Bye, bye biofuels: Why U.S. renewable fuels standard failed

 

I remember the conversation well. It was late summer in 2008 and the price of crude oil had exploded above $100 per barrel. I was having lunch in mid-town Manhattan with a Bloomberg energy reporter, Bryan Wingfield. I had just begun reading about the field of synthetic biology and a clutch of biofuels start-up companies who believed it could be used to create cellulosic ethanol.

I told Wingfield about Vinod Khosla’s, the co-founder of Sun Microsystems and a green technology investor, foray into biofuels and asked what he thought of the new generation of cellulosic ethanol companies?

“Same wine, different bottle,” he said. “It didn’t work the last time they tried it and it won’t work this time.” “We’ll just have to wait and see,” I said. Five years later, there is still no commercial production of cellulosic ethanol to-date. In other words, Wingfield appears to have been right. Last week, the U.S. Environmental Protection Agency said it would more or less gut the renewable fuels standard’s (RFS) in 2014.

The Energy Policy Act (EPAct) of 2005 created established the first RFS in the United States and required 7.5 billion gallons of renewable- fuel to be blended into gasoline by 2012. Two years later, the Energy Independence and Security Act (EISA) of 2007 extended the RFS out to 2022 and increased the volume of renewable fuel required to be blended into transportation fuel from 9 billion gallons in 2008 to 36 billion gallons by 2022.

The EPA’s recent proposal would roll back the original target for 2014 and cap the mandated volume of biofuels at 15.52 billion gallons, about 1 billion gallons below the 2013 biofuels mandate. The failure to commercialize cellulosic ethanol is only partially to blame for masks a more alarming problem with the EISA.

Congress assumed that gasoline demand would increase annually until 2022 at growth rates similar to those experienced in previous years. This was a critical assumption. It was also wrong. It was critical because biofuel requirements were based on significantly greater gasoline demand projections.

It was wrong because Americans abruptly began driving less than they had in the past.

This chart shows trends in total vehicle miles traveled in the United States (expressed as a moving 12-month count) from 1987 through 2013. The growth in vehicle miles traveled began in 1979 and reversed in 2008.

“Although the production of renewable fuels has been increasing, overall gasoline consumption in the United States is less than anticipated when Congress established the program by law in 2007,” the EPA stated in its RFS proposal. “In order to address that issue, EPA is proposing . . . to reduce the advanced biofuel and total renewable fuel standards for 2014.” In 2012, the Energy Information Administration projected future gasoline demand in 2022 about 25% lower than it had projected in 2007 when the RFS mandates were set.

The RFS was not supposed to break the so-called “blend wall,” which refers to the difficulty incorporating ethanol into the gasoline at volumes exceeding those achieved by the sale of nearly all gasoline containing 10% ethanol by volume. What is the lesson? The past does not always presage the future – except when it does.

http://www.forbes.com/sites/williampentland/2013/12/06/bye-bye-biofuels-why-u-s-renewable-fuels-standard-failed/?ss=business%3Aenergy