Monday, October 10, 2011
Congress will likely be confronted with the ability (or inability) of the U.S. biofuels sector to expand production capacity to meet the ever-increasing RFS mandate. U.S. biofuels production has easily exceeded the RFS since its inception in 2005 and through 2009. However, in 2010 U.S. biofuels production appeared on the verge of bumping up against the so-called “blend wall”—the 10% blending limit of ethanol to gasoline in U.S. transportation fuel—which could challenge the industry’s ability to meet the RFS mandate in the future. Blend wall aside, as the RFS mandate for biofuels steadily increases and becomes binding, it will have important consequences for food and energy markets. The short-lived commodity price spikes of mid-2008 hinted at the potential conflict associated with conversion of domestic food crops to biofuels.
In an attempt to shift biofuels policy distortions away from livestock feed and other markets, both EISA and the 2008 farm bill redirect biofuels research and development emphasis to cellulosic biofuels, since they can potentially be produced from non-food feedstocks such as crop residues, dedicated energy crops, and woody biomass. Under EISA the cellulosic biofuels mandate grows quickly from 100 million gallons per year (mgpy) in 2010 to 16 billion gallons by 2022. As a result, after 2015, most of the increase in the overall RFS is intended to come from cellulosic biofuels rather than corn-starch ethanol. However, the speed of cellulosic biofuels development remains a major uncertainty and currently lags the schedule set in EISA.
Congress might face issues relating to cellulosic biofuels production such as the effectiveness of incentives to spur commercial viability. Under EISA, EPA is required to calibrate annual fuel-use mandates based on expected production capacity. In early 2010, cellulosic biofuels were being produced in the United States on a very small, non-commercial, scale, thus making the 100 mgpy mandate a daunting target. As a result, the EPA announced (Feb. 3, 2010) a reduction in the 2010 cellulosic biofuels RFS to 6.5 million gallons. Then, on Nov. 29, 2010, in its final rule on 2011 RFS mandates, EPA announced a 2011 cellulosic biofuels mandate of 6.6 mgpy, down from the 250 mgpy scheduled in EISA.
Date of Compendium: September 16, 2011
Number of Pages: 117
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