Cellulosic Shortfalls and the Flawed RFS

Mark Green
Posted April 4, 2016

When Congress created the Renewable Fuel Standard (RFS) more than a decade ago, lawmakers hoped the federal fuels program would spur development of a domestic biofuels industry that would help reduce oil imports with millions and millions of gallons of home-grown ethanol – with a particular focus on increasing volumes of cellulosic biofuel made from corn stover, wood chips, miscanthus or biogas. By 2022, it was expected that 16 billion gallons of cellulosic biofuel would be produced, but a couple of other things happened instead.

First, the U.S. energy revolution happened. Our crude oil imports fell mostly because of surging domestic oil production, not the RFS. Through safe hydraulic fracturing and horizontal drilling, American output grew from less than 6 million barrels per day to more than 9 million barrels per day – the growth in domestic production more than accounting for the reduction in net imports.

Second, a viable domestic cellulosic biofuels industry has not taken hold, with only a fraction of the fuel mandated by the RFS actually being produced. 

Indeed, after virtually no cellulosic biofuel was produced in 2010, 2011 and 2012, production has grown slowly, dwarfed by the RFS’ targets (chart, left). In 2015, the congressional statute called for 3 billion gallons of cellulosic but only 142 million gallons were actually produced.

Recognizing market realities, EPA used its authority under the RFS to lower the volumes from the statutory targets, but output didn’t reach those levels, either. In 2013, for example, EPA lowered the cellulosic biofuel volume requirement to 4 million gallons (from the 1 billion gallons set out in law), but production was only about 500,000 gallons.

Clearly, the domestic cellulosic biofuel industry has struggled and indeed could be seen as losing ground, given this week’s filing for Chapter 15 bankruptcy protection by Spanish company Abengoa, which has sizeable cellulosic biofuel holdings in the U.S.

Frank Macchiarola, API group director for downstream and industry operations, says the story of cellulosic biofuels within the RFS is but one of a number of indications that the RFS itself should be repealed or significantly reformed. Macchiarola:

“The (cellulosic) volumes that are set forth in the statute are not possible to be met. … There are advancements in advanced and cellulosic fuel that haven’t been achieved.  … You can certainly lay out numbers year to year, but you can’t dictate science, and advancements in technology and capital investments. And those haven’t been there. Laying out a policy that far in advance that dictates or mandates that specific a goal without really basing it in fact has been problematic. … We believe we should let markets decide the best fuels and not a mandate that is set by volumes that are not achievable.”

With actual cellulosic biofuels production falling short, production of corn ethanol has surged to fill the void under the RFS. Corn ethanol producers oppose reducing ethanol mandates in the RFS because, obviously, they can supply the gallons that were mandated for cellulosic biofuels.

Yet, the rise in corn ethanol production has earned criticism from groups opposed to turning food into fuel, restaurant groups and others who’ve been impacted by higher corn prices because of the demand for corn by ethanol producers.

The RFS is broken. It should be repealed or reformed in significant ways. The cellulosic biofuels component, which has been disconnected from actual production for a number of years, is just one aspect of the program strongly indicating the need for RFS action.