At the National Biodiesel Conference earlier this week, AFPM President Charles Drevna called the Renewable Fuel Standard (RFS) an “anachronism” and claimed that “it’s not working as intended.” Should he be believed?

Congress established the RFS with steadily increasing volume mandates for cellulosic biofuels in order to open the petroleum-dominated market to alternatives and spur growth in the industry. Despite the resistance to innovation from the petroleum refiners, that purpose in not an anachronism. Moreover, new cellulosic biofuel technology is being developed faster than would have been possible without the RFS in place.

Any consumer filling up at the pump today should readily recognize that America is still addicted to foreign oil. In 2011, consumers spent a record $481 billion on gasoline. That record amount consumers spent on gasoline in 2011 came despite the fact that overall gasoline use was down – consumers spent about $0.78 more per gallon, while using several billion fewer gallons of gas.

The petroleum refiners have made questionable claims to bolster their opposition to the program. A Wall Street Journal editorial, for instance, echoed petroleum refiners’ talking points: “In 2010 and this year, the EPA has forced oil companies to pay about $10 million for these credits. Since these costs are eventually passed on to consumers, the biofuels mandate is an invisible tax paid at the gas pump.” Even the New York Times led with the refiners’ talking point: “When the companies that supply motor fuel close the books on 2011, they will pay about $6.8 million in penalties to the Treasury because they failed to mix a special type of biofuel into their gasoline and diesel as required by law. But there was none to be had.” A little fact checking is in order on these claims.

It may surprise many that cellulosic biofuels are available in the marketplace. Under the 2006 Renewable Fuel Standard (known as RFS1), “cellulosic biomass ethanol” – ethanol produced in biorefineries that used biomass for heat and power – qualified as cellulosic biofuel. This definition changed in July 2010, when RFS2 came into force. But enough of the cellulosic biomass ethanol was produced to satisfy the 2010 obligation for cellulosic biofuel and up to 20 percent of 2011 obligation. In 2010 and 2011, using or purchasing the cellulosic biomass ethanol was the lowest cost means of complying with the RFS and the one that refiners and blender favored.

What Is the Cellulosic Waiver Credit?

Refiners and blenders (obligated parties) have several options for complying with the cellulosic biofuel mandate under RFS2 and can choose the lowest cost method. BIO outlined this in a widely available article, published in Industrial Biotechnology Journal. Purchasing a cellulosic waiver credit is not a “fine,” it’s just one of several compliance options for refiners. The price of these waiver credits is set before the beginning of a compliance year, giving refiners advance notice of the cost of this compliance method. Since the price of the credit is tied to the cost of gasoline, it pushes cellulosic biofuels to be cost competitive with petroleum gasoline around the $3.00 per gallon mark.

In 2011, obligated parties purchased 12,186 cellulosic waiver credits to meet their 2010 obligation at a total cost of $19,010.16 – far from the millions of dollars claimed.
An additional option for obligated parties is to simply defer their obligation for one year. So, whether cellulosic biofuel producers generate gallons or not, refiners may still choose one of the other options.

Is This a Hidden Tax on Consumers?

Consider the very real cost to consumers of continued addiction to foreign oil. For each dollar consumers spent at the pump in 2011, the cost of the cellulosic waiver credits purchased by refiners and blenders added $0.00000004. Each U.S. household spent on average $4,155 for gasoline last year, making the total cost of the cellulosic biofuel credit for each household less than $0.0002.

In contrast, biofuels produced and consumed in the United States reduced oil imports by more than 200 million barrels in 2011, keeping $22 billion here in the United States.
While advanced biofuels have not achieved “commercial” status in the two years since the RFS has been in force, the fact is that the current rules have yet to provide the long-term stability and predictability necessary for all parties. It’s premature to claim that the RFS doesn’t work. And implementing additional changes will simply continue the pattern of policy instability that has slowed commercialization to date. Forward looking, long-term stable energy policy is needed to break the cycle and bring new technologies into the marketplace.

Q&A with ARPA-E Deputy Director for Commercialization Cheryl Martin

Q: What is the mission of ARPA-E, and how do you work to further that mission?

Cheryl Martin, ARPA-E Deputy Director for Commercialization

ARPA-E’s mission is to develop advanced energy technologies that can reduce U.S. energy consumption, emissions, and our reliance on foreign energy sources.  At the core, we are a technology funding agency, with a focus on next-generation, game-changing energy advances.  We award funding for research and development, with the goal of de-risking technologies enough to make them attractive to private sector investors and development partners.  With about 180 awards to date, we are funding an amazing set of projects not only at universities and national labs, but also at both large and small companies across the country, all working on enabling a more secure, competitive, and clean economy through more efficient buildings, low-cost electric vehicles, efficient alternative fuels, and beyond.

Q: What are some of the unique challenges that new companies face in commercializing an innovative energy solution?

The energy sector is enormous and offers an enormous opportunity for new technologies that disrupt the status quo.  Because the energy space covers such a wide range of technologies, from global game-changers to consumer products, it is hard to generalize, but some of the common challenges include a need for large amounts of development capital beyond the lab and difficulties in selling a new technology into an established customer base that strongly emphasizes reliability.

Q: How does ARPA-E work with companies to address those challenges?

First and foremost, we employ some of the country’s most entrepreneurial scientists and engineers as program managers, so that we can offer active support to help projects prove out their technologies as they move from the laboratory.  Beyond the lab work, we provide funding and resources to help project teams develop the knowledge and skills they need to prepare for deployment of their technologies.  We want our projects to address issues related to product definition, market entry and manufacturing as early as possible so that they will be well-positioned for success in private-sector funding and deployment.

Q: What are some of the ARPA-E projects that are commercializing biotech innovations for energy solutions?

The most direct application of biotechnology in energy is in alternative fuels. So far, we have supported these efforts in three different programs, totaling over 25 projects.  Our first broad program has projects that address both algae (for example, Arizona State) and feedstock (for example, Agrivida). There have been two subsequent focused programs, Electrofuels and PETRO.

Electrofuels, which has funded 13 projects, seeks to explore practical ways to convert reducing agents (sources of electrons) plus carbon dioxide into more valuable chemical products through non-photosynthetic biochemical pathways. This includes organisms that have found a way to use DC electricity!  PETRO (for Plants Engineered To Replace Oil) is one of our most recent programs, and it seeks to explore practical ways to develop dedicated biofuel crops that reduce, or even eliminate, the need for post-harvest conversions. Projects included in PETRO are seeking to synthesize large amounts of non-oxygenated natural products (such as turpentine) through directed engineering of plants.

Q: Are there unique hurdles that are facing biotech companies?

As mentioned above, in energy, biotechnologies usually focus on production or transformation of fuels.  In fuels, the hurdles are scale and cost:  You have to be able to create a lot of a high-energy product, at a price that makes it cheap enough to burn. Biotechnology companies need to bridge into these markets through specialty chemicals, or identify markets that are willing to pay for fuel alternatives, in order to address the associated challenges of profitably getting to large production volumes.

Q: If additional biotech companies want to participate in the ARPA-E program, how do they go about it?

For companies and individuals seeking funding, the best advice is go to our website energy.arpa-e.gov and add your email address to our mailing list, where we send updates on all of the agency’s new funding opportunities.  We also hold a flagship conference every year in late February in Washington, DC, where we review the agency’s ongoing efforts, discuss upcoming areas of interest, and showcase technologies that have applied for funding with our agency.  This year, the ARPA-E Summit will be February 27-29 – more information at energyinnovationsummit.com.

Q: Tell us about the ARPA-E Summit coming up in February. How will it showcase these projects?

The ARPA-E Summit is a conference we put on to celebrate the incredible amount of innovation happening in energy technology across the United States.  This year we’ll be featuring perspectives on energy by industry, academic and political titans like Bill Gates, Fred Smith and other keynote speakers, as well as conversations with top energy experts on some of the emerging issues and opportunities for energy technology today.  Another highlight of our summit is the Technology Showcase, where hundreds of transformational energy technologies set up demonstration booths to showcase their technology ideas and prototypes.  The showcase features not just the projects that ARPA-E is funding, but also some of the top finalists that we weren’t able to fund, as well as other exciting technologies aligned with our mission.  We hope to see you there!

The EPA on January 9 issued the final rule for the 2012 Renewable Fuel Standard, calling for production and use of 15.2 billion gallons of renewable fuel, representing just over 9 percent of the total fuel market. The renewable fuel total includes 2 billion gallons of advanced biofuel, with at least 8.65 million gallons of cellulosic biofuel.

Importantly, EPA’s 2012 rule maintains a course –consistent with the 2010 and 2011 rules – that continues to promote growth in the production and use of advanced biofuels. While the cellulosic biofuel standard is lower than the target set in 2007, it is an achievable production level based on a careful survey of U.S. biofuel producers. The map of Existing and Planned Biorefineries represents all planned and existing biorefineries in the U.S., including those currently producing cellulosic biofuel. The EPA rule ensures that the fuel market – which is still dominated by petroleum gasoline – will be open to competitively priced advanced biofuels.


View Existing and Planned Biorefineries in a larger map

With oil prices projected to stay above $100 per barrel, and gasoline prices at the pump well above $3.00, advanced biofuels have a clear opportunity to reach price competitiveness. More importantly, though, they have the potential to continue improving affordability, while oil continues its upward climb. Consumers spent $481 billion on gasoline in 2011, averaging $4,155 for each household or about 8.4 percent of the average family’s budget. About $1 billion every day was sent overseas to pay for imported oil.

The National Petroleum Refiners Association is the biggest critic and opponent of the RFS. It has continued to complain that the cellulosic biofuel standard is equivalent to a fine on their industry. In fact, NPRA made this argument to the EPA during the comment period on the 2012 RFS rules.

However, EPA rejected that argument. At issue is the use of cellulosic waiver credits. When the EPA lowers the annual cellulosic biofuel standard from the 2007 targets – as it has done since 2010, in recognition that actual production is not hitting these targets – it must issue these credits. The price for the credits is set by a formula established by Congress when it wrote the law, representing the difference between $3.00 and the average wholesale price of gasoline for the previous 12 months. For 2010, the waiver credit was $1.56. For 2011, it was $1.03. And for 2012, it will be $0.78. If the wholesale price of gas tops $3.00, the credit will be set at $0.25. For a full explanation of how the RFS works, see ”The Renewable Identification Number System and U.S. Biofuel Mandates” from the USDA Economic Research Service.

The cellulosic waiver credit provides an alternate method of compliance for the cellulosic mandate. The credits are made available for purchase only at the end of the year, when refiners file their final compliance reports. Refiners are allowed to purchase these to make up any shortfall in their purchase of cellulosic biofuel gallons. Some biofuel producers have complained that the credits allow refiners and blenders to avoid buying the actual gallons of cellulosic fuel. But what they actually do is establish a predictable price point for determining the cost-competitiveness of cellulosic biofuel.

In a recent analysis of the RFS rule, BIO explained the importance of this mechanism for promoting growth of the industry while ensuring that advanced biofuels are cost competitive for consumers. BIO incorporated the paper in its comments to EPA on the proposed rule, and EPA explicitly referenced the comments in rejecting the NPRA’s argument about being penalized. In essence, refiners have as much freedom as possible to choose the lowest cost method of compliance with the Renewable Fuel Standard, by selling either cellulosic biofuel or advanced biofuels (if cellulosic biofuel is unavailable or too costly).

The RFS rules balance the interests of consumers, cellulosic biofuel producers, and the refiners.The EPA has been consistent in its implementation of the RFS, promoting the stability necessary for growth. This consistency is the fundamental driver for continued growth and development of the biofuels industry.

Agriculture Secretary Tom Vilsack

By Agriculture Secretary Tom Vilsack

Not everyone knows it, but most Americans use biofuels to help power their car or truck every day.  Using biofuels we produce here at home creates jobs, raises incomes for farmers, and saves us all money.  The ethanol mixed into the gas we buy at the pump saved American drivers almost 90 cents per gallon last year.
Moving forward, we’ll see Americans running their cars with more biofuels mixed into the gas – like E85, a mix with 85 percent ethanol.  And USDA will help install thousands of new pumps at gas stations so drivers can pick the sort of fuel they want.
And it’s not just car and truck owners who can benefit from renewable biofuels.  Biofuels can be used in all sorts of engines and planes are getting into the act as well.
This month, two major U.S. airlines flew the first commercial passenger flights powered by biofuels, including a cross country flight from Seattle to Washington DC.  Airlines are looking for reliable, affordably-priced fuel.  They hope that using biofuels will limit the impact that unpredictable gas prices have on their bottom-line, making them more profitable while also limiting their impact on global climate change.
Passenger and cargo airlines in America spend about $50 billion on fuel each year.  If just a fraction of those billions are used to purchase American-produced aviation biofuels, we’ll create thousands of good-paying jobs, particularly in our rural communities.  That’s why, earlier this month, USDA announced support for a facility that will begin the process of turning algae into jet fuel and create 60 jobs.
What’s more, USDA has made important investments on aviation biofuels research and development to help universities and private firms expand and improve production.  And we are partnered with the Department of Energy and the U.S. Navy to work towards using biofuels in our military planes and strengthen our national security.
In the years to come using new sources of renewable energy to fuel our cars, trucks and even our planes will be a game-changer: reducing the influence that foreign nations have in setting our fuel prices, driving economic growth, and creating jobs across the country.

Vilsack Biofuels for Aviation

Biofuels Digests’ Bioenergy Business Outlook Survey, co-sponsored by BIO, is a quarterly indicator of business confidence, financial outlook and growth intentions. The results of the survey provide valuable insight into the mood of leaders in the bioenergy industry. More than a third of respondents each quarter identify themselves as chief executive or owner of their business.

Nearly two-thirds of respondents identify themselves as directly involved in bioenergy production, either as producers, investors, business partners or researchers. The other third of respondents identify themselves as suppliers, either of equipment or engineering, legal and business services.

More than half of respondents describe their companies as young, small and just beginning to generate revenue. In the three surveys taken to date in 2011, more than 50 percent of respondents consistently have described their company as in business fewer than six years. Likewise, approximately 60 percent report have reported fewer than 24 employees at their companies. And one-third of respondents have consistently reported revenues under $100,000.

Since the first quarter of 2011 (Q1), international participation in the survey has increased. In Q1, 83 percent of respondents said they were headquartered in the U.S., compared to just 63 percent who said so in the most recent third quarter (Q3) survey. While nearly 74 percent of respondents report operating in the U.S., 31 percent and 33 percent, respectively, say they operate or also operate in Canada and the EU. Respondents are increasingly reporting operations (18 percent in Q3 compared to 13 percent in Q1) in Australia, New Zealand and the Pacific Islands.

Respondents are asked each quarter to rate whether they are more optimistic now about their company’s and the industry’s prospects for growth than they were 12 months prior. The mood of respondents has grown slightly more gloomy over the year. In the most recent survey (Q3), 79. 5 percent said they were more optimistic about their company’s growth prospects, while 72 percent said they were more optimistic about the industry’s. But in Q1, 85 percent of respondents reported feeling more optimistic about both their company’s and the industry’s prospects than 12 months prior.

Much of the growing pessimism appears tied to perceived governmental support for the industry. When asked to rate their government’s attitude toward bioenergy, 5.5% of respondents in Q3 said “very unsupportive,” compared to just 2 percent in Q1. And when asked what they consider the most important drivers of growth for the industry, smaller percentages cited government mandates or subsidies in Q3 than in Q1. Further, when asked what government policies could create opportunities for industry revenue and job growth, the percentage of respondents saying “maintain the status quo” jumped from 2 percent in Q1 to 5 percent in Q3.

That pessimism is likely tied to expectations about financing. Similar percentages of respondents reported seeking additional financing during the previous 12 months, although a lower percentage reported success in securing it. A smaller percentage of respondents expect additional completed IPOs in the next 12 months (58 percent in Q3, compared to 72 percent in Q1. More respondents expect financing arrangements to take the form of mergers and acquisitions. Respondents to the survey expressed continued optimism in their business’ prospects for revenue growth and hiring.

In Q3, the U.S. topped the list as a key market for growth for the first time in 2011, with 43.5 percent of respondents ranking it as such. The EU was a close second (42 percent), with Brazil (41 percent) and Canada (36 percent) next. The EU had been at the top of the list in Q1 and the second quarter (Q2), with Brazil also coming ahead of the U.S. in Q2. Australia, New Zealand and the Pacific Islands and South East Asia are increasingly reported as key growth areas. In Q1, 13 percent and 15 percent, respectively, reported Australia and South East Asia as key growth areas; but in Q3, 22.4 percent and 30 percent, respectively, reported the same.

The complete results of the survey are available from Biofuels Digest. Results from previous surveys can also be found connected to the article on Biofuels Digest. BIO will continue to encourage member companies and the broader industry to take part in the survey each quarter.

The National Academies this week released a Congressionally mandated study estimating the potential economic and environmental effects of producing the 36 billion gallons of biofuels required under the Renewable Fuel Standard. The conclusions of the report are 1) that cellulosic biofuels are highly unlikely to meet their mandate of 16 billion gallons by 2022 and 2) biofuels overall are unlikely to reduce greenhouse gas emissions by as much as required. Because the report stopped short of making policy recommendations about the future of the RFS – although it does prescribe continued federal investment in advanced biofuel R&D – it provides ammunition for all interest groups to make their own recommendations.

There are two challenges that the National Academies highlighted in drawing their conclusion that cellulosic biofuels would miss the target. The first is that not enough biorefineries are being built or can be built quickly enough to meet the production goals. This is a challenge that has long been recognized by the industry. BIO’s 2009 report, U.S. Economic Impact of Advanced Biofuels Production, charted the rate at which biorefineries and capacity would need to be built to meet the RFS and calculated the capital cost. The rate of construction by 2020 would have to be very rapid, but of course the capital cost would be lower. The National Academies report recognizes that capital formation has been a challenge for building the first biorefineries; but importantly, it states that policy stability is a key prerequisite for attracting sufficient capital.

An adjunct to the challenge of constructing new production capacity, according to the National Academies, is the need for new technology that lowers the cost of cellulosic biofuel production. The report acknowledges the uncertainty around the technology challenge – no one has demonstrated it at commercial scale, so no one is certain whether new technology is needed. The same uncertainty applies to the costs.

The second challenge highlighted by the report is the great difference in cost between the price that farmers would want for growing, harvesting and delivering biomass to biorefineries and the price that biorefineries want to pay for it. The data cited by the National Academies was collected in 2010 and does not look at projected prices in the future when both farmers and biorefineries have achieved scale. There are federal programs – such as the Biomass Crop Assistance Program – designed to help bridge the scale up period between current prices and future prices at scale. The problem with the National Academies report is that it looks at the RFS in a vacuum.

The report reflects a multitude of views and attitudes obviously brought to the process of writing it. For instance, one of the members of the committee that wrote the report is Jerald Schnoor of Iowa State. More than a month before the release of the new report, Dr. Schnoor signaled his “disappointment” that cellulosic biofuels have not grown quickly while corn ethanol has. The report might give political cover to environmental groups that want to yank their previous support for advanced biofuels and the Renewable Fuel Standard. However, some of the leading environmental groups appear to be holding steady in looking for constructive ways to renew progress toward the goal.

PEW Charitable Trusts this week launched a new study, From Barracks to the Battlefield: Clean Energy Innovation and America’s Armed Forces, that details how energy innovation and clean energy can help U.S. Armed Forces respond to energy challenges and in turn how DoD’s commitment to energy transformation can contribute to development of new energy technologies that will benefit American consumers and commercial interests alike.

The major energy challenges the DOD faces include risks associated with transporting liquid fuels to the battlefield; growing oil price volatility; the impact of fuel dependence on operational effectiveness; and the fragility of energy supplies for forces.

The department is not immune from oil price spikes and resulting budgetary challenges. In fiscal 2005, DoD spent $8.8 billion for 130 million barrels of petroleum supplies. In fiscal 2008, 134 million barrels cost the department $17.9 billion, more than double the cost for almost the same amount of fuel purchased in 2005. More recently, the price paid for gasoline by the Air Force increased in mid-2011 by $1 per gallon. Carried forward over the course of the year, this price increase could raise Air Force energy costs by $2.3 billion. Across the department, operational energy costs increased from 2009 to 2010 by more than 19 percent, even though energy consumption declined by more than 9 percent.

“Moreover, where military operations are concerned, the pump price of gasoline does not fully account for all of the costs associated with securing, shipping and protecting fuel. Thousands of troops are put at risk, some sacrificing their lives, so that fuel can be obtained and delivered to the battlefield. These and material costs are increasingly factored into long-term military planning, and the department is exploring ways to consider what is known as the Fully Burdened Cost of Energy (FBCE), which is estimated to be as high as $40 per gallon.”

The report concludes that alternative fuels and renewable energy sources can be domestically produced (and locally sourced around the world) to enhance the security of energy supplies. Further, just as DOD technology development efforts have supported commercial development of computers, the Internet, the Global Positioning System, semiconductors and many more innovations, DOD’s role as an early adopter could help create a larger industry. The military has a broad range of strengths that can help accelerate commercial maturity for advanced biofuels, including an established research and development infrastructure, ability to grow demonstration projects to scale, significant purchasing power and the culture and management infrastructure necessary to foster innovation.

The Navy, the USDA and the Department of Energy recently requested information from the biofuels industry on the capability of biorefinieries to produce drop-in biofuels competitively priced to petroleum and the ability to meet the geographic diversity required by the military.

BIO’s response to the information request noted that many advanced biofuel producers have achieved milestones toward commercial development of a diverse array of feedstock and technology combinations. Some advanced biofuel companies already have worked with the DOD or with commercial airlines to test and certify advanced biofuel/petroleum blends, and more are poised to do so. The full range of projects located in diverse areas of the country, combining local feedstocks with tailored technology and processes, represent a robust response to the challenges, particularly for military biofuel needs.

Though the U.S. military represents only 2 percent of the U.S. fuel market, it possesses sufficient purchasing power to drive development of new advanced biofuels in sufficient quantities at the right price. By playing the role of an early customer and partner, the DOD can speed commercialization of advanced biofuels that can grow to meet commercial consumer market needs. The USDA and DOE can help to overcome upstream feedstock and technology development challenges by coordinating their support.

This type of coordinated approach to helping commercialize biofuels was the vision behind the Energy Independence and Security Act of 2007 (EISA). Though the programs put forward in that bill took years to implement, due to lengthy rulemaking processes, they are finally producing initial results. Today, four years later, a number of biorefineries have reached demonstration and pilot scales, and many developers are raising capital to build new commercial-scale facilities. BIO has tracked the development of more than 65 pilot, demonstration and commercial projects for advanced, cellulosic and algae biofuels across the United States and in Canada. Biotechnology companies have developed the technology to produce a range of chemical molecules – including butanol and other higher alcohols, ketones and aromatics, diesels and oils – that can be used as drop-in fuel, fuel additives, or upgraded to military specifications for fuel.

On Sept. 14, the House Agriculture Subcommittee on Livestock, Dairy, and Poultry held a public hearing to examine the issue of feed availability and its effect on the livestock, dairy, and poultry industries. Members of the subcommittee heard testimony from animal producers and their industry associations, who as a group called for an end to the Renewable Fuel Standard and other biofuel support policies or at minimum a suspension of the RFS if corn supplies are short in any given year. No grain growers, biofuel producers, or biotechnology companies were invited to give testimony, so Congressmembers heard only the poultry and beef story.

The Subcommittee’s Ranking Member Dennis Cardoza (D-Calif.) summed up the hearing by saying, “Prices have skyrocketed recently, especially harming [California’s] dairy, livestock, and poultry producers. It is time for Congress to stop picking winners and losers, which is causing a shortage of feed in our country.”

The testimony presented by the animal producers contained some statements that should be clarified for Congressmembers.

Foremost among the concerns presented by the animal producers is that ending stocks for corn have fallen to “unprecedented lows,” to cite the testimony of Dr. Steven Roger Meyer of Paragon Economics, an agriculture economist who represented the National Cattlemen’s Beef Association at the hearing. The unprecedented low he is referring to is in the stocks-to-use ratio, or the percentage of total grain held as stock at the end of the year. But, since overall supply and use have increased, the ratio has changed, as shown in the graph below. The total amount of stock in millions of bushels at the end of 2010 and 2011, while below average, was not at historic lows.

Dr. Meyer also claims that the tax credits for alcohol fuels and tariff on imported ethanol (which are scheduled to expire at the end of 2011) and the Renewable Fuel Standard have caused “lower per capita meat and poultry output.” Production of grain fed animals has changed very little over the past 25 years, as shown in the graph below, and has continued to increase since 2007. But of course, U.S. population has grown faster, so of course there is lower per capita production.

Dr. Meyer recognizes, where other speakers at the hearing did not, that DDGs left-over from ethanol production have replaced much (though not all) of the corn used for animal feed. But he, like others, fails to mention the changing nature of the diet of grain-fed animals. Feeding of any raw grain has declined, while feeding of mill byproducts – such as oilseed meal – has increased since 1985, as shown in the graph below (the graph does not include DDGs). That trend should be expected to continue as new, higher value uses of grains and oils come to the marketplace.

There are additional points that could be corrected. For instance, the gasoline oxygenate MTBE was never banned at the federal level, though it was in California and New York. Ethanol was favored because the industry faced multiple lawsuits over continued use of MTBE. And other agricultural economists – such as Bruce Babcock of the Center for Agricultural and Rural Development – have argued that the ethanol industry would have grown and outcompeted animal producers for corn stocks even without subsidies, as oil prices climbed in recent years.

In fact, the higher value for corn in recent years has helped corn farmers reverse a decade-long string of net losses, as shown below. Corn farmers are definitely more optimistic about the coming year than animal producers, according to the DTN/The Progressive Farmer Agriculture Confidence Index.

The Navy’s Blue Angels Flight Demonstration Squadron flew on a 50-50 blend of aviation biofuels during the Naval Air Station Patuxent River’s 2011 Air Expo over the Labor Day Weekend. Some inside the Washington Beltway may have thought they were seeing unicorns, but the Blue Angels’ air show and practice runs marked a high profile step in the military’s march toward use of renewable energy.

In earlier remarks, Secretary of the Navy Ray Mabus noted that this would be the first time an entire squadron would fly using biofuels. And, the Blue Angels would be able to demonstrate conclusively that biofuels can replace petroleum fuels without sacrificing performance.

All Hands Update: Blue Angels Run on Biofuel

The flight punctuates a recent announcement by the USDA, the Department of Energy, and the Navy to coordinate efforts to help commercialize aviation biofuels needed by the military. Their combined efforts could provide $510 million in matching dollars to companies building advanced biorefineries, if Congress approves. The memorandum signed by the three agencies would flex the DOD’s Defense Production Act authority to ensure that commercial development of advanced biofuels keeps pace with the military’s directive to switch to renewable energy.

The combined efforts of the USDA, DOE and Navy ensure that they address the supply chain from feedstock to fuel, the technology assessment, and the commercial viability. The military is a significant customer for transportation fuel, representing about 2 percent of the transportation fuel market. The three agencies are reaching out to industry to gather information on companies’ abilities to generate sufficient fuels that meet military specifications. The agencies also made clear that industry must bring matching dollars to the deal.

BIO has also been discussing with the military other authorities that can help the commercial development of advanced biofuels. At a July 26 panel discussion at the 2011 Sustaining Military Readiness Conference in Nashville, BIO’s Matt Carr and others proposed that the DOD’s Readiness and Environmental Protection Initiative (REPI) could be employed to grow biofuels crops. One challenge to supplying biofuels at a commercial scale is convincing farmers to grow new energy crops or to produce algae, which require considerable time and infrastructure.

As noted in a recent article in Defense Environment Alert:

REPI could be used as a way for DOD to help farmers establish crops harvested for biofuels as well as fulfill the program’s goal of forestalling development encroachment around military bases. REPI works by leveraging DOD funding with money provided by private conservation groups and state and local governments to prevent encroachment of military bases from urban sprawl while preserving the land’s ecology.

“While Carr concedes the immediate buffer lands around military bases are not enough to sustain a commercial-scale biorefinery, he said the REPI-renewable energy concept provides an opportunity for small-scale production and also helps demonstrate biofuels can be produced commercially, can overcome the reluctance of farmers to grow the crops, and could possibly be combined with other programs such as BCAP to help sustain larger production.”

The Wall Street Journal printed a few weeks ago a severely misinformed opinion piece about the Renewable Fuel Standard. The Journal echoed remarks made by a representative of the National Petroleum Refiners Association at a recent EPA hearing on the proposed RFS rules for 2012, at which BIO also testified.

NPRA claims that the RFS’s cellulosic waiver is a penalty that they have to pay for a product that doesn’t exist. However, BIO argued that cellulosic biofuel gallons are being produced, but the RFS rules protect blenders and refiners from having to purchase them at too high a cost.

BIO’s testimony was based on a white paper recently published in Industrial Biotechnology journal and posted on BIO.org. The U.S. Environmental Protection Agency has for three years consistently set the cellulosic biofuel mandate at an achievable level, based on a careful survey of producers’ intentions and according to formulas set out in the original law. The Cellulosic Waiver Credit allows refiners and blenders to purchase the lowest cost advanced renewable fuel as an alternative to the gallons of cellulosic biofuels.

This clear, transparent mechanism provides price certainty for all obligated parties as well as cellulosic biofuel producers. The RFS rules ensure that if biofuel producers can produce cellulosic and advanced biofuels at a competitive cost, the market will be open to them. This is a vital mechanism for opening up a fuel market dominated by petroleum. And in fact, forward-looking oil companies are investing in cellulosic biofuels. BP, through Vercipia, is building a commercial facility, and small companies such as INEOS Bio have also broken ground.

Consistent maintenance of the Renewable Fuel Standard is a much needed assurance to the innovators and investors trying to make large-scale commercial production of advanced and cellulosic biofuels a reality. BIO’s white paper accurately explains the waiver credit mechanism for anyone interested in checking the facts.