RENEWABLE FUELS:

Much-touted cellulosic ethanol is late in making mandated appearance

A projected shortfall in the production of an important green energy alternative could hurt U.S. efforts to move away from fossil fuels, a ClimateWire analysis has found.

U.S. EPA figures indicate that in the second half of 2010, not a drop of cellulosic ethanol -- a much-touted fuel that taps the sugars from farm wastes and other non-food sources of biomass -- was commercially blended with gasoline.

William Brown, an analyst with the U.S. Energy Information Administration's Office of Oil, Gas and Biofuels Analysis, said that the "curious string of zeros" sends up red flags for that year's total production. Overall, he said, the outlook appears grim.

"There was definitely some [cellulosic ethanol] produced, but I'd estimate far less than even 1 million gallons," said Brown.

The federally mandated renewable fuel standard (RFS), however, called for production of 5 million gallons in 2010 -- and that was after EPA took stock of the nascent industry's capabilities and lowered the bar from the earlier congressional target of 100 million gallons.

The goal of the RFS is to help the nation wean itself off of fossil fuels with a diverse group of renewable fuels and to slash greenhouse gases. But to date, there have been few other options at the pump. The only large-scale alternative that is homegrown in the United States has been corn ethanol, and the RFS caps that fuel's contribution to the total 2022 RFS goals at 15 billion gallons. That year's target calls for 36 billion gallons of renewable fuel.

Brown is not alone in expecting a low final score for 2010. Nathanael Greene, director of renewable energy policy at the Natural Resources Defense Council, also placed his estimate for total cellulosic ethanol production in the neighborhood of 1 million gallons.

Matt Hartwig, a spokesman for the Renewable Fuels Association, an ethanol group, agreed that the 2010 cellulosic biofuel output was likely below the EPA target, but his group did not have any formal records of cellulosic ethanol output.

Any gap between the required 2010 value and the true figures, however, could spell trouble for blenders striving to meet the 2011 fuel standard requirements. It could also further exacerbate concerns about meeting the 2022 RFS targets.

Blenders find little to blend

The final tally on blending in the first half of 2010 is not yet available, and EPA declined to comment on any of its raw numbers, stating that it will still be accepting data and analyzing them through the end of February. The way Congress defined renewable fuels for the first half of the year was different, so blenders may still submit data for EPA to scrutinize. More numbers may come in for the latter half of 2010, as well, but EPA said in a statement that those figures are "not likely to change dramatically."

Blenders that come up short on meeting their share of that 5-million-gallon goal have a few ways to stay out of the red. Up to 20 percent of the 2010 requirement could be met by counting production and blending that happened in 2009 -- assuming there was that much of the fuel available that year.

The other option would be for the 2010 requirements to spill over into the deficit for 2011 and be tacked onto its existing requirements. That scenario is the one that concerns blenders that are struggling to find enough of the fuel.

"EPA has overestimated the volumes to a point where it is pretty clear that those volumes can't be met," said Patrick Kelly, a senior policy adviser at the American Petroleum Institute. In general, he said, blenders will now be burdened with requirements to purchase cellulosic biofuel waiver credits.

Unlike carbon credits, however, these fuel certificates are not tied to any greenhouse gas benefit. They also do not guarantee the industry will inch closer to its RFS targets. Kelly describes them as more like an "additional tax" on his industry.

The credits were designed to be a cost control mechanism ensuring cellulosic producers would charge prices that would be low enough to keep them competitive, explained Greene. "This is an idea similar to the renewable electric standards where you have noncompliance penalties," he said.

Such a system is not inherently bad, he said: "The idea of being able to essentially buy your way out of the obligation -- especially for technologies that may simply not exist -- is kind of rational, as long as you are doing something to try to make it exist."

2 government estimates differ

Considering the cellulosic biofuel industry's current lag, meeting the 2011 RFS requirement for cellulosic biofuel -- 6.6 million gallons -- will be a challenge.

That target, like that from 2010, was already lowered to become a small fraction of its congressional goal -- in this case, about 2 percent of its original 250-million-gallon figure. But even so, fulfilling that comparatively tiny requirement is considered ambitious at best. And that's before saddling blenders with requirements to also fulfill any leftover 2010 load.

EIA has a less rosy outlook than EPA for total expected 2011 production. That office believes the best-case scenario will be the production of about 3.94 million gallons of the fuel. EPA explains the chasm between the two estimates as the difference between what is anticipated versus what is "potentially" feasible. EPA says it is choosing to focus on potential.

"We believe that the cellulosic biofuel standard should provide an incentive for the industry to grow according to the goals that Congress established. ... To this end, we explored the 2011 volumes for individual companies as projected by EIA to determine not only what volumes might be anticipated, but more importantly what volumes were potentially attainable," it said.

The companies themselves say this year's horizon looks murky. Several companies told ClimateWire that they are not making any guarantees of what they will produce.

Garbage in, fuel out, maybe

Only a handful of pilot projects in the United States currently produce cellulosic biofuel, and they are not focused on selling it commercially. As research and development plants, they do not operate at full capacity, and thus production costs, on a per-gallon basis, are steep.

Craig Stuart-Paul, the CEO of Fiberight LLC, a cellulosic ethanol company with pilot operations in Blairstown, Iowa, told ClimateWire that its output this year could be as little as 1 million gallons. But EPA is counting on the company, which converts municipal solid waste into ethanol, to come up with almost three times that figure: The agency projects Fiberight could produce 2.8 million gallons.

"It's all down to construction delays, if we're going fast then we will hit targets. If things run into difficulty then the output will be lower," explained Stuart-Paul in an e-mail.

In fact, the cast of companies that may be able to produce the fuel and sell it on the commercial market is constantly fluctuating, with some projects teetering on the brink of failure.

During the few months between when EPA proposed a goal for 2011 RFS thresholds and when it finalized the figures, for example, the shortlist of companies eligible to produce the fuels changed significantly: One project was terminated and another went bankrupt.

Industry experts say that lack of funds is what's holding back the industry, not technology. The harsh economy and bank requirements to prove that large biorefineries would be strong investments with definitive long-term customers leave startups struggling to find a source with deep pockets.

Financing for large-scale plants remains a problem

Many companies report that the finish line may be years off. Others say they could see themselves move on a large-scale plant -- if only they had a loan guarantee from the Energy Department, or a blend of other sources of revenue, including a loan guarantee from the Agriculture Department, more grant money or perhaps some sort of performance contract.

Poet LLC, for example, has a pilot cellulosic ethanol plant in Scotland, S.D., that turns corncobs, husks, stalks and leaves into ethanol. Although it has picked the site for where it would like its commercial plant to go in Iowa and believes its technology and feedstock are ready, its backers said that progress all depends on netting a loan guarantee from the Energy Department.

DOE, however, has yet to push one loan guarantee for biomass refineries out the door.

"The real problem here is one of capital investment. Federal loan guarantee programs designed to spur investment are ineffective," said Hartwig. "Far too few biofuel companies are being allowed to compete for guarantees, let alone being awarded one." Whenever EPA lowers its RFS requirements, that, too, cools interest from private investors who are uncertain about ethanol policies, he said.

DOE's slow pace issuing loan guarantees spurred Iogen Energy, which has a partnership with Shell, to set up its pilot cellulosic ethanol operations in Ottawa, Ontario. Iogen believed the Canadian government might be poised to move more quickly on issuing desired loan guarantees, said Iogen spokeswoman Lisa Hanke.

Still, the company, which began its pilot operations in 2004, has not yet secured Canadian government funds, she said. The company has not yet moved on its large-scale commercial plant.

Globally, industry backers now believe 2012 may be the year some cellulosic ethanol plants scale up -- which would help drive down the prices for the industry. But again, nothing is certain.

"You can't really mandate innovation. If a technology requires real innovation, requiring it isn't going to get it done," said Greene. "A lot of us have real optimism about this family of technologies ... but that doesn't mean you can time when it's going to happen."