What Role Does the Government Play in Introducing a New Biofuel to Market?

One of the ways in which climate change may be mitigated, and domestic energy security improved, is to create a new biofuel to power our cars and trucks that does not rely on traditional petroleum sources. One such fuel, ethanol, is already widely blended into gasoline in the US; another, biodiesel, is on sale in many fueling stations as a standalone fuel for diesel engines. However, due to concerns over the long-term sustainability of current production processes for biofuels (and for ethanol in particular), researchers are investigating a so called “second-generation” of biofuels. These include fuels that can be made from cellulose (the material that makes up plants’ cell walls, and comprises most of the mass of a plant) as well as fuels made from novel feedstocks, such as algae. My research in particular has focused on one such second-generation biofuel, called biobutanol. Biobutanol has many technical advantages over ethanol, but biobutanol has not been approved by the Environmental Protection Agency (EPA) for use in road vehicles. In a recent review, Slating and Kesan discussed the regulatory hurdles biobutanol must clear to be approved for everyday use.

There are many factors that determine whether the development of a new fuel will be successful. Some of these factors are engineering ones, and include such things as power output and energy density. Other factors involve government regulations surrounding the fuel industry. As an engineer, it is easy to forget that even if a new fuel is technically better than an existing fuel, it still must pass regulatory muster before it can be distributed and sold. In the US, there are two sets of regulations a fuel has to pass before it is considered an acceptable fuel. As detailed in the paper, these are the Renewable Fuel Standard (RFS2) enacted in the Energy Independence and Security Act (EISA) of 2007 and the “Substantially Similar” rule in the Clean Air Act (CAA) of 1972. The first of these creates a captive market and incentive to produce new biofuels such as biobutanol, while the second effectively limits the amount of new biofuels that can be blended into existing fuels, creating a tension that the EPA is required to balance.

In 2005, the US Congress passed the Energy Policy Act which contained the first Renewable Fuel Standard (RFS1). This standard mandated certain production targets for “renewable fuels”, with “renewable fuels” having a very broad definition. Unfortunately, this standard resulted in little change in the market, due to the dominance of ethanol produced from corn, which was able to satisfy the requirements outlined in RFS1. To correct this, Congress enacted the EISA in 2007 which contained the RFS2. In the RFS2, there are four nested categories of biofuels; in order from most restrictive to least restrictive definitions, they are Cellulosic Biofuels, Biomass-Based Diesel, Advanced Biofuels and Renewable Fuels. The definitions are nested such that any fuel that meets the requirements of either of the first two definitions (i.e. Cellulosic or Biomass-Based) also satisfies the definition for Advanced Biofuels and Renewable Fuels. In addition to providing these more stringent definitions, RFS2 also provides yearly targets for biofuel production for each category, with more restrictive categories making up a larger percentage of the whole as time progresses.

{:.centerimg} Yearly Targets for Biofuel Production as Specified in the EISA RFS2
Yearly Targets for Biofuel Production as Specified in the EISA RFS2. Source: Stoel Rives LLP

Depending on the production process, biobutanol could fit into any of the categories except Biomass-Based Diesel. This means that if biobutanol can be classified in a more restrictive category than ethanol, it has the potential to capture a large segment of the market, due to the minimum production mandates in RFS2. If it cannot meet the more restrictive definitions, ethanol may fulfill the requirements satisfactorily, removing the market for biobutanol. It is unclear as of this moment which production process for biobutanol will prove to be commercially viable (leaving aside the regulatory issues), and therefore it is uncertain which category biobutanol might fall into.

Once a new fuel such as biobutanol is categorized according to the RFS2, it still can’t be introduced into road vehicles without the approval of the EPA under a second set of regulations set forth in the CAA of 1972. In the CAA, Congress outlined the “Substantially Similar” principle, which states that any new fuel cannot be sold unless it is “substantially similar” to the fuel used by the EPA in its tests of road vehicles. If a new fuel cannot be fit into the substantially similar protocol, the company must apply for a fuel waiver for that fuel, or try to apply a previously granted fuel waiver to their fuel.

Biobutanol, therefore, has three potential paths to take through the Clean Air Act - to comply with the substantially similar rule, as it is currently set forth by the EPA; to try to fit into an existing fuel waiver; or, to apply for a new fuel waiver. The easiest path to take would be to follow the substantially similar rule, which limits the weight percent of oxygen allowed in the fuel. However, this would limit the amount of biobutanol which could be blended in gasoline to about 12%. If a company wanted to try to fit into an existing fuel waiver, they could attempt to pass through a loophole in a waiver that was intended for methanol; this could allow up to 16% biobutanol blended with gasoline. However, there is no guarantee that the EPA would allow this fuel waiver to be used for a fuel for which the waiver was not granted. Finally, a company could choose to apply for a new fuel waiver; this process could take years, and according to the analysis in this paper, has only a small chance of success.

With the regulations as they stand, the authors assert that revised regulations are appropriate, so that society can reap the benefits of cleaner burning fuels in the very near future. They suggest two changes that could considerably speed the regulatory approval of new fuels. The simplest would be for the EPA to issue a new “Substantially Similar” rule, allowing the use of higher blending amounts of biofuels (such as biobutanol) which have been shown to reduce regulated emissions. The authors’ other suggestion is for Congress to modify the Clean Air Act, so that the EPA is forced to consider new fuel waivers in a more timely manner, especially for fuels that satisfy the RFS2 mandates. Since this may not occur in the near future, the authors’ strongly recommend the EPA to create a new “Substantially Similar” rule.

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