Energy Systems Consulting Perspectives

Energy Systems Consulting Perspectives

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How Will Changes to the Renewable Fuel Standard Impact Suppliers?

Posted by OnLocation on Nov 5, 2015 11:00:00 AM

With the goals of reducing greenhouse gas emissions and improving energy security, Congress created the Renewable Fuel Standard (RFS), a federal mandate requiring a certain amount of renewable fuel be blended into all transportation fuel sold in the United States each year.  In 2007, the Energy Independence and Security Act (EISA) set a goal of 36 billion gallons by 2022 with annual targets each year.  Individual, but nested, levels of requirements were established for four different types of biofuels:

1)      Conventional. Derived from starch feedstocks like corn, sorghum, and wheat.

2)      Biomass-based diesel. A diesel substitute made from renewable feedstocks.

3)      Cellulosic biofuel. Any fuel derived from cellulose (woody material).

4)      Other advanced biofuels. Any other fuel derived from renewable feedstocks, like sugarcane or sugar beets. This category also includes any biofuel that may exist in the future.

renewable fuel standardThe targets set by Congress turned out to be very optimistic about the future of renewable fuel sources. Some of the renewable fuels technologies identified in the standard have not advanced as quickly as expected. EPA has lowered the targets substantially for cellulosic biofuel every year since 2010 based on expected production capacity.  In 2014, the proposed requirements were sufficiently controversial that EPA delayed finalizing the 2014 targets until 2015 when proposed targets for 2014, 2015 and 2016 were issued together. For the first time, EPA proposed to lower the advanced and total renewable requirements as well, in part because gasoline consumption has been much lower than projected back in 2007. The general consensus is that the standard is not working and needs to be fixed, but there is little agreement on how.

Arguments for and against the standard

Some proponents of maintaining the renewable fuel standard argue that cellulosic technologies are finally becoming more viable and need continued support from the RFS to advance further. Solutions to the problem of lower gasoline consumption and hence running into the limit of how much ethanol can be blended into gasoline (a.k.a., the “blend wall”) could include government support for the expansion of E85 refueling infrastructure, greater use of E15 or even broadening the credits to non-transportation fuels, such as biomass use in chemicals like bioethylene [1].

Critics would prefer to scrap the policy altogether.  They are concerned that the RFS increases the demand for corn ethanol and drives up food prices. In addition, some analysts argue that the RFS does not lead to the greenhouse gas emission reductions that are its primary goal. Opponents of the RFS also argue that it raises transportation fuel prices. 

Given the uncertainty of the various biofuel technologies and the complexity of both the RFS requirements and the transportation fuel markets, how to revise and effectively apply the standard is not a clear-cut decision.

Considerations

As fuel suppliers and other interested parties attempt to determine how changes to the Renewable Fuel Standard would impact their interests, here are some of the factors they must take into account:

  • Regional impacts. For example, greater focus on conventional biofuels would be a boon to the corn-producing states of the Midwest, but Northeast states would look for more of a mix of biofuel sources.
  • How renewable fuel technologies might evolve. There are currently only a few facilities that produce ethanol from cellulosic material. The technology is very new and its full effects remain to be seen.  Development of cellulosic pathways to other fuels or products could have a significant impact.
  • Vehicle efficiency. The consumption of gasoline is shrinking in the U.S. due to increases in vehicle fuel economy.
  • Development of refueling infrastructure. Greater availability of E85 or E15 fueling stations, along with the current fleet of flex-fuel vehicles, would mitigate the blend wall constraint.
  • The effect on fuel prices. More stringent RFS standards may lead to higher prices, although some amount of ethanol is likely to be used as a blending agent even if the RFS is repealed.

Sorting Out the Impacts Using Integrated Modeling

The RFS impacts multiple energy markets so should be considered in the context of the U.S. energy system, not just as a liquid fuels supply issue.  The interplay of transportation demands for gasoline and diesel, the cost and availability of biofuel feedstocks as well as biofuel conversion technologies, and the cost of competing petroleum products must be considered in a single framework. The best approach for taking this kind of holistic view of an energy policy like the RFS is integrated modeling.  All sectors of the energy system are represented and the effects on petroleum product suppliers, biofuel producers, and consumers can be assessed, along with the impacts on energy prices and environmental emissions.

Other Energy Policy Challenges

The RFS isn’t the only energy policy currently facing the energy industry and non-governmental organizations. For our take on these important policy challenges, download our free white paper by clicking on the banner below.

energy policy trends 2015

 

[1] Broadening the credit system is suggested by Daniel Posen and Inês Azevedo in an Energy Collective article: http://www.theenergycollective.com/daniel-posen/2208606/it-time-broaden-scope-us-renewable-fuel-standard

OnLocation is a leading energy consulting firm that uses quantitative analytical methods to inform strategic players in energy industry to improve decisions.

Topics: Environmental Regulation

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