Navigant Research Blog

Iowa Key to Biofuels’ Future

Mackinnon Lawrence — May 12, 2015

With presidential candidates from both parties descending on Iowa to gear up for the 2016 general election, the state is quickly becoming ground zero for the ongoing debate around the future of biofuels in the United States. Earlier this year, Iowa Governor Terry Branstad announced a major new bipartisan campaign called America’s Renewable Future to promote the Renewable Fuel Standard (RFS) in the 2016 Iowa presidential caucuses.

The backbone of the country’s biofuels industry, RFS is an ambitious regulation first introduced under George W. Bush and later revised and expanded in 2007. Iowa has benefited mightily from the mandate, serving up a sea of corn and soybeans, both commodities that have played a crucial role in fueling America’s first-generation biofuels capacity growth. Since the revised standard went into effect, biofuels production in the United States has doubled. According to Navigant Research estimates, first-generation biorefineries concentrated throughout the Midwest currently account for just under half of global biofuels production capacity installed today.

New Reality

For an industry that to this point has enjoyed broad regulatory support across Europe, Brazil, and North America, biofuels are quickly losing momentum.

Although corn starch ethanol and soybean-derived biodiesel have been popular with both political parties over the last decade, times have changed. The price for a barrel of oil today is roughly a third what it was in 2008, when Barack Obama was first elected. Meanwhile, capacity build-out for next-generation facilities has been slow to materialize, resulting in advanced biofuel production totals that significantly trailing targets established under the RFS.

While Branstad’s campaign will focus on the economic benefits associated with biofuels industry development, the number of critics who say the RFS is not working continues to increase. Last month, Jim Stock, former White House economic advisor, released a report that proposes several reforms to RFS. A combination of forces, the report observes, are imposing costs on the market while failing to provide the future benefits associated with domestically produced advanced biofuels.

To put it bluntly, the industry to this point has failed to make the leap from first generation biofuels to next generation alternatives. Facing a similar reality, policymakers in Europe have signed off on reforms that cap the production of first generation biofuels and opted to extend only reforms targeting next generation fuels out to 2020.

Seeking a Niche

Still struggling for traction in a rapidly shifting market, advanced biofuel producers are examining niche opportunities such as biomethane or renewable natural gas (RNG) production and other biofuel applications that can be integrated with the power grid.

Amendments to the RFS last year, for example, have allowed RNG—biogas upgraded to natural gas specs—to count toward cellulosic biofuels quotas in certain applications like fueling an electric vehicle or being consumed as liquid natural gas. In isolated markets like Hawaii, where generation infrastructure includes a high percentage of facilities that burn petroleum products shipped across the ocean, locally grown biofuels can provide a plug-and-play renewable alternative and help the state move toward a proposed mandate of 100% renewables by 2045. Further down the road, algae conversion platforms that utilize carbon dioxide as a feedstock may offer coal producers that face tightening emissions regulations another tool for cleaning up their operations. Both options mitigate the investment needed to replace existing infrastructure.

Meanwhile, back in Iowa, companies are changing course. Fiberight, which sought to build first-of-their-kind facilities converting waste to advanced cellulosic biofuels, recently announced plans to switch to producing biogas. Considering the scale of investment needed to upgrade the power grid, presidential hopefuls may find a willing partner in a biofuels industry grasping for strong market signals.

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