WASHINGTON – In Emmetsburg, Iowa, America’s largest maker of ethanol for motor fuel is putting the final touches on a manufacturing plant that will rely not on corn, but on the stalks and cobs left behind.
Trucks have already dropped off 2,600 tons of big bales at the Poet distillery’s stack yard in the town of 3,500 people. The process is like making moonshine on an industrial scale, helped along by some high-tech, bioengineered enzymes.
Poet and its joint venture partner, the Dutch industrial giant and enzyme-maker DSM, have received $100 million in Energy Department grants and $20 million in financial incentives from Iowa. They expect to begin production of ethanol at the Emmetsburg plant early next year.
Not a moment too soon. For months, a brawl has been brewing in Washington over the future of ethanol plants like the Emmetsburg plant, pitting well-financed oil giants against trade groups and companies representing the politically well-connected biofuel industry.
Road map for renewables
The heart of the dispute is the Energy Independence and Security Act, passed by Congress in 2007 with rare bipartisan support, which provided a road map for increasing the use of renewable agricultural byproducts in the U.S. motor fuel supply. The Poet plant is just what Congress envisioned: a Middle America biofuel displacing Middle East crude — with some possible climate benefits to boot.
Corn-based ethanol, which makes up nearly 10 percent of U.S. motor fuel, has been in large-scale production for years. But Congress was worried about driving up the price of corn used as feed for livestock and poultry. So lawmakers capped the total production of corn-based ethanol and set a schedule for ramping up the use of “advanced” biofuels made from corn husks, switch grass, wood chips and other stuff known as “cellulosic” material to 16 billion gallons (60 billion liters) by 2022.
There is one problem, though. So far, no company has produced cellulosic ethanol at commercial volumes.
Congress assumed that cellulosic ethanol could be phased in gradually — but not this gradually. This year refiners were supposed to mix about 15 billion liters of it into motor fuel. So far, there has been hardly a drop. More than a dozen companies have tried and failed to find a profitable formula combining sophisticated enzymes and the mundane but costly and labor-intensive job of collecting biomass.
Congress had the foresight to provide a safety valve. The Environmental Protection Agency, using its authority under the 2007 law, slashed the cellulosic ethanol quota this year, first to a paltry 14 million gallons (53 million liters) and then again to 6 million (23 million liters), equal to about 0.004 percent of the fuel consumed by U.S. automobiles. It also extended the deadline for compliance, and is widely expected to soon announce minimal quotas for next year. Oil industry lobbyists believe the EPA will also, for the first time, trim the minimum quotas for corn-based ethanol, angering farm interests and major corn ethanol producers.
The shortfall in cellulosic ethanol output has helped trigger high costs for some oil refiners under an arcane enforcement scheme that has the oil industry screaming — and lobbying — for congressional and regulatory relief.
Valero, the United States’ biggest oil refiner, said on Oct. 29 that it expects to spend $500 million to $600 million this year to buy certificates to comply with the program.
The American Petroleum Institute, a trade group for the nation’s oil and gas industry, says petroleum refiners should not have to wait for the EPA to amend the targets every year. It wants the mandates, known as the Renewable Fuel Standard (RFS), abolished so that refiners don’t pay penalties for failing to comply. The API has wallpapered billboards, websites and subway systems with ads. It has lobbied key members of Congress. And it has filed a lawsuit against what it called an “unrealistic mandate.”
William R. Klesse, chief executive of Valero, which is also the nation’s third-largest corn ethanol producer, wrote to EPA Administrator Gina McCarthy in September, saying that cellulosic ethanol production “is still basically nonexistent with only small volumes expected.” He said Congress “should develop an alternate RFS that encourages the development of the business, but also represents the real world.”
The ethanol industry has fired back that the oil companies’ real agenda is to prevent a new industry from competing for space in American fuel tanks. They charge that oil firms fear losing even a 1 percent share of the roughly $450-billion-a-year gasoline market, especially since U.S. gasoline consumption peaked in 2005 and has been falling as a result of higher fuel-efficiency standards for new American cars.
“We would never have invested the amount of money we’ve done without a clear framework like the one the RFS is providing. It is absolutely critical,” said Manuel Sanchez Ortega, the chief executive of Spanish engineering giant Abengoa, which is finishing a cellulosic ethanol plant in Hugoton, Kansas. Repealing the RFS, he added, “would be somehow misleading to the investment community.”
Lobbying groups’ target
Rep. John Shimkus of Illinois, a senior member of the House Energy and Commerce Committee, is one target of lobbying groups. The goals set by Congress in 2007 were “just too aggressive,” he said during a September meeting with reporters organized by Platts, an energy newsletter. But, he added, “There are people who’ve made major investments. You’re talking billions of dollars. . . . So what kind of signal are you sending” by changing the RFS? “That kind of scares me,” he said.
The fight is coming to a head just as the first well-financed, truly commercial-size cellulosic ethanol plants are poised to come onstream. These ventures, while behind schedule, are not startups, and the companies behind them have the financial muscle to push ahead. Dupont is close to completing a plant in the town of Nevada, Iowa, that will produce 110 million liters a year. Abengoa, the Spanish multinational energy, engineering and construction firm with more than 22,000 employees worldwide, says its Kansas plant will start up by early next year and produce 100 million liters a year. It has been signing 10-year contracts with nearby farmers to buy biomass.
Source of raw material
Poet and DSM expect to begin production in Emmetsburg in early 2014 at a rate of about 75 million liters a year. Poet, which is the country’s biggest corn-based ethanol producer, has worked on cellulosic technology since 2001. The plant is located next to a Poet corn ethanol plant, so that it can draw on the same farmers for raw material.
“You’ve got $1 billion plus of investment in steel, and people don’t put that kind of money in just for fun,” said Adam Monroe, president of the U.S. arm of Novozymes, a Danish company that makes enzymes used to convert plants into sugars and then ethanol. “That first wave is coming online. It’s been delayed, but many companies have experienced this in the economy we’ve had in the past five years. I’ve given my opinion to the guys up on the Hill: The standard has delivered the objectives of developing the fuel and the technology.”
Even with the opening of those three plants, U.S. cellulosic ethanol output will be minuscule compared with the ocean of gasoline American cars use. Altogether, they will produce about 4,900 barrels a day — less than 0.06 percent of U.S. consumption. But the companies building those facilities say they could replicate them and ultimately capture about 10 percent of the U.S. motor fuel market.
“There is no question that there is a delay, and therefore we expect the EPA to adapt the targets to the real production capacity of the industry,” said Ortega, the Abengoa CEO.
But he said abolishing the standard would be a mistake. “This is a huge change for the next 200 years. Two or three years’ delay — that’s nothing.”
To reach the ethanol goals set by Congress, the government came up with a Byzantine implementation plan.
Each gallon of renewable fuel has its own 38-character number, called a “renewable identification number,” to track its use and monitor trading. There are types of these RINs for different biofuels, including corn-based ethanol, cellulosic ethanol and biodiesel.
In February of each year, refiners who fail to provide enough renewable fuel to the blenders who mix ethanol and gasoline must buy extra RIN certificates.
When companies have extra credits for renewable fuels, the RINs can be banked and sold in later years. If there are not enough renewable fuels overall, the price of RINs rises — and provides an incentive to produce more.
Normally, the RIN market is sleepy, with certificates selling for a few pennies a gallon. But earlier this year, uncertainty about whether the EPA would scale back the production targets and an element of speculation by traders at financial institutions combined to drive up the price of RINs to about $1.40 a gallon in July. Industry sources say that Morgan Stanley, Goldman Sachs and energy trading firm Vitol all took positions by buying and selling RINs.
Suddenly, some refiners desperately needed RINs — and paid dearly for them.
The ‘blend wall’
Boosting the use of ethanol in motor fuel faces another obstacle: the “blend wall.”
Oil industry executives say that ethanol should not make up any more than 10 percent of every gallon of motor fuel sold. The API says that motor fuel with 15 or 20 percent ethanol levels might damage vehicle engines and would not be covered by automakers’ warranties. Moreover, oil companies do not want to pay for new pumps at gas stations, most of which are independently owned.
Ford Motor Co., which is developing cars capable of handling high levels of ethanol, warns on its website that “ethanol blends above E10 . . . may damage engines that are not designed to operate on higher concentrations of ethanol; this poses a particular concern for older vehicles.”
Supporters of biofuels say that, when it comes to cars, the API is relying on the results of limited studies, such as one by the Coordinating Research Council, a group supported by the oil and auto industries. It looked at eight cars, three of which suffered engine problems. The Energy Department called the study “seriously flawed” because, among other things, it subjected engine parts to unusually severe stress.
The Energy Department’s own study, based on 86 cars and four types of fuel, found no damage from the higher ethanol levels.
An earlier Energy Department test of 2009 model cars also showed no effects from higher ethanol levels.
The EPA has approved the use of fuel with 15 percent ethanol, but only for cars manufactured after 2001. E85, with 85 percent ethanol, can be used by flex-fuel cars, which make up a small portion of the nation’s cars, mostly in the Midwest.
In order to absorb the final congressional targets for ethanol use, ethanol will need to make up 20 percent or more of motor fuel.
Higher volumes of ethanol have other challenges. Ethanol absorbs water, which can contribute to pipeline corrosion, so companies usually transport ethanol by truck or rail and the blending of ethanol and gasoline takes place at distribution terminals close to gas stations.
Ethanol also has two-thirds of the energy content of gasoline, so increasing the portion of ethanol reduces the miles per gallon slightly.
Oil industry lobbyists say they still hope for legislative change, if not repeal.
One outcome the lobbyists have explored is to keep the 10 percent limit on ethanol, trim the corn’s share and increase the cellulosic quota. Because cellulosic ethanol’s level of greenhouse gas emissions is lower than corn ethanol’s, the oil lobbyists hope they can make common cause with some lawmakers concerned about the climate.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.