Governments around the world have enacted renewable fuels legislation to achieve a number of policy objectives. In some cases, it is a commitment to reduce CO2 emissions that has led governments (in Europe, for example), to require renewable fuels blending in conventional gasoline. In other cases, the United States is a prime example, energy independence and energy security have been primary motivators for renewable fuels policies over the last number of years. Of course, improved local air quality, job creation, and new economic opportunities for the farm sector, all appeal to governments, and have been strong motivators with respect to policy support for renewable fuels.
Cellulosic ethanol can contribute to all of these policy objectives, and is particularly efficient at reducing global CO2 emissions. Indeed, as governments turn their attention toward enacting low carbon fuel standards as a replacement for renewable fuels volume mandates, low carbon fuels such as cellulosic ethanol will have a distinct market advantage.
Global Renewable Fuels Policy
Throughout the world, countries have enacted renewable fuels policies. For a comprehensive global map of these policies, see Global Renewable Fuels Alliance and refer to the Global Biofuels Map.
United States Renewable Fuels Policy
The US is the world’s largest producer of ethanol, making some 13 - 14 billion gallons of renewable fuel annually. In 2005, the US Congress passed the Energy Policy Act, and in 2007 the Energy Independence and Security Act (EISA) creating a Renewable Fuels Standard (RFS) that required a minimum volume of renewable fuel to be blended into US transportation fuel in increasing amounts each year until 2022. The EISA renewable fuels standard (known as RFS2), established a target of 36 billion gallons of renewable fuels in US gasoline by 2022. Nested within that 36 billion gallons are 16 billion gallons of cellulosic ethanol (CE). Each year, the RFS program requires the sale of specified volumes of renewable fuels in designated categories. EISA established life cycle greenhouse gas (GHG) emissions thresholds for each category, requiring a percentage improvement relative to a baseline of the gasoline and diesel they replace.
Conventional Biofuel: Any fuel derived from starch feedstocks (corn, sorghum, wheat). This category covers corn ethanol. Conventional biofuels produced in plants built after 2007 must demonstrate a 20% reduction in life cycle GHG emissions compared to the baseline petroleum fuel.
Biomass-Based Diesel: A diesel fuel substitute made from renewable feedstocks including biodiesel and non-ester renewable diesel. It cannot be co-processed with petroleum (such fuels fall under an advanced biofuels category). EISA requires a life cycle GHG emissions reduction of 50% compared to the baseline.
Cellulosic Biofuel: Any fuel derived from renewable feedstocks containing cellulose, hemicellulose, or lignin. Cellulosic biofuels must have life cycle GHG emissions at least 60% lower than the baseline.
Other Advanced Biofuels: Any fuel derived from renewable feedstocks. This may include sugarcane or sugar beet-based fuels; renewable diesel co-processed with petroleum; and other biofuels that may exist in the future. Both biomass-based diesel and cellulosic biofuel that exceeds volumes in their respective categories may be used to meet this category. Fuels in this category must demonstrate life cycle GHG emissions reductions of 50% compared to the baseline.
The legislation, which is administered by the United States Environmental Protection Agency (EPA), does provide the EPA Administrator the authority to annually adjust (lower) the cellulosic ethanol (CE) targets for the subsequent year if it appears there will be insufficient CE in the market to meet the target as laid out in EISA. In fact, that is what has happened. Targets for CE market penetration have been reset to lower numbers in 2011, 2012, and 2013, and will be reset to a lower number again in 2014.
If, as has happened, the CE targets have been missed in two consecutive years in the period leading up to 2016, existing law also requires the EPA to revisit the broader 16 billion gallon 2022 target. The EPA has not yet provided guidance on how or when it intends to proceed.
Nonetheless, RFS2 continues to require that obligated Parties purchase any CE that is actually produced in the market. This confidence that production from completed CE facilities will find a market, has led to a number of CE projects proceeding to construction.
At the same time, California is implementing a Low Carbon Fuel Standard (LCFS) that sets aggressive targets for GHG emission reductions in transport. While the LCFS has come under attack, there is a global trend toward legislation aimed at reducing CO2 emissions in transport. Such a trend can only increase the demand for low carbon fuels such as cellulosic ethanol.
In addition to the RFS2 Program, support for cellulosic ethanol in the US includes grant funding and loan guarantees from the US Department of Energy, loan guarantees and biomass crop assistance programs from the US Department of Agriculture, and a $1.01 production tax credit (PTC). Some of these mechanisms are at various legislative stages within the US budget process and will require resolution. By the same token, the extension of the PTC is uncertain post 2013.
However, while initial early year targets for CE market penetration will not be met, a number of commercial scale ups are currently under construction worldwide. The successful commercialization of plants in Brazil, Italy, United States, and Canada, will steepen the curve of CE availability in the market.
Brazil Renewable Fuels Policy
With annual ethanol production of over 21 billion litres (close to six billion gallons), Brazil is the second largest producer of ethanol in the world. Blending ethanol with gasoline has been mandatory since 1976, and since 1993, depending on market circumstances, the success of the sugar cane crop, and ethanol supply availability, that blend has fluctuated between 18 and 25 percent. Effectively, this means that pure gasoline containing no ethanol is not sold in the country. Together, Brazil and the United States account for about 88% of the world’s ethanol production.
Brazil’s policy decision to rely increasingly on domestically produced ethanol for its transportation fuel needs (the majority of cars in Brazil are flexible-fuel vehicles that can run on a wide variety of ethanol/gasoline blends), has been an enormous success story, and has contributed greatly to Brazil’s energy independence.
Europe Renewable Fuels Policy
Europe's Renewable Energy Directive (RED) requires a minimum 10% (by energy, not volume) renewable energy in transport by 2020. At the moment, biofuels appear to be the only pathway to achieving that goal.
While there is no carve out for cellulosic ethanol, every biofuel made from residue/waste/cellulosic material counts double toward the 10% target (Article 21.2). That is, one litre of biofuel coming from residue/waste/cellulosic is counted as 2 litres of renewable fuel. As such, an obligated Party could blend 5% ethanol derived from residue/waste/cellulosic materials, and be in compliance with the 10% requirement.
While there is as yet no carve out for cellulosic ethanol, and while all 27 Member States have yet to fully transpose the RED into national law, a policy on Indirect Land Use Change (ILUC) is under discussion at the European Commission. This policy foresees a 1.5% carve out (from the 10%) for waste/residue/cellulosic biofuel, and a legislative proposal containing an ILUC factor is expected from the Commission. However, the European Parliament and many Member States have questioned the need for an ILUC factor so the matter could be some way from resolution.
With all that, there are still some cellulosic ethanol demonstration plants in Europe. These include the Inbicon facility in Denmark that is making cellulosic ethanol from wheat straw, the Sekab plant in Sweden that runs on pulp, the Clariant demo plant in Germany which produces cellulosic ethanol from wheat straw, and the Abengoa plant in Salamanca, Spain. Chemtex/Beta Renewables has recently commissioned a commercial CE plant in northern Italy.
Canada Renewable Fuels Policy
Since 2010, Canada has had a 5% “on average” national ethanol mandate which requires that obligated Parties blend an average of 5% ethanol across their fuel sales. In practice, this can often mean that gasoline retailers will sell 10% ethanol blends in high traffic markets to avoid having to supply ethanol to lower traffic, smaller communities.
Five percent of Canada's gasoline sales equates to about two billion litres of ethanol. That volume is currently being supplied by about 1.7 billion litres of domestic production, with the remaining volumes supplied through U.S. and Brazilian imports.
While the federal mandate does not have a carve out or set aside for cellulosic ethanol, Sustainable Development Technology Canada administers the NextGen Biofuels fund which provides up to 40% of “repayable contributions” toward the capital cost of a CE project.
Provincial mandates of varying volumes have also been in place for many years, but again, none of these have cellulosic carve outs or low carbon fuel requirements. There are currently no plans for the federal or any provincial governments to enact any future legislation with respect to renewable fuels. While both Ontario and the federal government once spoke about a possible evolution to a 10% volumetric mandate, interest today seems more centered around an integrated biorefinery model where renewable fuels are made in conjunction with renewable chemicals and renewable materials.