Global Biofuels Blog

The CDM EB adopted a ground breaking methodology (ACM0017) in 2010 which allows for biodiesel production (not consumption) to be registered as a CDM project (generating CER) under the UNFCCC framework. This is a break from previous regulations and big step forward in recognizing the potential role of biodiesel in combating climate change. Not surprisingly, biodiesel¹ producers are optimistic about the positive impact of the new methodology in aiding the development of their industry.

The new methodology had various stringent criteria to ensure the GHG abatement potential of biodiesel from a life cycle perspective. Firstly, the feedstock for biodiesel production need to be from a new plantation on degraded/degrading land that has been dedicated to the production of biodiesel feedstock.  Secondly, this methodology is only eligible for biodiesel produced and used within the host country and for vehicles; it must be a captive fleet.  Lastly, stringent checks are expected at both the blending and consumption levels.

Looking deeper, the real benefit of the new methodology might not be as optimistic as most would have hoped for it to be. Dedicated plantations increase the business risks to plantation owners. Consumption criteria limit the market and stringent monitoring requirement add to business costs. The beneficiaries of this new methodology will most likely be biodiesel producers supplying to domestic public transportation, government vehicle fleets as well as hardy and locally consumed feedstocks that are more likely to grow on degraded lands such as jatropha. However, the eventual economic feasibility of this methodology in benefiting biodiesel production will depend on the relative cost of monitoring consumption and terra-treating of degraded land to achieve crop productivity and benefit that could be derived in the form of revenue from CER.

Furthermore, as this methodology is only applicable for blend levels above the mandated level in the host country, its adoption might somewhat have an impact on the implementation of biodiesel mandates in developing countries.

The Global Biofuels Center will analyze this issue further in its upcoming Special Report: Carbonomics 2 scheduled for release early 2010.

1) Biodiesel is defined as FAME produced by the esterification of vegetable and/or waste oil with alcohols from biogenic and/or fossil origin.

The Massachusetts Department of Energy Resources released this week its Program Design and Implementation Plan for implementing the biofuels mandate enacted under the Clean Energy Biofuels Act of 2008.  As previously reported by GBC (What’s New, July 28, 2008) the Act requires all home heating oil and diesel motor vehicle fuel sold in the state to include a 2% by energy content blend of advanced biofuels by July 1, 2010, increasing to 5% by energy content by 2013.

The most controversial aspect of the plan is a provision in which the department states that it will only accept Statement of Qualification Application forms (for purposes of compliance with the mandate) “for biofuels derived from waste feedstocks which, as defined and provided in the statute, are exempt from a detailed greenhouse gas reduction analysis, provided a preliminary analysis based on both CARB and EPA methodologies indicate such waste feedstocks will yield the 50% greenhouse gas reduction threshold in the Massachusetts law.”

The mandate has been postponed for a year and early action credits are permitted to encourage early compliance, but where the waste-oil biodiesel/heating oil will come from is anyone’s guess.  According to our production capacity database, there’s less than half a million gallons of capacity operating in Massachusetts right now, and less than 200 million gallons in the U.S.

Realistically, what is happening is the state is waiting for the RFS2 rulemaking to be finalized, including lifecycle assessment methodology, as well as for the state of California to conclude additional work in this area by the end of 2009 (for biodiesel pathways) so that it can utilize the methodology to assess whether advanced biofuels meet the thresholds established in the legislation (50% for diesel and heating oil substitutes).  Maybe a year’s delay brings the state that much closer to what it really wants: an LCFS…good luck with that!

As I noted in my last blog entry before a short summer hiatus, it would only be a matter of time before attention turned from the U.S. to other biodiesel producers and exporters, namely Argentina and Brazil.  It’s barely been a month and already the European Biodiesel Board is now “in dialogue” with the European Commission so that it can “react quickly” to evidence that U.S. and Argentinian producers and exporters are colluding so as to circumvent the recently imposed countervailing duties from the Commission.  Canada has been thrown into the mix as well.  Data from the International Trade Commission (ITC) through June 2009 suggests this is not the case.  Nevertheless, EBB maintains that there is an incentive to produce biodiesel in Argentina and export it to Europe because of the incentives available there which serve to undercut European biodiesel producers.

Canadian producers are now being watched also with EBB noting an increase in exports, but note there is no longer a federal excise tax credit or other advantageous incentives being applied that would impact exports to Europe.  The U.S. can export to Canada duty-free, which conceivably then re-export to Europe.  There is some evidence this could be the case as through June ITC data puts exports to Canada at approximately 761,000 gallons - hardly enough to foster a trade case!  What will it take to establish a level playing field for European producers, I still wonder?

As we reported to our members several weeks ago, today the European Union extended for five years countervailing duties on U.S. biodiesel imports that it initially set in March principally affecting larger companies such as Cargill and ADM.  The European Biodiesel Board told Reuters the new import fees would help re-establish a level playing field for European producers, claiming unfair U.S. competition has already caused some companies to go bankrupt or to quit biodiesel production.  I wonder about this…what happens when Europe begins to see imports from Argentina and Brazil?  Argentina’s biodiesel plants, idle since late last year, have recently started up again.  There goes the level playing field.

 On Friday the U.S. House of Representatives approved the American Clean Energy and Security Act (H.R. 2454) by vote of 219 yeas to 212 nays.  The comprehensive climate change and energy legislation, which serves to advance President Obama’s environmental agenda, was 1,500 pages in length with more than 200 amendments considered.  The Senate now plans to take up climate/energy legislation this fall.

With respect to biofuels, only the democrats “manager amendment” was approved during the floor debate of the bill.  Proponents of the legislation, Rep. Henry Waxman (D-California) and Rep. Edward Markey (D-Massachussets), along with the House leadership cut a deal with Rep. Collin Peterson (D-Minnesota) who vowed he would not support the bill and take other democrats with him unless the legislation included a provision restricting the consideration of indirect land use change (ILUC) GHG emissions provisions in the current RFS2 proposed regulation.  (Mind you, Rep. Peterson was a co-sponsor and voted for the VERY SAME legislation that included these provisions, the 2007 Energy Independence and Security Act, but nobody except me seems to be pointing that important fact out!)

Peterson got his way.  The ILUC provisions restrict EPA from incorporating ILUC impacts when determining GHG lifecycle emissions for biofuels at least over the next five years while federal government agencies study the issue (plus one additional year for findings to be considered by Congress).  It makes sense to me to take a step back and fully study the best and most appropriate methodologies for analyzing such a controversial and complex issue(s).  Will the Senate do the same?  Who knows.  We speculate that the legislation as a whole will be much more controversial in the Senate and thus less likely to pass (ILUC or not) - at least this year.  What does that mean?  ILUC provisions in the RFS2 will stay in the final regulation to be released late this year, and I’m guessing, without many changes. 

Ang Ding Li, our manager of Global Strategic Services for HEC, highlights the misconceptions for biofuels and CDM:

There are some critical fallacies on the relationship between biofuels and the complex Kyoto Protocol, which governed the issuance of Clean Development Mechanism (CDM) carbon credits. Many biofuels producers, even those regarded as the largest, are under the misguided understanding that the production of biofuels and the cultivation of biofuels feedstocks (e.g. jatropha) are eligible for carbon credits under the CDM scheme.

The Kyoto Protocol consists of 1) Annex 1 (developed) countries that have CO2 emissions reduction targets and 2) non-Annex 1 (developing) countries, the majority of which can benefit from CDM schemes through carbon credits (CERs) generated by engaging in activities that reduce CO2 emissions. Biofuels by virtue of their CO2 emission reduction abilities will be eligible for carbon credits under the broader Kyoto Protocol. Politics aside, this is certainly the case for Annex 1 countries that have CO2 emissions reduction targets - hence the huge case for biofuels mandates and subsidies in these developed countries.

The picture is very different for the developing non-Annex 1 countries where biofuels are being perpetuated under very different market dynamics. To date, there are no biofuels projects registered as CDM projects. As a result, no CDM carbon credits have been generated from the many biofuels projects in the developing world. This can be primarily attributed to 1) the lack of standardized accounting methods to calculate the carbon footprints of biofuels, 2) the non-eligibility of biofuels exported to Annex 1 countries for CDM, 3) ineligibility of vehicles using similar engine technology to those using fossil fuels for the CDM scheme, 4) poor operational consistency of first generation biofuels and 5) the existence of other cheaper projects that generate more carbon credits per dollar invested. These restrictions kept most of the biofuels projects out of the CDM scheme.

Another fallacy with the CDM scheme is the ease of obtaining carbon credits from projects involving the cultivation of biofuels feedstocks (e.g. jatropha) under the CDM scheme. Such projects, if conducted like quasi-reforestation projects on marginal lands, may be eligible for carbon credits under the CDM schemes. The first afforestation project was awarded carbon credits under the CDM scheme in March 2009 in India. However, given the complexities in accounting for greenhouse gas (GHG) abatement, the direct cultivation of crops on marginal lands may not be directly eligible as a CDM project. As such, it would be easier to generate carbon credits by using waste biomass generated from the land for power generation in place of fossil fuel if CO2 emissions are being avoided or reduced.

Particular opinion convergence has been achieved during the Poznan Climate Change Conference in Dec 2009 which set a precursor to the Copenhagen talks this December trying to finalize climate change policies for the post-Kyoto era.  This is further supported by the carbon finance markets which current offers CER futures well beyond 2012. It is expected that at the Copenhagen meeting, the registration process and regional distribution of CDM projects will be enhanced. Furthermore, eligibility of projects that are currently limited in scope within the CDM scheme such as energy efficiency, carbon capture and storage as well as forestation projects are likely to be further expanded. CDM has proven to be effective; its successes should be built on and further improved for global good, including for biofuels.

Our European Biofuels Director wonders about the the implementation of the RED in the EU Member States: 

It took 12 months for Member States to agree on all the details of the Renewable Energy Directive (RED), but it was approved last December to the relief of the EU biofuels industry. Five months have passed since the European Parliament’s approval, more than one month since the Council approved it and Member States have yet to give an indication that they are working on adopting the 10% biofuels mandate in 2020. Actually, the steps that have been taken since the December vote are quite interesting: The Netherlands reduced their biofuels mandate in January 2009, the U.K. reduced its biofuels mandate in April 2009 and Germany is in the process of reducing its biofuels mandate too!

Some positive signs for the industry have come from Spain and Portugal, the first introducing a mandate in January 2009 and the second introducing a biodiesel mandate in July 2009. But, no Member State has yet unveiled plans about implementing the 2020 target. The RED will be published in June 2009 according to the Commission and only then will Member States be bound to implement it. However, considering the range of options available to meet the 10% mandate, it is surprising how little debate is ongoing. Is the renewable energy in the EU a victim of the economic crisis? Are Member States finding out that greening their energy sources and transportation sector is too costly right now?

Well, the Spanish renewable energy association APPA has just had enough waiting it seems, because they have translated the RED for the benefit of their rule makers and have drafted a law allowing its implementation in Spain! Will Spain take the lead and be the first Member State to implement the RED?

Livia Kosaka, our Latin America director, discusses her recent trip to Uruguay and observations about the dynamic biofuels arena in the region: Recently I attended the ARPEL Conference in Punta del Este, Uruguay. ARPEL currently has 26 members that are state and private oil companies with operations in Latin American & Caribbean, representing more than 90% of the region’s upstream and downstream operations.

I spoke in the “Biofuels in the Energy Sector” session along with representatives from the Brazilian Institute of Petroleum (IBP), the Inter-American Institute for Agriculture Cooperation (IICA),  REPSOL-YPF Argentina, ECOPETROL Colombia and PETROBRAS Brazil to discuss sustainability in biofuels production, issues related to  operations, logistics and environment, technological advances, and present status and trends on biofuels specifications. This session was held simultaneously with other three sessions, and I was impressed with the number of attendees that filled up the room and also the amount of questions and comments we had from participants, which reinforced the growing importance of this topic of discussion among energy players in the region.

As most oil companies in the region are partly of fully owned by the state, they are heavily involved on implementation of biofuels programs. During the session, REPSOL-YPF, Petrobras and Ecopetrol all highlighted how they are involved with biofuels programs in their respective countries.

• In Argentina, REPSOL-YPF is preparing for implementation of 5% biofuels blends nationwide starting Jan. 1, 2010. A major concern is the current legislation in which biodiesel producers have to be certified to either produce it locally or export the fuel. At this time, there are only biodiesel producers certified to produce the fuel toward export markets (and they have been struggling to maintain production levels because of the closure of the “splash & dash” loophole in the U.S.). As a result, the government is considering revising its biodiesel legislation; otherwise, there may not be enough biodiesel production to supply local markets with B5 and biodiesel exporters will continue to struggle.
• In Brazil, Petrobras continues to invest in the region and recently announced plans to invest US$2.4 billion in production of ethanol and biodiesel during the 2009-2013 time frame through its subsidiary Petrobras Biofuels. In addition, the company is investing US$400 million in a dedicated ethanol pipeline, scheduled to start operations in the end of 2010. Petrobras continues to set the stage for a lot of other players in the region, which are following Petrobras’ steps to become “energy” rather than just “oil” companies.
• In Colombia, Ecopetrol is also investing in ethanol and biodiesel production and on R&D to overcome challenges on maintaining fuel quality standards for biodiesel produced from different feedstocks, a key concern within the biodiesel industry.

And the list goes on: ANCAP Uruguay is building biodiesel and ethanol plants in preparation to implement B2 by 2011 and E5 by 2014, Petroecuador is involved with E5 in Guayaquil, ENAP Chile is investing in R&D for second generation biofuels production, Petrojam is working on carrying out E10 in Jamaica, just to name a few. New players, such as STAATSOLIE, National Oil Company in Suriname, also attended the event, as the country plans to follow some of its neighboring countries on developing biofuels programs to supply local markets.

Latin America is a very dynamic region when it comes to biofuels and I have noted there are more countries on board with biofuels (with crisis or not), a trend that will continue in years to come.

GBC will continue to follow biofuels developments across this exciting region very closely and I will continue to contribute to the blog. Until then, hasta luego!

Today we were pleased to have Dr. Robert Howarth, the David R. Atkinson Professor of Ecology and Evolutionary Biology at Cornell University with us to present the Scientific Committee on Problems of the Environment (SCOPE) Biofuels Project during a webinar to the GBC membership.  The object of the project was to perform an objective, science-based assessment to provide a comprehensive, systematic and comparative analysis of the environmental benefits and costs of biofuel technologies.

Dr. Howarth, chair of the project, noted in the presentation to the GBC members that the environmental effects of biofuels can vary depending on issues such as feedstocks, biofuel type, where the feedstocks are grown and where fuels are produced, among other factors.  Nevertheless, negative impacts are seen on everything from greenhouse gas (GHG) emissions to air and water quality impacts to soil degradation.  One of the conclusions from the project is that current mandates and targets for liquid biofuels should be reconsidered in light of the potential adverse environmental consequences.

With respect to this conclusion, I asked Dr. Howarth, if you’re a policymaker, what do you do?  What do you do when biofuel producers, distributors, blenders and other stakeholders have spent billions to comply with the mandates you’ve already set for them?  What about the independent, state and multinational oil companies that are spending billions on R&D, infrastructure, supply contracts?  How do you go back and say, “Nevermind!”?  There were no good, practical answers to these questions.

This was ironic in light of what happened right after the close of the webinar and that is that U.S. EPA finally announced its long-awaited Renewable Fuels Standard 2 (RFS2) notice of proposed rulemaking. The centerpiece of the rule will focus on GHG emission reduction targets different biofuel categories will need to meet, and the initial lifecycle analyses, which include a component on indirect land use change, is not favorable at all for corn-based ethanol.  Again, what does a policymaker do when caught between an environmental sustainability agenda and a biofuel industry (created by policy) that is now teetering on the brink of economic failure?

For the Obama Administration, what you do is come out strongly in favor of a robust biofuels policy lead by three major cabinet members.  While not turning back from the indirect land use GHG issue, you promise to support the industry in other ways by refinancing existing ethanol and biodiesel factories whose owners are having trouble obtaining credit, guaranteeing loans for the construction of new biorefineries, and expediting funding for R&D (more than $700 million) for next generation biofuels.   You establish the Biofuels Interagency Working Group, which among other tasks, will look at policies that promote environmentally sustainable biofuels while growing the biofuels industry.  You walk the tightrope, but you move forward.

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!