BIOFUELS:

Amid drought, high corn prices, industries urge continued support of advanced biofuels

As oil companies, livestock farmers and bipartisan legislators implore U.S. EPA to alter the required level of corn ethanol gallons, leaders from the advanced and cellulosic biofuel industries are warning them not to gut the federal law to support biofuels.

In an environment scorched by drought, ethanol opponents say the federal renewable fuel standard (RFS) -- which ensures that 13.2 billion gallons of corn-based ethanol is mixed in the nation's fuel supply this year -- is constricting the supply of animal feed and will raise prices at the grocery store.

"This is a crisis for America's farmers and ranchers that have been seized by a drought that is consuming half of the nation," Rep. Bob Goodlatte (R-Va.) said at a press conference yesterday, adding that although he supports advanced and cellulosic biofuels, he would support repealing the RFS entirely "as it pertains to corn as a food commodity."

A total of 156 Democratic and Republican members of Congress have signed a letter urging EPA to waive the ethanol mandate for this year. EPA Administrator Lisa Jackson has the ability to lower the 13.2 billion requirement if needed.

Stabs at the standard are damaging to the development of advanced biofuels even if it only pertains to corn ethanol, industry leaders say. While some believe a short-term waiver for this year may be necessary, they say changes to the entire RFS -- which calls for the production of 36 billion gallons of biofuels by 2022 -- are unnecessary.

"We're concerned that this might have a negative impact," said Michael McAdams, president of the Advanced Biofuels Association. "The way the statute was written clearly gives it the ability to deal with these issues."

Considering the extent of the drought, he added, "I would hate to have us lose sight of the purpose of the RFS."

Concerns about gutting the law

Despite supporting advanced renewable fuels -- made from agricultural waste, low-input grasses, household trash or forestry slash, among other materials -- legislators paint the RFS as a proponent of the first generation of renewable fuels -- an old, inefficient and market-distorting law, they say.

"In the district that I represent, I am a strong supporter of biofuels," Rep. Joe Wilson (R-S.C.) said at the press conference, mentioning local efforts to develop woody biomass, switch grass and algae-based fuels. "But today is the time [to recognize] the seriousness, the crisis of this drought."

Advanced and cellulosic biofuels, by definition under the RFS, must emit 50 and 60 percent fewer greenhouse gases than fossil fuels. Conventional corn ethanol reduces greenhouse gas emissions by about 20 percent.

The support for advanced biofuels matched with a call to bring down the RFS is a conflicting message, said McAdams. Nevertheless, he is satisfied that legislators are making the distinction between the first-generation and second-generation biofuels.

The way to have a strong RFS is for EPA to allow for flexibility, lowering the requirement when needed, said Jeremy Martin, senior scientist in the Union of Concerned Scientists's Clean Vehicles Program.

"Given the seriousness of the drought and the size of the corn ethanol mandate," Martin said, "I still think it's appropriate to look into waiving part of the volume to make it consistent with the available stocks."

That's EPA's job, he added, not Congress'.

Drought intensifies in the Corn Belt

"I don't favor -- at all -- legislative fixes," he said. "I'm not optimistic that we would get all of these careful balances right if Congress [took control]."

The RFS demands that, in addition to the 13.2 billion gallons of conventional ethanol, the country must produce the ethanol equivalent of 1.5 billion gallons of biomass-based diesel, 2 billion gallons of advanced biofuel and 10.45 million gallons of cellulosic biofuel.

In the private sector, uncertainty surrounding the RFS could scare away investors.

"Any attack on the RFS are going to reduce the chance that we get project finance on advanced biofuels," said Brooke Coleman, executive director of the Advanced Ethanol Council, a division of the Renewable Fuels Association, which represents corn-based ethanol producers. "The advanced biofuel space relies on the RFS as much, if not more, than the corn ethanol guys."

"Investors like to see stable policy," said Matt Merritt, spokesman for POET, a conventional ethanol company that has also invested in a joint venture with DSM to launch Project LIBERTY -- a cellulosic ethanol plant slated to begin commercial production next year. "In order to have those investors be a part of it, an important factor is knowing there will be access to finance."

Yesterday, the National Drought Mitigation Center, which oversees the U.S. Drought Monitor, announced that the drought had intensified in the Midwest and Great Plains states during the last week. The situation in certain areas of moderate drought eased, as good rains fell in parts of eastern Tennessee, West Virginia, west Texas and northern Colorado.

Meanwhile, the price of corn reached a record high of $8.20 per bushel Monday and has since dropped steadily. Futures prices closed at $7.95 per bushel yesterday.

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