Amyris' Velasco discusses future of RFS following EPA action on volume targets

With U.S. EPA announcing it will use its flexibility under the renewable fuel standard (RFS) to reduce volumes in the 2014 RFS requirement, what is the future of the policy and could the agency seek to make broader changes? During today's OnPoint, Joel Velasco, senior vice president of California-based renewable fuels company Amyris, a board adviser to the Brazilian Sugarcane Industry Association and a board member of the Advanced Biofuels Association, discusses growing support in Congress for making adjustments to the RFS. He also weighs in on the economics of strengthening the U.S.-Brazilian biofuels partnership.


Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Joel Velasco, senior vice president of California-based renewable fuels company Amyris, a board adviser to the Brazilian sugarcane industry association and also a board member of the Advanced Biofuels Association. Joel, it's great to have you back on the show.

Joel Velasco: Great to be here.

Monica Trauzzi: Joel, we're expecting Washington to pick right up from where they left off before break on the renewable fuel standard and the debate that's happening there. During recess, EPA moved to officially lower the 2013 target for cellulosic ethanol. Advancing the story a bit, EPA also announced that it will use flexibility, the flexibility it has under the RFS, to reduce volumes for advanced and renewable fuels, not just cellulosic, in the 2014 requirement. The strength of the industry is really being challenged right now. How would you qualify sort of the state of play in the renewable fuels industry in the United States?

Joel Velasco: Sure. Great to be here again. Let's take a step back here. The Renewable Fuel Standard is part of a balanced and diversified strategy portfolio for us to achieve sort of a strong energy balance in this country. Advanced fuels, cellulosic and the other advanced fuels such as sugarcane ethanol, are a critical part. They play a modest but growing important role in the renewable fuel standard. What EPA did during the summer break was to basically finalize the rule they had already proposed earlier this year that said, hey, we don't have the cellulosic fuels, but we do have other advanced fuels. Let's continue going on that path. And they have the flexibility, and they've shown it, and hopefully, what we're going to see in the coming weeks and months here is a rule for 2014 that will also show EPA exercising its flexibility. What they've made clear is they're not going to force people to consume fuels that don't exist. But we do have advanced fuels produced in this country, produced around the world, that can be used to meet the RFS, and that's what I think EPA is going to do.

Monica Trauzzi: But is it concerning to you that they have indicated that they won't' just limit it to the advanced fuels?

Joel Velasco: Well, I think they're going to take a balanced approach. We're really talking about an increase from 2013 to 2014 as the law was written of about a billion gallons additional. Most of that was going to be cellulosic biofuels. Those we know are probably not going to be available for 2014, and so they would adjust. The big question I think is how much of that cellulosic they're going to let's call it waive into the other advanced pools, and how much of that cellulosic is just going to disappear, or is not going to be required. And I think that's where EPA is going to use its flexibility, and I think Congress should have taken note of what EPA did this summer, as showing that intent and that flexibility that they do have.

Monica Trauzzi: How quickly do they need to move on those 2014 numbers? I mean, the oil industry is already calling for EPA to move ...

Joel Velasco: Yeah.

Monica Trauzzi: ... immediately. If they moved quickly, wouldn't that help your industry by providing some more certainty?

Joel Velasco: Absolutely.

Monica Trauzzi: Yeah.

Joel Velasco: And I think the entire biofuels industry is united on this, that we really don't need to change the RFS from a legislative standpoint. Of course, there are groups who are going to say I'd like this little change here and there, but in general, everybody agrees that the policy works, largely because EPA has the flexibility. I do think what would be good, and I think, you know, I'm on the board of Advanced Biofuels Association here in Washington, and we've made this very clear to EPA, that they should not only propose a 2014 rule, but very quickly focus on the 2015 rule, to give investors sort of the certainty for the years to come. And if they can get that rule out now in September, that gives enough time for all the comments to come in, and they can have a final rule by the end of November, before we're getting ready for another set of holidays.

Monica Trauzzi: So there may be agreement within your industry, but there certainly is not among members of Congress. Let's talk about what is happening in the House. Energy and Commerce have been aggressively tackling the debate. They established a series of white papers already on the strength of the RFS. Chairman Upton and Ranking Member Waxman said that they would be taking the August recess to sort of try to come up with a bipartisan compromise on how to move forward. What do you expect the next steps are coming out of the House Energy and Commerce Committee?

Joel Velasco: Well, first, I think the Committee should be commended for having this white paper process. I think it, I don't know how precedented it is, but I really think this was a unique way to get stakeholder input. It was more than even a comment period we have with EPA. It allowed everybody who had a stake in the game and to actually also provide input on a number of issues. I think the committee now has all the views that they need to look at whether there's an option. My view is, and the recommendation we would have, is let's let EPA do its job. They have ample flexibility. We don't need a legislative solution for this. And hopefully, that will be the way they go forward. Obviously, if they get into this, we're getting into a situation of then opening the Clean Air Act and making amendments to it. And you know this industry far better than I do, to know that once you start messing with the Clean Air Act, all kinds of folks are going to get involved. And I just don't think that the legislative calendar will allow for some sort of reform. And I don't know of a scenario when we've actually forced a Clean Air Act amendment, you know, sort of jammed it through by riding, putting it as a rider in other legislation. So I would hope that Congress, certainly the House, would not try it that way.

Monica Trauzzi: Right. And because this is a Clean Air Act issue, on the Senate side, this would be in the jurisdiction of Senate Environment and Public Works. At this point, EPW has not done anything on this issue, but Energy and Natural Resources has taken it up. Senator or Chairwoman Boxer has acknowledged that this is within her Committee's jurisdiction.

Joel Velasco: Mm-hmm.

Monica Trauzzi: Do you anticipate that she will move this and advance this within her committee?

Joel Velasco: Well, I think she's indicated during the recess that she planned to have hearings on this, if memory serves me right. And I think I would expect there'd be some hearings on it. Again, I think the message from the industry is, it should be, from the biofuels industry, should be that we don't need a legislative fix at this point. Let's let EPA continue, use its flexibility to make the reforms necessary.

Monica Trauzzi: So let's talk about what's happening between the U.S. and Brazil.

Joel Velasco: Sure.

Monica Trauzzi: There is a trip coming up to, within the two, between the two countries to advance the relationship on biofuels.

Joel Velasco: Yeah.

Monica Trauzzi: How open do you think the White House is to advancing the partnership that currently exists with Brazil on biofuels?

Joel Velasco: Listen, I think Brazil and the United States are the world's two largest by far producers of biofuel, whether it's ethanol, biodiesel, and now all the new molecules, companies such as Amyris, that is developed in California, but taken its technology to Brazil. There are a number of those examples. And I think both countries, whether it's President Obama here, President Rousseff in Brazil, are committed to continuing that deep relationship. We have a lot to celebrate. Both countries don't have barriers for their biofuels. The ethanol tariff is gone here. Brazil has maintained a zero tariff there. And the subsidies are pretty ended. So now it's time to talk about what markets can we build beyond our two countries, and how do we strengthen the relationship? So the Advanced Biofuel Association, Renewable Fuel Association, and the UNICA, the Brazilian sugar cane association, are going to come, bring together companies in Brazil. We're going to visit mills. I look forward to showing them Amyris's biorefinery that's been running for nearly a year now there, producing renewable hydrocarbons. And we will see what are the, some of the other options we have, not just in Brazil, not just in the U.S., but also around the world. And I think this is a great step in the right direction. It's proof, by the way, that the RFS is working, because these industries are being formed, and we're looking at how we can actually deepen the integration between these two economies. And I should note, this will be done before President Rousseff has a state visit here to Washington, which I believe will be October 23, if memory does serve me right.

Monica Trauzzi: Switch gears for a moment.

Joel Velasco: Sure.

Monica Trauzzi: Biodiesel has been in the news quite a bit lately. How is biodiesel production impacting the renewable fuels marketplace? We're seeing their numbers go up steadily. So what role is biodiesel playing?

Joel Velasco: Well, biodiesel is another important element of this diversified strategy. They certainly have seen significant increase in market demand, and I would expect EPA to continue relying on conventional biodiesel into the advanced pool. They meet that, and they should continue to have that role. And I think what you're also seeing is the renewable diesels, right, that we're actually making a true drop in diesel. That is important for the market, because as you know, there are limitations, just like we have these blend wall issues with ethanol, we do have blend wall issues with biodiesel. And if we don't move towards that let's call it second, third generation renewable diesel sources, whether cellulosic or otherwise, we're going to be in blend wall discussion in a few months, probably.

Monica Trauzzi: All right. A lot happening in this sector. A lot to watch out for. Thank you for coming on the show. We'll end it there.

Joel Velasco: Thanks, Monica.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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