We have just learned that late yesterday the Office of Management and Budget (OMB) within the White House has completed its review of the pending Renewable Fuels Standard proposed rulemaking (”RFS 2″). So now it’s a matter of time (yes, more time) before the proposed rule finally comes out for public comment. Stay tuned folks!
In what seemed to me anticlimatic and predictable as an observer of an all-day long (and it was long, folks, it was long) hearing, the California Air Resources Board (CARB) yesterday approved the Low Carbon Fuels Standard (LCFS) rulemaking as proposed by staff virtually unchanged and with some elements yet to be determined (e.g. credit trading, sustainability criteria, some outstanding carbon intensity values). No one can possibly be surprised at the outcome, although I am surprised that there was one holdout at all in the 9-1 vote (Board Member John G. Telles, M.D., who also took pains to tell the staff the rulemaking is incomprehensible and impossible to read).
Because I just did a more serious analysis and report for the GBC and our International Fuel Quality Center members, and it’s Friday, here’s a more lighthearted look at comments made at the hearing. I can sum up comments from the stakeholders and a couple of my own reactions quite succinctly as follows:
And thus it went, in short form, the hearing for what I agree was a historic endeavor into unchartered waters with the LCFS rulemaking. As Chairman Mary Nichols said to staff and the board, “We’re at the end of the beginning.”
A new study highlights a “sleeping giant” for biofuels around the world: infrastructure. According to the Biofuels Infrastructure Task Force, convened by the National Commission on Energy Policy (NCEP), which examined the infrastructure implications of the U.S. RFS, implementation of the new standard will stress existing infrastructure. The task force notes that new investments will be required at every step in the distribution chain and current public incentives and subsidies should be refocused to include a greater emphasis on biofuels transport, refueling infrastructure, and related vehicle technologies. Loan guarantees or tax credits could be effective ways to support needed infrastructure investments.
The task force suggests that while U.S. biofuels policy has emphasized production and blending incentives, going forward such incentives might need to include infrastructure. Couldn’t agree more! Infrastructure has been a major factor delaying implementation of biofuels programs in a number of countries around the world, most recently, Jamaica. The issue is more critical for developing countries.
Another key recommendation concerns market confidence. The task force notes, “Market confidence in the government’s commitment to the RFS is a prerequisite for timely private large-scale biofuels investments.” Governments absolutely have to provide certainty to market players by establishing a long-term regulatory pathway (the rules of the game) for biofuels implementation. That has not been experienced in the U.S. with the RFS which has been revised twice by Congress and the proposed rulemaking to implement the latest version stalled within U.S. EPA. The uncertainty created has no doubt impacted the biofuels markets here.
This morning I got advance notice from EPA that the Agency would be publishing the Growth Energy E15 petition in the Federal Register for comment. Head’s up folks! As discussed previously, the petition was submitted last month and EPA will be required to make a decision on the petition within 270 days of receipt, which will be Dec. 1, 2009.
The notice provides the process for submitting comments, and briefly describes the waiver request. Once published in the Federal Register (expected around April 22, 2009), the comment period will be open for 30-days. The EPA must render a decision on the waiver by Dec. 1, 2009.
EPA notes several potential outcomes following a scientific and technical information review that could include the following:
EPA concludes that any approval, either fully or partially, is likely to elicit a market response to add E15 blends to E10 and E0 blends in the marketplace, rather than replace them. Thus consumers would merely have an additional choice of fuel. I wonder if the waiver will include a combination of both options!
Our editor, Louise Poirier, author of our recent Special Report on Bio-derived Alternative Jet Fuels, opines on what she learned in the course of preparing the report for the GBC membership:
For years now, ethanol and biodiesel have successfully wiggled their way into mainstream fuel mixes around the world - yet no alternative fuels have really had the same kind of success in aviation. Granted, jet fuels are significantly harder to develop alternatives for because of the need for a very low freeze point and very high energy content, but alternative jet fuels are still in research and testing stages.
In my discussions with members of the industry, it seems like things are heading in the right direction though. I’ve heard that the only alternative jet fuel that is viable on any kind of scale is Sasol’s synthetic coal-to-liquids jet fuel that is currently available in South Africa. We’ve also got UOP and the University of North Dakota amongst the wide range of folks researching and developing renewable biojet fuel, and ASTM is even in the process of creating a whole new specification just for synthetic and biojet alternatives. These are all great signs for the aviation industry.
But it still seems like these fuels are not really getting the attention they need when it comes to getting policymakers and other stakeholders to take serious interest. Sure, you’ve got organizations like CAAFI, ATA and IATA paving the way with some of those folks, but the fact remains that nowhere in government policy today is there any kind of requirement specifically for alternative jet. And this is a shame. Alternative jet offers the same kind benefits that other alternative fuels aim to provide for other modes of transportation. Joe Kocal, head of renewable jet fuel program from the research and development [R&D] department at UOP pointed out that “One is just to increase the volume of fuel available to keep prices steady; and second, just getting away from petroleum dependence; and lastly, the energy security issue.”
An article from USA Today back in January stated that “The U.S. government, environmentalists and even the big oil companies are working together to develop alternative fuels from these and other sources. Their goal: to replace a significant portion of the 19 billion gal of kerosene that U.S. carriers burn in their planes each year and to do it by the end of the next decade. If they succeed, airlines will reduce their carbon footprint - and save big money that could possibly help hold down fares.”
So although we’re hearing great things about alternative jet, it still seems to me like it’s the next ‘always five years away’ kind of thing, sort of like hydrogen. If the certification process manages to go through without a snag over at ASTM, alternative jet would definitely be ready for fleet usage as soon as the end of this year. But where are these fuels going to be made? Who will make them? And where are the feedstocks and resources and policy measures that will help get these fuels made on a commercial scale? They’re definitely not around right now. And besides that, the aviation industry uses a staggering amount of fuel every year - in 2007, 5.1 million barrels of jet fuel were used per day, according to ATA’s Web site - so it’s going to take a lot of alternatives to make a dent on those kinds of numbers. This kind of transition would require a tremendous movement by industry and government around the world to truly take off.
Yes, I absolutely agree that it’s possible that alternative jet fuels will be viable in the next five years or so, but I don’t think that we’ll really be coasting around the world in planes fueled entirely by things like algae and chicken fat for a while beyond that. Even with all the fantastic research, brilliant processes and passionate advocators out there on alternative jet’s side, we just don’t have the means to do it yet - but we need to get there and it looks like we definitely will (given some more time, of course).
Our research analyst in Asia, Lucky Nurafiatin, shares some thoughts about the jatropha and biodiesel in India and Indonesia:
A few years ago, jatropha was the “hot” feedstock (before algae) that would rescue the ailing biodiesel industry. This week, however, D1 Oils, one of the leaders in developing jatropha as an energy crop, noted jatropha is not a “miracle crop“. I noted this last October in a Special Report to our GBC members last year on jatropha in biodiesel, and I heard the same from policymakers, petroleum companies as well as biodiesel producers first-hand on my recent travels to India and Indonesia.
In India, for example, the government actually plans to boost biodiesel production with non-edible feedstocks such as jatropha and pongamia. In 2005-06, the Ministry of Rural Development provided financial support to nine states for planting 180 million jatropha and pongamia seedlings. In 2006-07, support has extended to additional 18 states for planting the same number of seedlings. The Indian government has assigned approximately 20 million hectares of wasteland to promote plantation of jatropha curcas and pongamia. This would mean potentially 6.4 million kiloliters (16.9 billion gallons) of biodiesel produced every year. However, the current condition of jatropha plantations is not as fruitful as it is promised.
My source at Indian Oil Corporation told me that several jatropha farmers approached oil companies and asked them to buy their jatropha seeds. The farmers seemed to have a very limited understanding of what they were supposed to do with it. From a total of approximately 290 million seedlings that were planted in 2005-07, around 50% did not survive. Seed-crushing facilities have considerable over capacity and are now suffering from material-supply and cash flow problems. Biodiesel plants are not in full production and some even have ceased production altogether. At this time, only a handful plants are producing biodiesel and marketing their product mostly for export.
The gloomy situation at jatropha plantations is not only happening in India. Other countries such as Indonesia are also facing the same situation. The farmers have now left their plantations because they cannot sell the seeds, while biodiesel industries in the country are also facing hard times. Currently, although Indonesia has mandated the use of biofuel (E1 and B1) nationwide, biodiesel blending is still very rare. National oil company Pertamina is hesitating to move on with this mandate as they face further losses in the purchase of biodiesel. The government proposed a Rp. 1,000 (US$0.087) subsidy per liter of biodiesel to the House of Representatives earlier this year, but it was rejected. At this time, a few biodiesel plants are still producing both for local and export markets. However, with the local market price dictated by Pertamina and export markets facing sustainability issues, especially Europe, biodiesel industries in Indonesia are also facing an uncertain future.
However, it looks like the governments from both countries still want to push the biodiesel industry. Their vision to increase the income of poor people by developing this industry is still the main consideration. Perhaps the idea of producing biodiesel from jatropha would be more suited for producing electricity in rural areas where the current power generation infrastructure is not in place.
In a letter this week to EPA Administrator Lisa Jackson and OMB Director Peter Orszag, the Natural Resources Defense Council (NRDC) and the Renewable Fuels Association (RFA), make two good points with respect to the Renewable Fuels Standard (”RFS2″) rulemaking: transparency and expediency. The proposed rule, which should have been issued late last year, has been tied up in controversy for months now primarily over the indirect land use emission analyses conducted by EPA as part of the rulemaking process and under the direction of the 2007 Energy Independence and Security Act (EISA).
Of course, both organizations have had some role in helping to tie up the rulemaking for so long…The letter states, “…we urge you to move with all due haste to issue the RFS-2 Notice of Proposed Rulemaking, allow the public comment period to commence, and ensure transparence of your proposal by presenting the component values including the direct and indirect emissions.” You ain’t kiddin’! One of the biggest issues affecting every stakeholder and affected industry in the biofuels space is the lack of regulatory certainty. The longer the proposed rule is held up, the less likely the program will be implemented by January 1, 2010.
Fresh from the flood waters of North Dakota, I am dry, perched on high ground and ready to get back to the GBC blog! I get a lot of questions about the future for biofuels and whether there is one for both conventional and next generation, especially now that we find ourselves in the midst of a global economic downturn and with energy demand on the wane. How do we see it? What I usually say is yes, energy demand is down now, but over the long term will continue to grow, particularly as economic conditions improve (and they will!). Public policies will continue to support biofuels and the winners will be those that can improve their carbon footprint (either in production process improvements for first-gen or new next-gen biofuels technologies). As we see low-carbon fuels policies begin to take shape and get implemented in the next few years, demand for low-carbon, sustainable biofuels will increase.
I am not the only one who sees it this way. In a speech given today at the International Oil Summit in Paris, Shell CEO Jeroen van der Veer notes biofuels to be among the handful of viable options for delivering both energy and CO2 reductions in the coming years. Despite the drop in energy demand in 2008 and 2009, Shell still expects demand to double by 2050. Against this backdrop and in an increasingly carbon-constrained world and more carbon regulation right around the corner, what’s an oil company to do? For Shell, the strategy in part leans on sustainably-sourced biofuels. Mr. van der Veer notes that sustainably sourced biofuels could make a substantial contribution to reducing CO2 emissions, in contrary to recent debates over the issue. Second - and perhaps most important - sustainable biofuels are a “natural fit” with downstream capabilities in transport fuels.
Moreover, biofuels could grow from 1% of the world’s transport fuel mix today to as much as 7-10% over the next few decades, according to Mr. van der Veer. We think this is right and in line with our own internal analyses on global biofuels demand in the short- (2015) and long-term (2030). Shell ought to know also as the largest distributor of biofuels in the world.
What about sustainability? Mr. van der Veer says, “We can bring our weight and influence to implement sustainable practices and grow a sustainable biofuel supply chain. If sellers want to supply Shell, they must commit to work with us to develop a more sustainable supply chain. We will track their performance against the social and environmental safeguards we’re writing into their contracts. We also have a leading portfolio of next generation biofuels. This portfolio is comprised of research positions in conversion technologies and feedstocks, for example algae, and small-scale projects in production of these advanced biofuels with even more attractive lifecycle CO2 profiles.”
We agree with Shell. Every molecule is going to count and to meet the world’s long-term demand for energy - which will continue to grow - we will need “diverse energy” from all sources. It’s true that hydrocarbons will remain a key component in the world’s energy mix but the concern over carbon is going to continue to grow. As Mr. van der Veer puts it, “Against this backdrop, the oil and gas industry is in a race to reduce the CO2 wells-to-wheels intensity of oil. Progress in this area is important in order to make room for liquid fuels in the transport sector. Producer governments could help by promoting CO2 cap-and-trade mechanisms, CO2 capture and storage, and biofuels.” Count on them to do it.
 |
Copyright© Hart Energy Publishing, LP - Global Biofuels Blog 1616 S.Voss, Suite 1000, Houston, Texas 77057-2627 . Tel: +1.701.323.0417 . Fax: +1.713.840.0923 |
