Application of RFS: Boon or Bane for Emergent Biofuels Sectors?

Following recent news of the Advanced Biofuels Association (ABFA) breaking rank with other industry groups over the best way to fix the Renewable Fuels Standard (RFS), the divisive nature of the Standard’s implementation continues to be a major impediment to market funding and, henceforth, to segment growth. The failure of Environmental Protection Agency (EPA) to set a standard for 2014 has resulted in a rift in the industry between the Biotechnology Industry Organization (BIO) and Advanced Ethanol Council (AEC), whose members believe the RFS can be fixed administratively by EPA and the ABFA, whose members believe Congress needs to step in and legislate changes.  This conflict discourages coherence and a strong market presence for an industry that, many believe, must remain unified to succeed.

Shifting markets, politics and regulations invariably alter the business climate for any emergent industry. Nearly eight years after the RFS was signed into law, it is important to remember why the RFS was established: to foster innovation and growth, and to secure a future for all of the individual sectors that fall within its scope.

While the RFS has helped to advance certain sectors of the biofuels industry, others are lagging and/or facing uncertainty. The corn ethanol sector has enjoyed meteoric growth over the last decade due in part to its use of conventional technologies and manufacturing processes. With 2014 production of 14.3 billion gallons and the scale to exceed or maintain that capacity going forward, corn ethanol has clearly succeeded at least in part due to the RFS.

But what about other equally viable, pioneering sectors that may be in developmental stages now, but that might become the favored, sustainable and profitable biofuels of the future? Companies dedicated to the manufacture of advanced biofuels simply do not have access to the resources to move from smaller scale production to any practical commercial scale without long-term investment and support. As the RFS does not provide any specific preferential treatment by biofuel sector, does it offer any value to smaller scale sectors and operations that need it most? This is the question that has prompted ABFA to suggest Congressional action might be the only solution.

EPA stakes a claim in the growth of biofuels noting that, “RFS2 lays the foundation for achieving significant reductions of greenhouse gas emissions from the use of renewable fuels, for reducing imported petroleum, and encouraging the development and expansion of our nation's renewable fuels sector.” 

Current EPA policy, however, is also responsible for fostering a market hindrance for non-diesel advanced and cellulosic biofuels by providing loopholes for the petroleum industry. Large-scale oil companies continue to avoid purchasing available inventories of advanced and cellulosic biofuels and are instead opting for cheaper EPA waiver credits. These companies have the capital and capacity to sidestep the intended purpose of the RFS, creating a market surplus of unused biofuels and circumspect investors. Whether BIO and AEC faith in EPA’s ability to fix the loopholes and other issues with the RFS program remains to be seen.

While there are no easy solutions for the long-term challenges facing the industry, it is generally true that a unified industry will be more persuasive in pushing solutions forward.  Despite its differences, the larger biofuels industry needs to collectively stick together with the understanding that each sector, while diverse, contributes to a strong renewable energy market. A unified and robust market presence is critical to segment success and longevity.