Minnesota had 364 stations with an E85 pump, but on average, FFVs in the state used less than one full tank of E85 each for the whole year,” said Shane Karr, vice president of federal government affairs for the Alliance of Automobile Manufacturers. “The data suggests that widespread market penetration of biofuels is not as simple as it is sometimes portrayed.” Karr said the automobile industry opposes an FFV mandate for a variety of reasons, but admitted many of the companies have been manufacturing all flex-fuel models for Brazil for some time and said there are no technical hurdles preventing manufacturers from doing the same for the U.S. He also expressed a willingness to reconsider

John Eichberger, vice president of government relations for NACS, testified that his organization does not support the bill because, while it attempts to alleviate financial constraints to retailers brought on by infrastructure changes, it does not consider that companies that will incur the cost of the infrastructure expansion, namely refiners, will pass the financial burden down to retailers. He presented a variety of suggestions to alleviate risk and financial burden for retailers, including allowing existing equipment to be re-certified as compatible with new fuels and determining a fuel specification for the future in order to allow engine and equipment manufacturers to produce products designed to use the fuel.

Committee members for the most part seemed engaged in the discussion and many expressed a willingness to do what is necessary to continue to reduce the nation’s dependence on foreign oil by way of biofuels expansion. Sen. Maria Cantwell, D-Wash., asked panel members if alternative fuel sources would drive down the price of gas if the nation’s fleet were expanded to include more FFVs. Dinneen said ethanol is already reducing the price of gas in the U.S. by an estimated 15 cents per gallon and added that expanding the availability of FFVs, and therefore market potential for alternative fuels, would help to insulate the country from future oil price shocks. “So, the faster we can go on that, the more we’re going to see a drop in gasoline prices?” Cantwell asked. “I think that’s the headline for today. I personally think the era of cheap oil is over and that all we are now is on the roller coaster. So we need to figure out whether we’re going to allow the U.S. economy to be subject to that volatility or whether we’re going to produce something that is going to take that monopoly and give it some competition.”