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By Robert Rapier on Feb 21, 2008 with no responses

API Conference Call on Biofuels

After missing about 10 API conference calls in a row, I finally found time yesterday to participate in one on biofuels. Participants per the API web site were:

Devil’s Advocate of Copious Dissent, Nate Hagens of The Oil Drum, Bruce McQuain of The QandO Blog, Robert Rapier of The Oil Drum and R-Squared, Geoff Styles of Energy Outlook, Gail Tverberg of The Oil Drum, and Brian Westenhaus of New Energy and Fuel.

Let me first say that I felt like I was in an episode of the Twilight Zone. The API was defending ethanol against an angry mob of bloggers who thought it was a bad idea. Nate Hagens actually asked “Did I hear you right? The API supports ethanol?”

Unfortunately, there were some technical difficulties, and only the first few minutes of the call were transcribed. First off, here were the questions I asked, and the answers:

00:02:54 ROBERT RAPIER: Hi, this is Robert Rapier. I’ve got a few questions. I am going to have to drop out at about the 45-minute mark, so just to warn you. Is there a change in the corn ethanol tax credit? Does that get phased down over the years here? I haven’t seen anything about that.

00:03:14 MR. MANNATO: Yeah, I’m not aware that it does. The tax credit is limited in nature, so it only goes for a couple years, but typically has been renewed on a very regular basis. So it’s due to sunset and I’m not sure when. It may be 2010. But again, it’s not like it’s ramping down.

00:03:41 MR. KOCH: Robert, this is Matt Koch. To take that a little further, as they worked through this last energy bill, there was a lot of attempts to – the numbers changed significantly and there was a lot of efforts to try to find how they were going to pay for these broader bills as they were moving through Congress. There was – we saw tax bills from anywhere from 14 billion (dollars) up to $28 billion that had come through Congress. And in an attempt to get these numbers to match up, there were discussions about do they extend that tax credit, do they phase it down to a lower number? A lot of that was just all that was in play in the fall as they worked through these trying to get a bill done. But nothing was ever completed; there was no tax component attached to this bill. So we never saw anything come to fruition.

00:04:33 MR. MANNATO: Right, those pieces were stripped out in the end.

So essentially, the corn ethanol credit runs out, and is renewed each time (unlike the wind and solar credits, which have a more difficult time of it).

00:08:05 MR. MANNATO: And this is Al Mannato again. The other point I’d make is I think part of that concern is reflected in the cap for conventional ethanol or corn ethanol that was put into the legislation. So they’ve attempted to deal with those substantive concerns you’ve raised in that technical way by putting a cap on the corn ethanol so it can’t continue to grow, and we won’t need 15 percent. In theory, that 15 billion (gallons) is where some say the sustainable level is; and some say we’re past that already with where we are. So that’s an ongoing debate. But that was the intent behind the cap.

00:08:47 MR. RAPIER: I’d like for you to talk about that cap just a bit. If it’s capped at 15 billion and the mandated limit keeps going up and we don’t have cellulosic ethanol in any commercial volumes, what happens then?

00:09:07 MR. MANNATO: Well, one of the things we really felt strongly about was we wanted a reasonable and workable standard. And the primary concern we had was the one you just mentioned. The technology doesn’t keep up with the promise. So what we have in the bill is a technology review in 2015 where the EPA will do a review of the technology that is out there in 2015 and determine how many billions of gallons of cellulosic ethanol will be produced in 2016.

And what the legislation allows the agency to do is to adjust the standard for cellulosic ethanol to be equal to the amount of production that they project for the following year. So we’re not looking forward five years and trying to predict what’s going to happen. The legislation requires the agency to look forward, in effect, just a few months into the following year and then peg the standard to be equal to the amount that will be produced. We think that’s an important safety valve that was built into this legislation and one that we pushed for very forcefully.

00:10:21 MR. RAPIER: Well, but at 2015, the RFS is already at 20.5 billion gallons. So if the cap is at 15, I mean, they’re saying we must have 5 billion extra gallons before we’re even going to review this. We’re not going to review it until 2015. I think you’re going to have a big problem.

00:10:41 MR. MANNATO: Yeah, I think that’s exactly right. And I think that’s one of the concerns we’ve got moving into the future. And we’re going to try and work through that through the regulatory process to see if we can get some flexibility built in for – there are other – in terms of the bio-diesel provision, which is a billion of that 5 billion you mentioned, that there is the ability to have waivers for that one billion if there are problems with the supply. And there are also general waiver provisions that provide if the fuel isn’t available, if there is a general availability issue, there are general waiver provisions. So there are some safety valves in there. But we will continue to work with the agency to better fine-tune those mechanisms.

I thought it was pretty interesting that there is a multi-billion gallon deficit between the corn ethanol cap and how much cellulosic must be produced by the time they get around to reviewing it. I would think they would have wanted to review just as soon as cellulosic was supposed to be scaling up. To use the hover car analogy, they aren’t trying to determine the feasibility after just a few hover cars have been mandated. They will review after demanding that we have a few million out flying around. So what’s going to happen? Lawmakers are going to scramble to undo the provisions when they find out that they can’t mandate technology breakthroughs.

There was a bit of confusion by one blogger.I will let you spot the problem:

00:04:37 DEVIL’S ADVOCATE: Hi, this is Devil’s Advocate from Copious Dissent. I’m going to be candid for just a moment. I really cannot figure out why the government is promoting ethanol in the first place. According to David Pimentel, a professor at the College of Agriculture at Cornell University, it takes 1.29 gallons of gasoline to produce one gallon of ethanol.

The API defended against this charge:

00:05:09 MR. MANNATO: In terms of that Pimentel analysis, I think there is a debate over that whole issue and there is various views about the energy balance and how much gasoline it does take to produce – or how much oil it takes to produce a gallon of ethanol. And I think the bottom line from our perspective is, we think that the net energy balance is slightly positive for ethanol because of a lot of byproduct issues. But again, it’s slightly positive, but I think there are policy reasons why Congress has moved forward with it – energy security reasons.

There were a lot of good questions asked, so it is too bad about the audio. Nate asked a great question about water usage. As I had to drop out early, I did e-mail them 3 additional questions, and I am told they will get back to me. They were:

1). Can you explain the anti-backsliding rules?

2). There was an outcry by certain politicians when ConocoPhillips received the tax credit for the renewable diesel project they are doing with Tyson Foods. A quote from Lloyd Doggett “There appears to be abuse that demands legislative correction.” My question: Were they successful in denying that credit for renewable diesel processes like hydrocracking?

3). Who is going to evalaute the greenhouse gas reduction? You can’t even get scientists to agree on the parameters, how is anyone going to stack hands on this? It will become a hot political issue.

That 3rd one relates to the fact that there is a requirement for a certain percentage GHG reduction for advanced biofuels. When you can’t even get agreement on the energy balance, how on earth will you get agreement on the GHG reduction?