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DAVID KRUSE

By Staff | Feb 19, 2010

The Environmental Protection Agency’s Web site announced, “Based on the Agency’s current modeling of specific fuel pathways, which incorporated comments received through the third-party peer review process, and data and information from new studies and public comments, EPA has determined that:

  • Ethanol produced from corn starch at a new (or expanded capacity from an existing) natural gas-fired facility using advanced efficient technologies that we expect will be most typical of new production facilities, complies with the 20 percent green house gas emission reduction threshold.
  • Ethanol produced from sugarcane complies with the applicable 50 percent GHG reduction threshold for the advanced fuel category;
  • Biodiesel from soy oil and renewable diesel from waste oils, fats, and greases complies with the 50 percent GHG threshold for the biomass-based diesel category.”

Corn-based ethanol was scored at 21 percent in GHG reduction compared to petroleum. That qualified it to be an approved biofuel under the RFS2 rules. Without deducting for indirect land use, GHG reductions of corn-based ethanol was scored at 52 percent. Without ILU, which is an over-reach of theory anyway, corn-based ethanol would meet the 50 percent threshold as an advanced biofuel.

EPA applied no ILU deduction to sugar cane ethanol, which scored 61 percent. What I find really ironic is EPA scoring soydiesel at 57 percent GHG threshold.

The land use theory promotes the premise that when the U.S. grows more corn for ethanol, that increase in U.S. corn production reduces U.S. soybean production raising prices so that Brazil clears and plants more land to soybeans.

Yet EPA’s higher score of biodiesel suggests that using U.S. soyoil to make biodiesel somehow doesn’t raise the price of soybeans so it has no impact on land use in Brazil.

This is all theory. There has been no decline in U.S. soybean acreage because of the increase in corn production. The corn acres came from somewhere else. The dots don’t connect like EPA has been led to believe. I don’t believe EPA has a handle on land use and the impact the U.S. corn-based ethanol industry has had on other crops grown elsewhere.

The supply of corn needed by the U.S. corn-based ethanol industry will primarily be sustained by rising trendline corn yields, not increased acreage. The rising trendline yield is reducing the per unit consumption of pesticides and fertilizer that impacts the GHG lifecycle.

Early ethanol net energy studies that were widely promoted used archived pre-GMO corn yields and failed to include credit for distiller’s dried grain.

Many plants now extract corn oil. The more products you get out of a bushel of corn, the better the GHG scoring. EPA rebutted previous studies that put corn-based ethanol down by including updated ddg production, yield and fertilizer assumptions in its modeling.

Ethanol Monitor editor, Tom Waterman wrote, “The agency based the decision on better science and three factors changed the outcome in the models used – Increased crop yield trends, co-products; and data from 160 countries instead the 40 countries that were in the agency’s initial assessment.

The collective sigh you heard came from California as it exposes the procedures used by the California Air Resources Board as invalid when it established California’s Low Carbon Fuel Standard, and, in doing so, believed it was establishing a nationwide standard.

It is unclear what California will do now, if anything. I’m sure California thinks that it’s smarter than EPA. EPA treated corn-based ethanol more fairly, but then again, it works for us and is not funded by oil companies.

Congress claims that it never intended for ILU to be included in the RFS rules. Iowa Senator Chuck Grassley was not happy. “EPA thwarted the will of Congress and the Obama administration by including indirect land use change in the regulation. By using this unproven and murky theory, the EPA has done a disservice to America’s renewable fuel producers by diminishing (ethanol’s) benefit to the environment.”

In this case, Ag Sec Tom Vilsack deserves kudos for his input into the EPA RFS2 rules process. Most in the industry believes that Vilsack has a positive impact on the result.

Corn-based ethanol will be mandated to a use of 15 billion gallons. The current industry is geared to produce 15 billion gallons, but it was not designated as an advanced biofuel, so 15 billion gallon caps the industry, as well.

In order to reach that RFS2 mandate, the EPA will have to raise the blending cap now set at E-10. The industry is promoting increasing the cap to E-15. The EPA is likely to raise the cap, but with restrictions. It doesn’t make sense to mandate 15 billion gallons, but deny market access to reach the target with the blending cap set too low.

Raising the blend cap gives the motor fuel industry more freedom to make choices. The biodiesel RFS2 standard is 1.15 billion gallons by the end of 2010.

That action, while positive, must be accompanied by the re-authorization of the $1/gallon biodiesel credit that was allowed, by the gridlocked Congress, to expire Dec. 31.

Word is that they intend to tack the biodiesel credit onto the Jobs Bill. However, depending on a dysfunctional Congress for anything is undesirable.

While they are focusing on a jobs bill, they focus most on partisanship. The biodiesel industry is unlikely to fire up idled plants until Congress performs.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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