Feedstock Fight
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The Grocery Manufacturers Association (GMA), in combination with agriculture livestock groups and poverty-aid organizations, is leading the effort to change the RFS mandate. The paper products industry is leading another initiative, deciding that cellulose biofuels may compete for their basic wood-based feedstocks, resulting in open attempts to limit the definitions and tax credits aimed at creating a cellulosic biofuels industry. In addition, the soap and candle products industry is opposing efforts to create refinery process provisions that use tallow for the development of renewable diesel fuel.
The first sign of this competitive lobbying for feedstocks protection began last year when U.S. Senator Jon Kyl (R-AZ) offered an amendment to the energy bill to eliminate co-processing technology from the renewable diesel tax credit being considered as part of major energy policy legislation (H.R. 6). He stated in his US. Senate floor speech that his constituents would be harmed if tallow feedstocks used in soap manufacturing were allowed by major oil companies for use in the production of renewable diesel fuel. His amendment was defeated in a close vote of 45 to 39. A similar effort by U.S. Congressman Lloyd Doggett (D-TX) was successful in the U.S. House of Representatives and is pending before the Senate in the energy tax extenders package.
The new provision excludes co-processing of renewable feedstock from the US$1 tax credit, which is allowed under the law. This amendment would discourage one of the only technologies capable of bringing significant volumes of renewable fuels into the market place in the short term. The provision as drafted has the untended consequences of excluding renewable produced oils from being processed by refineries. For instance, some algae and biotech process technologies could produce a renewable feedstock for refiners that could be blended with crude oil-based streams to produce hydrocarbon-based biofuels. The law only grants the tax credit to the percentage of the renewable component in the final mix, but the proposed provision would reduce the tax credit from $1 to $0.50 – less than what other process technologies receive for their product, creating a competitive disadvantage.
In the forefront is the battle bet-ween the GMA and the Renewable Fuels Association (RFA). The GMA has raised concerns about the impact the RFS is having on food-grain supplies and therefore, food prices for processors and consumers. Corn growers and bio-ethanol producers, through the RFA, have disputed the GMA arguments. They point out there are a series of dynamic factors such as the rising energy cost, the falling dollar, weather-related crop failures, increase world demand and changing diets in developing worlds as well as biofuels that are having greater impacts on commodity prices.
In a split within the agricultural community, livestock producers, significantly affected by rising feed prices, have partnered with GMA to seek a waiver to the 2008 RFS mandate requiring 9 billion gal (34 billion L) of biofuels use. Additionally, other parties such as the National Petrochemicals and Refiners Association have joined in this debate by supporting Texas Governor Rick Perry’s recent petition to the U.S. Environmental Protection Agency (EPA) seeking a partial waiver to the RFS requirements based on adverse impacts to the state’s economy. (The EPA has 90 days to render a decision about whether to grant this waiver from the petition date of April 25, 2008). The EPA received more than 15,000 public comments responding to the waiver request. The agency is expected to render a decision by the end of July 2008.
The U.S. Congress is also weighing in on the debate. Twenty-four Republican senators submitted a letter urging the EPA to consider the impacts of “food-to-fuel mandate” as the agency develops regulations for implementation of the expanded RFS. Other farm state senators have written to the EPA administrator, Stephen Johnson, supporting the RFS and opposing any waiver to the program. Senator Kay Bailey Hutchison (R-TX) most recently introduced legislation (S. 3031) calling for a roll back on the biofuels volumes under the mandate to 7.5 billion gal (28 billion L) per year. Numerous Congressional hearings have been held about the impacts of biofuels on supplies and prices. However, even with the Congressional push for further energy legislation in response to $4/gal gasoline, efforts to change the RFS requirements are unlikely, given the shortened legislative session in this election year. It looks like a debate that will carry into 2009 with a new president and Congressional session.
The other major feedstock fight is between the paper and the cellulosic biofuels industries. Last year, the paper industry was successful in excluding federal forest land and pre-commercial wood trimming from being included as feedstocks for use as an advanced biofuels under definitions for the RFS program. They were also successful in having a study included about the impact of the new cellulosic tax credit provision on their industry and feedstocks use. In response, a coalition of biofuels, timber and agricultural companies is seeking to broaden these provisions to allow woody biomass to be used as a biofuels feedstock and remove the current law’s exclusion.
Curt Rich of law firm Van Ness Feldman believes “the last thing this young industry needs is inconsistent federal policies retarding its development. The industry needs to focus
its effort both this year and into
next year’s Congress to ensure that policies are technology neutral and do not become the vehicle for federal land use planning or other anti- biofuels policies.”
Feedstocks have become a central dynamic in the debate concerning biofuels and this nation’s energy policy. At a minimum, we should encourage an active and thoughtful exploration into the range of elements domestically and internationally that is impacting these food and fuel prices. We should seek to understand the gravity and scale of these impacts as well as understanding their environmental implications moving forward.
Michael McAdams can be reached at 1 (703) 891-4816 or mmcadams@hartenergy.com
