GAO RFS reports paint incomplete picture of advanced biofuels

By Ron Kotrba | November 30, 2016

The U.S. Government Accountability Office issued two reports Nov. 28 suggesting that the renewable fuel standard (RFS) program is unlikely to meet its targets for reducing greenhouse gas (GHG) emissions and expanding the U.S. renewable fuels sector. The reports largely attribute this supposition to production of advanced biofuels falling short of statutory requirements. Advanced biofuels such as biodiesel, renewable diesel and cellulosic ethanol provide the largest GHG reductions and, per statutory requirements of the RFS, were to make up 21 billion gallons of the 36 billion gallon renewable fuel volume obligations under the program by 2022.

The biofuels industries, however, can attribute this shortfall of advanced biofuels production back to the federal government by way of the U.S. EPA, which has questionably used its general waiver authority to reduce overall renewable fuel obligations under the RFS for the past several years—the subject of a pending lawsuit—and its cellulosic waiver authority to significantly reduce the cellulosic biofuel targets in the agency’s implementation of the program vs. statutory requirements.

Biofuel industries can hardly achieve the statutory goals when EPA continues to reduce the targets set out in the statute. Year after year, biofuel industry organizations representing producers of conventional and advanced biofuels call on EPA to increase the targets to more closely resemble those laid out in the statute. For instance, the National Biodiesel Board urged EPA to boost the biomass-based diesel target for 2018 to 2.5 billion gallons, which the agency finalized at 2.1 billion. The statute mandates that advanced biofuels are to provide 9 billion ethanol-equivalent gallons (6 billion biodiesel-equivalent gallons) to market by 2017, but the EPA has reduced this target to 4.28 billion ethanol-equivalent gallons (2.85 billion biodiesel-equivalent gallons). NBB pushed EPA to boost the advanced biofuel target for 2017 to 4.75 billion ethanol-equivalent gallons (3.17 billion biodiesel-equivalent gallons), citing ample feedstock and domestic production capacity to meet the increase, but EPA was not persuaded.

The GAO initially incorrectly reported that “less than 5 percent of the 3 billion gallon advanced biofuel RFS target was produced in 2015, and additional investments for commercialization seem unlikely.” Biodiesel Magazine contacted Frank Rusco with the GAO to advise him of this error. Rusco admitted this was a mistake, as it should have read “less than 5 percent of the 3 billion gallon cellulosic biofuel RFS target was produced in 2015.” Rusco thanked Biodiesel Magazine for pointing out the inaccuracy and the statement was subsequently corrected on the GAO website. Several media outlets, however, took this initial error as fact and reported the incorrect figures.

“The advanced biofuel category requirements of the RFS have been met every year of the program in large part thanks to the growth of the biodiesel industry providing the numerous benefits Congress sought for the environment, economy, and energy security,” said Donnell Rehagen, CEO of the National Biodiesel Board. “While the cellulosic biofuel category has taken a smaller portion of the overall advanced biofuel category to date than what Congress originally envisioned, the program is still driving growth of these and other advanced biofuels into the marketplace. The advanced biofuel requirement finalized by EPA last week will be met by a variety of fuels in the marketplace, all which reduce emissions by greater than 50 percent compared to petroleum.”

In its summary report, the GAO admitted that experts advised the office of the federal government’s role in influencing the effectiveness of the RFS, and how the investment climate for advanced biofuels could be improved by reducing uncertainty about the future of the RFS program and tax credits.

One aspect of the report was particularly contentious for the biodiesel sector. “Experts said that several advanced biofuels are technologically well understood and some are being commercially produced, but they noted there is limited potential for increased production in the near term and cited several factors that will make significant increases challenging,” the report summary stated. “Given that current advanced biofuel production is far below RFS targets and those targets are increasing every year, it does not appear possible to meet statutory target volumes for advanced biofuels in the RFS under current market and regulatory conditions. Biofuels that are technologically well understood include biodiesel, renewable diesel, renewable natural gas, cellulosic ethanol, and some drop-in fuels. A few of these fuels, such as biodiesel and renewable diesel, are being produced in significant volumes, but it is unlikely that production of these fuels can expand much in the next few years because of feedstock limitations.”

John Kruse, the principal and director of quantitative analysis of World Agricultural Economic and Environmental Services, told Biodiesel Magazine, “Although the U.S. biodiesel industry has demonstrated the ability to diversify its feedstocks significantly over the past few years, the feedstock issue continues to emerge as the primary reason for limiting the expansion of volume obligations for biodiesel.”

In the narrow focus of biodiesel and renewable diesel feedstocks, Kruse said distillers corn oil (DCO) is a prime example of a new and growing source. “While many [ethanol] plants already have extraction capabilities in place, the growth is occurring through enhanced extraction yields,” Kruse said. “We see corn oil extraction yields growing nearly 45 percent over the next five years.”

Furthermore, Kruse said along with DCO, other fats and oils are used primarily as an energy source in livestock rations. “With the significant decline in feed grain prices, there is a large supply of less expensive sources of energy available for livestock feed. We expect to see some substitution away from the use of oils in livestock rations as an energy source.”

Soybean oil provides roughly 50 percent of U.S. biodiesel feedstock, and as Kruse pointed out, U.S. soybean yields have been at record levels the past four years, further increasing the supply of soybean meal and oil. “Sometimes it is forgotten that soybean oil is primarily a byproduct of soybean crush and that the soybean market has and will continue to be driven by the demand for soybean meal,” he said. “There continues to be no shortage of protein meal demand in the global marketplace with growing meat consumption and the historical underutilization of protein meal in livestock rations. Developing countries with the strongest income growth tend to demand poultry and aquaculture products, which are produced with protein-intensive rations. The strong demand for meals results in increased supply of soybean oil.” Overall, Kruse said an abundant and expanding supply of vegetable oils exists.

Biodiesel from virgin soybean oil reduces GHG emissions by more than 50 percent compared to petroleum diesel, according to EPA data, and when made from waste materials such as used cooking oil, biodiesel can achieve more than 80 percent GHG reductions. 

“It is ironic how quickly it has been forgotten that prior to biofuels, the agricultural industry was focused on developing new sources of demand for its products,” Kruse said. “With brief exceptions—biofuels as the most recent example—agriculture has struggled the past century with falling real commodity prices. Falling real commodity prices results from supply outpacing demand. Yet even with record global stocks for most commodities and significantly lower commodity prices, there is a lingering perception of scarcity.”