Continued progress in advanced biofuels relies on the RFS

There is widespread agreement among experts, policy makers and the public that the United States must overcome its addiction to fossil fuels to protect the environment and for reasons of national security. As in any addiction, interventions are necessary to break bad habits. Fortunately, in 2007 Congress expanded the Renewable Fuel Standard (RFS), requiring increased production and use of renewable fuels from multiple sources. American companies are making steady progress in creating advanced plant-based fuels. But this progress could be threatened by political uncertainty about continuing the RFS mandate.

Despite the clear intention of Congress to create the RFS, it took until March 2010 for the Environmental Protection Agency to finalize lengthy rules for administering the law. That interval coincided with economic recession, emergency economic stabilization measures to prevent bank failures, and oil prices that rose above $140 per barrel and then dropped below $40. Advanced biofuel companies, like other enterprises deploying new technology, face enormous challenges in raising the necessary capital for commercial-scale production – which were intensified in the recent challenging economic conditions. Still, many have made significant strides in making investments to commercialize advanced biofuel technology.

Among the most promising new developments has been progress in using not just the starchy parts of plants like the kernels of corn, but also the tougher material called cellulose that is found in stalks, leaves, corn cobs, switch grass and wood chips – and doing so at a competitive cost. When Congress established the cellulosic biofuel portion of the RFS, it understood that American consumers would reject advanced biofuels if they were more expensive than the fuels they were replacing. Congress directed the EPA to evaluate annually the industry’s projections and intentions to produce cellulosic biofuels, adjust the standard accordingly and provide blenders and refiners a waiver credit as an alternative way to comply with the law.

The Cellulosic Waiver Credit is set at the difference between $3.00 and the average wholesale gas price for the preceding year. The credit guarantees that cellulosic biofuels have to be cost competitive at that price. The cost of the waiver credit is set through a transparent calculation, so that everyone knows the price cellulosic biofuels must reach to be competitive. And while to date cellulosic biofuels have not reached the price set by law, despite producers’ plans and stated intentions, the credit remains an option that protects obligated parties and consumers from paying too high a price for the new technology.

Now certain special interest groups are threatening this progress and creating additional uncertainty by calling for an end to the RFS. One industry group that helped to devise the waiver credit mechanism program now claims that refiners and blenders are being penalized by having to abide by the regulations.

Pioneering advanced biofuels producers and biotechnology companies have made significant capital investments, even during the recession, to build pilot facilities and ready the technology for commercialization. These companies have already produced jobs in research and engineering. Not all will be successful in scaling up to commercial production. But we should draw the appropriate lessons from these efforts and remain focused on the ultimate goals of increasing energy security, reducing air emissions, and maintaining U.S. leadership in deploying advanced technologies that will ensure future economic growth.

The RFS is a critically important tool for ensuring that fuel markets will be open to new advanced technology as it becomes commercially available and cost competitive. Any drastic legislative changes to the RFS, followed by additional years of new rulemaking, can only create fresh challenges for these companies and serve to hinder development of the technology.

Jim Greenwood is president and CEO of the Biotechnology Industry Organization (BIO).

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