Federal Biofuel Programs Headed for Failure

Today the Government Accountability Office (GAO) released two reports on the Environmental Protection Agency’s Renewable Fuel Standard (RFS) program: Program Unlikely to Meet Its Target for Reducing Greenhouse Gas Emissions (GAO-17-94) and Low Expected Production Volumes Make It Unlikely That Advanced Biofuels Can Meet Increasing Targets (GAO-17-108).

The two reports are obviously linked. Under the RFS program as amended by the 2007 Energy Independence and Security Act, a renewable fuel qualifies as “advanced” if it has a greenhouse gas intensity at least 50 percent lower than gasoline. So if advanced biofuels are unlikely to be produced in the expected quantities, the RFS program is unlikely to meet its greenhouse gas reduction targets.

That big picture is well known, so GAO’s conclusions come as no surprise. Nonetheless, the reports usefully confirm why the RFS is not working as intended. There are two main reasons: the high cost of producing advanced biofuels relative to corn ethanol and gasoline, and the incompatibility of high-ethanol blends with most vehicles and retail fueling infrastructure, which creates a “blend wall” limiting the amount of ethanol that can actually be sold at about 10 percent of the motor fuel supply. GAO also commendably acknowledges the blend wall’s root cause: ethanol’s inferior fuel economy and the associated lack of consumer demand for high-ethanol blends.

Some pertinent excerpts from the GAO-17-94 report:

It is unlikely that the goals of the RFS—to reduce greenhouse gas emissions and expand the nation’s renewable fuels sector—will be met as envisioned because there is limited production of advanced biofuels to be blended into domestic transportation fuels and limited potential for expanded production by 2022. As we report in GAO-17-108, advanced biofuels are technologically well understood, but current production is far below the volume needed to meet the statutory targets for these fuels. . . .

The shortfall of advanced biofuels is the result of high production costs, despite years of federal and private research and development efforts. The RFS was designed to bring about reductions in greenhouse gas emissions by blending targeted volumes of advanced and, in particular, cellulosic, biofuels, because those fuels achieve greater greenhouse gas reductions than conventional corn-starch ethanol and petroleum-based fuel. However, because advanced biofuel production is not meeting the RFS’s targets, the RFS is limited in its ability to meet its greenhouse gas reduction goals as envisioned. According to several experts we interviewed, the investments and development required to make these fuels more cost-effective, even in the longer run, are unlikely in the current investment climate, in part because of the magnitude of investment and the expected long time frames required to make advanced biofuels cost-competitive with petroleum-based fuels.

. . . the most likely cellulosic biofuel to be commercially produced in the near- to midterm will be cellulosic ethanol. However, reliance on adding more ethanol to the transportation fuel market to meet expanding RFS requirements is limited by the incompatibility of ethanol blends above E10 with the existing vehicle fleet and fueling infrastructure. Many experts and stakeholders refer to this infrastructure limitation as the “blend wall.” If ethanol continues to be the primary biofuel produced to meet the RFS, these infrastructure limitations will have to be addressed.

Specifically with regard to the existing vehicle fleet, some experts told us that for most vehicles sold in the United States before 2015, the owner’s manuals and warranties indicate that the vehicles should not use ethanol blends above 10 percent because of concerns about engine performance. Since 2011, EPA has issued waivers to the Clean Air Act allowing automobiles and light-duty trucks from model year 2001 and after to run on E15. However, many auto manufacturers contest this waiver, stating that automobile owners should follow their owner’s manuals. The possibility that using higher blends of ethanol than E10 will cause vehicle warrantees to be void may be reducing demand for these higher blends of ethanol.

Flex fuel vehicles, which can run on ethanol blends up to E85, have entered the vehicle fleet but, as of 2016, were less than 10 percent of the total vehicle fleet, which may also limit the potential demand for higher blends of ethanol. Further, several experts told us there is little demand from the public for E85 because the fuel offers lower gas mileage than E10 or E15 and prices of E85 do not reflect the need to refuel more frequently. . . .

With regard to the fueling infrastructure, some experts stated that ethanol blends higher than E10 are largely incompatible with existing distribution and retail fueling tanks and pumps in the United States and that there are few incentives for fuel distributors and retailers to make the changes that would be needed to accommodate higher blends.