The Environmental Protection Agency (EPA) has recently mandated a new Renewable Fuel Standard (RFS2) that reduces the amount of renewable fuels required to be blended into the petroleum fuel supply by approximately three billion gallons. Since cellulosic and advanced biofuels rely heavily on RFS mandates as a key external-funding driver, this change appeared to be a significant setback for the renewable fuels industry. However, taken in context with the larger economic factors, potential technological advances, and potential policy gains, the newly mandated standards do not appear as extreme, and renewable fuels continue to be one of the best paths forward to increased energy and environmental security.
The new proposed mandate will reduce the required total amount of total renewable fuels blended into the petroleum fuel supply from 18.15 billion gallons in the original RFS2 to 15.21 billion gallons in 2014.
Two critical factors driving this reduction are:
Taken together, these limiting factors create what is commonly referred to as the “blend wall” or the volume of renewable fuel that can be reasonably absorbed into the petroleum-based fuel supply (currently set at approximately 10%). The blend wall would have been felt especially strong in 2014 as 2013 was a record year for corn production and farmers planted next year’s crop based on volume assumptions prior to the announcement of the potential RFS2 revision. The 2014 proposed changes to the RFS2 recognize more realistic assumptions about U.S. gasoline consumption: revising 2014 downward from approximately 154 billion gallons to approximately 131 billion gallons. The proposed changes to the RFS2 will yield a gasoline blend rate closer to the 10% target favored by the industry (from approximately 11.8% to approximately 10.6%).
Also included in the RFS2 revisions is a significant reduction in “set asides” for advanced and cellulosic biofuels. While this revision appears to be a setback for the industry, it is largely a recognition of actual production. While corn-based ethanol has thrived, advanced biofuel production has not met mandated volumes. The cellulosic targets have been consistently waived down over the past several years, in effect the same as reducing the target.
There are many factors in play that enhance the attractiveness and viability of biofuels:
Additional Contributing Authors: Alex Cerwin, Mary Coppedge
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