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Jonathan EisenthalSeptember 21, 202312 min read

Biofuel Policy Priorities

Securing year-round E15 tops the legislative agenda in the final months of 2023, while clean fuel policy and other biofuel issues are also prioritized in the months ahead.

The ability to sell E15 fuel across the U.S. every month of the year could bring the total domestic market for ethanol to approximately 21 billion gallons annually. Multiple pathways exist to help the industry reach this goal — through legislation and policymakers at federal agencies — and multiple pathways increase the odds of success.

“E15 is top of mind,” says Brian Jennings, CEO of the American Coalition for Ethanol (ACE). “We are pursuing a couple of pathways to finally getting E15 year-round done.”

One path is through the U.S. Environmental Protection Agency (EPA), which was initiated by eight Midwest governors seeking it through a petition. The EPA has dragged out the rulemaking process, releasing a proposal in March to allow E15 in eight states (Illinois, Iowa, Minnesota, Missouri, Nebraska, Ohio, South Dakota and Wisconsin), but at the time of publishing this story, the Agency hadn’t finalized it yet. Since EPA has taken significantly longer than what the statute calls for to finalize the rule, Attorneys General in Nebraska and Iowa filed a lawsuit.

The governors’ petition puts pressure on the second path, which is legislation.

“We’ve supported bills in Congress for the last several congresses, to codify E15 year-round, permanently, in every part of the country, but we really haven’t made significant progress, until late last year, when the oil companies decided to step into the ring to support the bill, rather than opposing it,” Jennings says. “Instead of eight or 10 midwestern states having a set of rules and then the rest of the country having another rule, oil companies want one set of rules when it comes to blendstocks, so the governors’ pro-activity has helped bring more support to the table for a blanket national fix to this.”

Jennings adds there are more cosponsors than in the past, so he’s hopeful for more progress with this bill. “There’s an effort to position that bill for hitching a ride on some other must-pass piece of legislation by the end of the year,” he says.

The bicameral, bipartisan Consumer and Fuel Retailer Choice Act, and the more recent Nationwide Consumer and Fuel Retailer Choice Act of 2023 (S. 2707), sponsored by Senators Shelley Moore Capito and Deb Fischer, has attracted the support of the petroleum industry, according to Will Hupman, vice president of downstream policy for the American Petroleum Institute. He agrees it could pass this year if it can be included in the right legislative package.will-hupman-high-res

“We think the bill has a lot of merit and we are thrilled to be partnered up with the ethanol industry to move this commonsense solution forward,” Hupman says.

“Our concerns really stem from the petition filed by the eight Midwest governors last year, and that petition from their viewpoint, would bring year-round E15 to those states, but the mechanism for doing that is removing the one-pound waiver from E10, and we think this may cause or could have a negative impact on the fungibility and supply efficiency of gasoline in the region.”

Fungibility is the ease of replacing one gallon for another in exchanges. Through a variety of means, the petroleum industry freely moves fuel to the locations where it is in demand. Making blend requirements specific to some states but not others could mean some gallons would not be usable in all locations.

“These Midwest states [involved in the petition] rely on local and out-of-state refiners and shippers, and the creation of two new grades of low-vapor pressure gasoline that would be produced and distributed solely in these Midwest states could cause compatibility or fungibility issues with surrounding states.” Hupman says. “We think The Nationwide Consumer and Fuel Retailer Choice Act of 2023 is a good solution in that it would provide for year-round E15 nationwide, it would preserve the one-pound waiver for E10, which we think is important, to address these fungibility issues.”

Jennings reiterates the market potential E15 represents, estimating annual domestic ethanol consumption to be around 14-15 billion gallons today, and with E15 year-round, nationwide, eventually about 21 billion gallons of annual consumption.

“Long term, it’s a big deal,” Jennings says. “We won’t get to that saturation point overnight, of course, but it is the tallest, most imposing hurdle standing between where we are today and where we want to be in terms of market share for ethanol.”

State Legislatures Push for Carbon Reduction

Another grassroots movement is resulting in multiple state legislatures offering bills aimed at lowering the carbon emissions of transportation fuel in their states. In Minnesota, the Clean Transportation Standard (CTS) is just the latest state-based attempt to reduce greenhouse gas emissions from the transportation sector. Jennings notes the Great Plains Institute in Minneapolis convened a broad group of stakeholders, and those conversations informed the Minnesota CTS.

“The 2023 [Minnesota] Legislature established the Clean Transportation Fuel Standard Working Group to prepare recommendations…including development of performance-based incentives to reduce carbon pollution from all transportation fuels including gasoline, diesel, biofuels, and electricity,” according to a statement from the Minnesota Department of Transportation. The statement continues, “the working group will be jointly convened by the Commissioners of Agriculture, Commerce, Transportation and the Pollution Control Agency. By Feb. 1, 2024, the working group will develop recommendations for structuring a CTS that requires the aggregate carbon intensity of transportation fuel supplied to Minnesota be reduced to at least 25% below the 2018 baseline level by the end of 2030, by 75% by the end of 2040, and by 100% by the end of 2050.”

Michigan, Illinois, New Mexico, New York and Vermont are each considering their own standards, similar to Minnesota’s, and modeled to a lesser or greater extent on standards already made into law in California and Oregon.Studio_Session-3329

“Low carbon fuel standards — it’s not just a Midwest or West Coast phenomenon,” Jennings says. “We believe this is important, because eventually Congress is going to look at this. We want there to be a Midwest flavor to the policy, instead of having Congress rubberstamp what California has done.”

The effort in Congress has already begun. The very first hearing in the U.S. Senate on a federal Low Carbon Fuel Standard happened earlier this year in the Senate Environment and Public Works Committee. Jennings notes that there is bill language making its way through the halls of Congress to create a national Low Carbon Fuel Standard. “ACE made the decision to get involved in those discussions, so we could shape the direction these policies take,” Jennings says, “rather than having something forced on us we may not necessarily like.”

EVs Get Major Boost in EPA Tailpipe Rule

In April, the EPA proposed new Federal GHG emission reduction rules, which it said would bring about a major turn toward electrification of America’s automobile fleet. “Depending on the compliance pathways manufacturers select to meet the standards, EPA projects that EVs could account for 67% of new light-duty vehicle sales and 46% of new medium-duty vehicle sales in Model Year 2032,” according to the EPA. “The proposed MY 2032 light-duty standards are projected to result in a 56% reduction in projected fleet average greenhouse gas emissions target levels compared to the existing MY 2026 standards. The proposed MY 2032 medium-duty vehicle standards would result in a 44% reduction compared to MY 2026 standards.”

Both petroleum and biofuels industries are challenged by these goals, which Jennings calls ‘aspirational,’ but he notes ACE has a program to demonstrate how biofuels and hybrid-electric-vehicle technology could produce a major carbon reduction win.

“Our Chief Marketing Officer Ron Lamberty is directing our program with an FFV-Hybrid demonstration vehicle,” Jennings says. Automakers should look at hybrid technology, but one which pairs the electric motor with the lowest carbon fuel on the planet, which is E85, Jennings says, “we think it’s a matter of time before policymakers figure out that’s a really smart way to move forward, but we are not quite there yet.”

According to Hupman, API and the petroleum industry are pushing for a technology-neutral approach to carbon reduction, and one which applies lifecycle greenhouse gas analysis to EVs, as well as internal combustion engine (ICE) vehicles.

“API supports and continues to support reductions in carbon emissions from the transportation sector,” Hupman says, including the carbon intensity of all fuels — biofuels, gasoline and diesel. He thinks all technology should be allowed to compete in the reduction of transportation sector carbon emissions. The transportation sector in the U.S. is the largest emitting sector, at 37 percent of total emissions by sector in the country. According to Hupman, over the last 20 years in the U.S. we have had GHGs go down by 11 percent overall, but only by about 4 percent in transportation. Why is the largest piece of the pie lagging in emission reductions?

“To us, part of the answer is we don’t have policies that are directed toward emission reductions,” Hupman says. “(EVs) magically get a score of zero emissions from the EPA, from California, because they don’t have a tailpipe and therefore, they are not emitting anything directly from the vehicle. However, there are emissions up and down the value chain of those vehicles, as there are for internal combustion vehicles.” According to Hupman, API has been trying to pursue a more realistic look at emissions from transportation to inform more realistic policy and make the most amount of progress in the shortest time.

The makeup of America’s vehicle fleet is a key question, and Hupman posits that, despite the new EPA policy, most of those vehicles will continue to derive their power from an ICE.

“If you look at the makeup of the vehicle fleet in the U.S. right now there are about 270 million ICE vehicles, and 3 million EVs,” Hupman says. “The average age of a car is 12.2 years old, so if, tomorrow, we said every new car that is sold must be battery electric, it would take us 15 years to turn over our vehicle fleet in order to realize that vision. Instead, we should have all vehicles be a part of reducing emissions from transportation.”

API insists the ingenuity of the American marketplace, and the capital it could draw to the best, most cost-efficient solutions, should be the mechanism for reducing the carbon intensity of the transportation sector.

IRA Supportive Biofuel Provisions

According to Jennings, the Inflation Reduction Act (IRA), is a game-changer when it comes to biofuels. The IRA provides half a billion dollars for E15 and E85 infrastructure through the USDA. “Secretary Tom Vilsack has been effective and proactive in making sure the USDA implements that,” Jennings reports. Secretary Vilsack made an announcement earlier this year that USDA will have a series of funding opportunities for retailers to participate. “We are working with retailers to help them qualify, Jennings says, adding it’s an enormous boost to paving the way to higher blends.

Another favorable provision under the IRA for biofuels is the tax credit for carbon capture and sequestration. “The 45Q Carbon Capture and Utilization Credits were modified and made a little more generous and easier for these taxpayers to take advantage of, so now you are seeing these large pipeline projects spring up and try to make it a go,” Jennings says. The industry is focused on the new 45Z Clean Fuel Production tax credit, according to Jennings. “It can help plants get a return on investment for some of these technologies they are adding, to reduce energy use, to reduce electricity use, to recycle some of their inputs, and overall lower their carbon intensity,” he says. “It’s a very good tax credit if it is implemented properly. We don’t have much information from Treasury how they intend to implement it.”

IRA section 45Z states that for every point of carbon reduction, an ethanol plant can earn 2 cents a gallon as a tax credit. Congress required the U.S. Department of Treasury to use Argonne National Laboratory’s GREET model to determine the carbon scores that will be used to measure each plant’s reduction. The provision begins in 2025, and Treasury has yet to announce the rules it will use to implement the tax credit. But with 198 ethanol plants across the country, most producing in the range of 50 to 200 million gallons per year, the tax credit will be a major boost to revenue.

Section 40B of the IRA contains a new Sustainable Aviation Fuel tax credit. Treasury has not yet published rules, so even though it is officially in effect, no one has taken advantage of it yet. Even so, there is one potential barrier to the ethanol industry’s participation in the Sustainable Aviation Fuel market. “Carbon lifecycle analysis is the flash point,” Jennings says. “While Congress said, for 45Z, Treasury must use the GREET model to determine carbon scores, when it comes to the Sustainable Aviation Fuel tax credit, Congress said Treasury should use a different one, the CORSIA Model.”

CORSIA stands for Carbon Offsetting Reduction Scheme for International Aviation. It dates from 2009 and has not been updated as frequently or rigorously as the GREET model. Jennings believes this challenge may be resolved in the not-too-distant future. The 40B statute says use CORSIA ‘or a similar methodology.’ “We are arguing the similar methodology ought to be the GREET model,” Jennings says. “The models aren’t all that different. The CORSIA model contains many of the same elements as the GREET model. The biggest difference is that GREET is updated on an annual basis.”

Usually in October each year, Argonne National Laboratory puts out a version of GREET that takes into account technology changes, land use changes and farming practices, but the CORSIA model has not been updated in a long time. “Our argument is not that the CORSIA model is bad and the GREET model is good. It’s that the latest science and technology ought to be incorporated in these carbon scores, and GREET does that, but CORSIA doesn’t, for whatever reason,” Jennings explains. “We don’t know how Treasury is going to come down on that.”

Between major federal legislation already enacted, and bills and policies proposed at the national level and in many states, carbon reduction and the measurement of carbon intensity are increasingly in focus. ACE, alongside the ethanol industry, is continually working with policymakers and legislators, who are making climate a top issue, to position ethanol as part of the solution.