America's cellulosic biofuels industry suffered an abrupt setback last week when the U.S. Environmental Protection Agency slashed the target for the next-generation fuel source – despite pledges and promises to rely on it heavily to meet fuel needs.
EPA announced it expects 5 to 17.1 million gallons of cellulosic ethanol to be blended into the nation's fuels in 2011, a tiny fraction of the 250 million gallons mandated under federal law.
The news left some industry watchers scratching their heads and others fuming.
"EPA reduction in the cellulosic numbers is sending a chilling signal to the financial markets," said Brent Erickson, an executive vice president at the Biotechnology Industry Organization (BIO), a Washington, D.C.-based trade group that represents several large firms investing in biofuels.
He and others scolded the administration for not buttressing the new rules with renewed commitments to finance new biorefineries.
"If the Obama administration is going to reduce the cellulosic standard, then they need to develop some new policies to incent private investment so ... the standards can be met in the future," Erickson told SolveClimate.
Under the Energy Independence and Security Act (EISA) of 2007, the U.S. must massively boost the use of biofuels from 12 billion gallons this year to 36 billion gallons by 2022.
Around 16 billion gallons of that is earmarked to come from switchgrass, corncobs, sugarcane bagasse and other inedible cellulosic plant parts.
To keep the industry on track to deliver the rapid expansion, EPA must publish goals every year for four fuel technologies – biomass-based diesel, advanced, cellulosic and total renewable biofuels.
Next year the biofuels industry will provide 13.95 billion gallons, or 7.95 percent of the nation's transportation fuels, according to the proposed 2011 Renewable Fuel Standards.
Cellulosic ethanol, however, is seen by many as the best of the biofuels options to reduce oil dependence and help the environment. Unlike corn-based ethanol, cellulosic waste does not displace crops that feed humans and can be grown on marginal lands. Under the 2007 law, cellulosic ethanol must shrink greenhouse gas output by 60 percent from that of gasoline or diesel.
Still, it was the only category revised down by EPA in the proposed rules.
Matthew Carr, director of the Industrial and Environmental Section at BIO, said the move "didn't come as a surprise" given the way things have been going.
In February, EPA dramatically cut the cellulosic goal for 2010 from 100 million gallons to 6.5 million gallons, a 93.5 percent decrease.
EPA blamed the reduction on a lack of market supply due in large part to tough economic times.
"Biofuel producers face not only the challenge of the scale-up of innovative, first-of-a-kind technology, but also the challenge of securing funding in a difficult economy," EPA said in the proposed rules. "Currently there are no facilities consistently producing cellulosic biofuels for commercial sale."
By 2011, eight facilities are expected to deliver cellulosic biofuel to market. However, there are "uncertainties associated with each facility's projected volume," the document said.
"Announcements of new projects, changes in project plans, project delays, and cancellations occur with great regularity," it added.
Loan Program 'A Failure'
Biofuel advocates, too, fault the recession and tight credit conditions. But they also blame the Obama administration and its failing loan program.
"The loan guarantee program has really been a failure for next-generation biofuels," Carr told SolveClimate. "We haven't seen a single loan guarantee come out of the Department of Energy."
According to Carr, there are upwards of 30 commercial facilities ready to break ground. "They just can't get private capital to get going," he said, adding that "the industry is quite concerned." The plants can cost up to $100 million each.
However, Carr said he sympathizes "somewhat" with the DOE. "
"They'd like to support these technologies," he said, but cellulosic ethanol is forced to compete head-on for loans with proven commercial technologies, such as solar, wind, geothermal and nuclear. In terms of risk, they're at the "bottom of the list," he said.
The Renewable Fuels Association, a national trade group for the ethanol industry, would seem to agree.
"EPA's estimates underscore the need for Dept. of Energy ... to construct loan guarantee programs that work for cellulosic ethanol companies," Matt Hartwig, spokesperson for RFA, wrote on the company blog.
In a letter to Energy Secretary Steven Chu last October, RFA sounded the alarm, warning the DOE that it's loan program must be "quickly revised" to "encourage emerging technologies by reducing market risk."
"A fundamental flaw of the loan guarantee program is that DOE is weighing the applications of emerging technology projects such as cellulosic ethanol using the same criteria as mature technology projects," the letter stated. "The challenges facing next generation of advanced biofuels are simply much different than those of the renewable power sector."
The industry also faces major challenges with the nation's current fueling infrastructure. Currently, the EPA limits the amount of ethanol that can go in today's car engines to 10 percent, and ethanol production from corn is saturating the market.
"There's no where for cellulosic to go," said Carr.
Boosting the "blend wall," as it's called, could help create new demand for the fuel, he added.
Advocates also want Congress to extend the current cellulosic biofuels tax credit enacted in 2008 Farm Bill to 2015. Currently, it's set to expire in 2012.
EPA 'Remains Optimistic'
EPA said it "remains optimistic that the commercial availability of cellulosic biofuel will continue to grow in the years ahead."
In the near term, the final rule for biofuels production will be released in November 2010. For cellulosic fuels, EPA said it "intends" to select a single value from within the large 5 to 17.1 million-gallon range to represent the projected available volume for the industry.
BIO said it plans to submit comment during the current 30-day public comment period.
"We'll endeavor to give EPA our best analysis of the projection of cellulosic volumes" and "make sure they get that number right," Carr said. The "top end in the range might be in the right ballpark."
One thing trade groups are not complaining about is EPA's plan to study additional "fuel pathways" for different fuel crops.
The agency said it will analyze the carbon footprints of four biofuel feedstocks – canola oil, grain sorghum, pulpwood and palm oil.
"We're glad to see the EPA looking at some other fuel pathways ... and exciting emerging technologies," Carr said.