EPA Releases Final RFS2 Rule

Rule still includes indirect land use change, but updates calculations that give corn ethanol more credit for GHG emission reductions.

The Environmental Protection Agency (EPA) officially announced Feb. 3 details of the newly-expanded rule for the Renewable Fuels Standard (RFS2) which does recognize that ethanol from all sources provides significant carbon benefits compared to gasoline.

For the first time, some renewable fuels must achieve greenhouse gas emission reductions - compared to the gasoline and diesel fuels they displace – in order to be counted towards compliance with volume standards.

In the RFS2 rulemaking, EPA has for the first time set blending volumes for specific categories of renewable fuels including cellulose and biodiesel. The cellulose level of 6.5 million gallons was significantly lower than the 100 million proposed in May 2009. EPA will require the combined 2009 and 2010 volume levels of biodiesel blending to be met, which will require the utilization of 1.15 billion gallons of biodiesel by the end of 2010.

Tom Buis, Growth Energy CEO, did note several improvements to the rule from when EPA first proposed the expanded RFS last year.

"We're pleased with the decision to make volume levels of domestic ethanol retroactive to the first of the year - this is a significant step toward reducing dependence on foreign oil, creating U.S. jobs and improving the environment," Buis said.

EPA's updated regulations included an important credit for distillers grains and showed that "domestic corn demand and exports are not impacted as much by increased biofuel production as they were in the proposed analysis,” EPA said.

The EPA now assumes that 1 lb. of distillers grains will replace 1.196 pounds of total corn and soybean meal for various beef cattle and dairy cows in 2015. The higher displacement ratio is phased in gradually from 2007 to 2015. For swine and poultry, the displacement ratio remains at 1:1 throughout the life of the RFS, but the EPA now assumes more soybean meal is displaced than in previous analyses, which has the effect of reducing necessary soybean acres.

According to EPA's modeling, corn-based ethanol achieves a 21% greenhouse gas reduction compared to gasoline when international indirect land use change (ILUC) are included.

EPA found that “ethanol produced from corn starch at a new natural gas, biomass, or biogas fired facility (or expanded capacity from such a facility) using advanced efficient technologies (ones that we expect will be most typical of new production facilities) will meet the 20% GHG emission reduction threshold compared to the 2005 gasoline baseline.”

National Corn Growers Association (NCGA) President Darrin Ihnen said this means that all corn ethanol including existing grandfathered capacity and new production will qualify to meet the conventional biofuels targets in the RFS.

Without ILUC, corn-based ethanol achieves a 52% GHG reduction. Cellulosic ethanol achieves GHG reduction of 72-130% depending upon feedstock and conversion process. All GHG reductions for ethanol exceed those mandated by the RFS2.

Indirect land use

The EPA made several changes to its lifecycle GHG analyses, which resulted in ethanol’s GHG reductions being less significant than would have otherwise been the case.

However ethanol supporters are concerned of the agency's use of the indirect land use change theory which puts corn-based ethanol at a disadvantage to other biofuels such as Brazilian sugar-based ethanol.

EPA did change its indirect land use change penalty from its original proposal last year. However ethanol supporters state the ILUC should not be applied in regulation until there is a more thorough, long-term study on the issue. The House's version of climate change legislation called for the study, a measure pushed by House Agriculture Chairman Collin Peterson, D-Minn.

Peterson joined House Armed Services Chairman Ike Skelton, D-Mo., andRep. Jo Ann Emerson, R-Mo., to introduce a bill last week to prevent EPA from regulating greenhouse gas emissions under the Clean Air Act. The bill, H.R. 4572, also includes provisions that would stop the EPA from using international indirect land use calculations in biofuels regulations and would expand the definition of renewable biomass.

Sen. Mike Johanns, R-Neb., and former agricultural secretary said, he was "deeply disappointed that the Administration remains fixated on their flimsy, untested, and unreliable theory that holds our farmers and ethanol producers responsible for land use decisions made half way around the world."

Ihnen stressed that the EPA should reject the "unproven theory of international indirect land use change, which assumes that growing more corn means planting corn on a proportionately greater amount of acreage and will impact other crops or natural resources on a global basis. Today's yield trends show this to be false. 2009's record corn yield was 165.2 bushels per acre, according to the U.S. Department of Agriculture, more than 11 bushels higher than 2008 and nearly 15 bushels higher than 2007," a statement from NCGA said.

Advanced biofuel

The RFS calls for advanced biofuels production capacity to rise to more than 23 billion gallons by 2022. It caps conventional ethanol at 15 billion gallons at 2015.

The overall result of the EPA’s ILUC modifications is that sugarcane ethanol is now assumed to reduce GHG emissions by an average of 61% compared to baseline gasoline.

As such, sugarcane ethanol would surpass the 50% GHG reduction threshold for advanced biofuels and would actually meet the 60% standard for cellulosic ethanol. This is a significant change from the 26.5% GHG reduction from the proposed rule, noted a fact sheet from the Renewable Fuels Association.

By contrast, the final rule analysis suggests corn ethanol reduces GHG emissions by ~20% compared to gasoline. "While this is a substantial improvement over the 5% increase in GHG emissions attributed to corn ethanol in the proposed rule, the improvement is not of the magnitude of the sugarcane analysis. The reasons for this disparity are very unclear," RFA said.

Buis said the rule gives Brazilian sugarcane ethanol "preferred status as an advanced biofuel" which he said he doubts was the intent of Congress when it passed the Energy Independence and Security Act. "It won't make the U.S. any more energy independent by switching our addiction from foreign oil to foreign ethanol," he said.

Joel Velasco, chief representative in Washington for the Brazilian Sugarcane Industry Association (UNICA), said the "EPA's reaffirmation of sugarcane ethanol's superior GHG reduction confirms that sustainably produced biofuels can play an important role in climate mitigation. Perhaps this recognition will sway those who have sought to raise trade barriers against clean energy here in the U.S. and around the world. Sugarcane ethanol is a first generation biofuel with third generation performance."

The RFS2 requires the use of at least 4 billion gallons (over 15 billion liters) of "other advanced" renewable fuels a year by 2022. In 2010, the RFS requires 200 million gallons of this type of advanced renewable fuel.

All soy biodiesel is deemed by EPA to exceed the 50% reduction threshold needed to qualify for the RFS2 biodiesel mandate.

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