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Mass. Draft Greenhouse-Gas Regs Exclude Renewable Biomass; Foes Predict Pain for Biotechs


This is an updated version of a report originally published Sept. 2.

By Alex Philippidis

Massachusetts officials say slow rulemaking by the federal government and California is to blame for excluding renewable-biomass biofuels from new draft regulations aimed at reducing greenhouse gas emissions in the state.

The regs are intended to carry out a state mandate to reduce greenhouse gases in Massachusetts. The state’s Department of Energy Resources contends that only biofuels derived from waste feedstocks, such as grease discarded by restaurants, not from renewable biomass, such as algae and switchgrass, can reduce greenhouse gas emissions by at least 50 percent over 2005 levels.

The reduction is part of Massachusetts’ Clean Air Biofuels Act, passed last year.

But advocates and executives from the broader biotech and biofuel industries contend that the draft regs would hamstring Massachusetts sellers of biofuel derived from biomass sources, which also include oils produced for harvest by microorganisms.

"Massachusetts is preventing its own biotech companies from deploying their advanced technology to turn other sources of renewable biomass into advanced biofuels," Brent Erickson, executive vice president of BIO’s industrial & environmental section, said in a statement. "The decisions released by the Massachusetts Department of Energy Resources will have a detrimental effect on Massachusetts’ considerable bioscience industry."

The waiver will hurt the biofuel industry's efforts to do business in Massachusetts, argued Andrew Schuyler, director of the Northeast Biofuels Collaborative, a Boston-based nonprofit industry group whose members include 11 biofuel sellers, including Bodega Algae, Interstate Biofuels, Mascoma, New Generation Biofuels, North Winds Biodiesel, its subsidiaries Berkshire Biodiesel and Connecticut Biodiesel, Qteros (formerly Sun Ethanol), and Verenium.

"There are a number of biotechnology companies based in Massachusetts that are working on renewable fuels, whose research and development of new fuels is basically cut out of Massachusetts' own law," said Schuyler, who also serves as Northeast director of the New Fuels Alliance, a national biofuels industry group. “It is not how any other state has approached this. It is certainly not how the federal government has approached this. And it frankly flies in the face of how biofuel investment plans are dealt with.”

Berkshire and Interstate joined with six other companies — Bay State Biofuels, Green Leaf Biofuels, Innovation Fuels, Plankton Power, Turning Mill Energy, and World Energy — in decrying the Massachusetts draft regulation in a statement last month.

The draft regs could also negate Gov. Deval Patrick’s projection last year, when he signed the biofuels act into law, that it would help Massachusetts generate up to $1 billion in new economic activity by 2025.

Under the biofuels act, Massachusetts mandated that all diesel and home heating fuel sold in the state contain at least 2 percent "substitute fuel" by 2010, a figure that rises to 3 percent in 2011, 4 percent in 2012, and 5 percent by 2013. The measure defines "substitute" fuels as those derived from renewable non-food biomass that achieve at least a 50-percent reduction in greenhouse gas emissions.

Since the biofuels act became law, DOER has sought to develop regulations intended to carry out the measure's mandate. On Aug. 18, DOER issued its Massachusetts Biofuels Mandate: Program Design Decisions and Implementation Plan, which waives the mandate for the law’s first year, which begins July 1, 2010, and limits applications for qualifying advanced biofuels to those that are waste-based.

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According to a 2007 report by the collaborative, A Proposed Strategy to Promote Biofuels Production and Use in Massachusetts, some 2.8 billion gallons of gasoline were sold in the state in 2004, about 10 percent of which consisted of ethanol. Also that year, Massachusetts residents used about 812 million gallons of heating oil in their homes and apartments, while roughly 263 million gallons of heating oil was used in commercial properties, the report found.

Energy usage has increased since then. As of 2006, according to data from the US Energy Information Administration, state residents bought some 70.6 million barrels of gasoline, or about 2.97 billion gallons; home and commercial heating oil is not broken out from the overall petroleum category.

EIA data does show, however, that Massachusetts consumed some 35.1 trillion BTUs — about 1.7 million gallons — of biomass-based alternative fuel based from wood or waste in 2007

Schuyler told BRN that investors are less likely to invest in new plants of biofuel sellers that cannot make up for cost increases to waste by switching to other sources of biofuel.

“The investor, after doing a little bit of due diligence, will say, ‘Wait a second. That doesn’t strike me as a very good business plan,’” he said. “You need to be diversified in terms of your feed stocks. And frankly, DOER just simply doesn’t understand that.”

Not so, countered Robert Keough, a spokesman for the DOER.

“The concern in the industry is overblown at this point. We think this is a solid first step toward making a very robust market for advanced biofuels in the state,” Keough told BRN.

According to the draft implementation plan, DOER will begin accepting applications by October for advanced biofuels that qualify toward the mandate. The agency will prepare final draft regulations by Dec. 31 and hold a public hearing sometime soon after, “with regulations promulgated by May 2010.”

'Waiting on Them'

Keough said the state expects to expand its list of eligible biofuels to include those derived from renewable biomass — but only after the US Environmental Protection Agency and California Air Resources Board develop protocols for measuring their extent of greenhouse gas reduction compared with conventional fuels.

"We're waiting on them. We fully expected them to be available in time to launch this program, but they've been moving more slowly than we would have hoped," Keough said in an interview. "We expect to rely on the expertise being developed in those processes so that we can adopt them on our own."

"As those protocols become available, DOER will begin immediately to invite applications for other feedstocks that proponents expect will qualify," Keough added. "There is no decision that [renewable biomass] feedstocks will not be eligible ultimately. But at this point, there is no protocol available that would allow us to certify that feedstocks other than waste oil meet the lifecycle greenhouse gas emissions requirements, including indirect emissions from land-use impacts, that are required by the statute."

He said that Massachusetts will not develop its own protocols, because the state does not think it could have written such protocols any faster than those now being created.

"We don't want to reinvent the wheel. One of the reasons why it's moving so slowly at the national level and in California is that it's a very complicated process," Keough said. "We don’t think Massachusetts starting from scratch at this point is likely to beat California or the US EPA to the finish line."

Massachusetts has found its process of implementing the biofuel mandate to be similarly complicated — another factor, Keough said, in the state's slower-than-expected development of biofuel regulations.

"The industry needs to make investments in order to be able to meet the mandate. They need some lead time to do that, [because] they are going to be required to build facilities or pipelines. They're going to have to get those permitted," the DOER spokesman said. "Given that final regulations are not even in place yet, and [that] a lot of those investments aren’t going to be made until those regulations are final and they know exactly what they have to do, we think it's only fair that we provide some time to make those changes in the industry.”

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In working to develop the regulations, Keough said, the state found concern both among officials and biofuel makers than if only waste-based biofuels are included, Massachusetts may not produce enough biofuel to satisfy its own mandate.

Also, Massachusetts could be putting home heating oil customers in the difficult position of voiding warranties for new furnaces, which typically cover B5 fuels, or fuels containing 5 percent biofuel, given that the state law signed last year requires all diesel and home heating fuel sold in the state to contain at least 2 percent biofuels by 2010, rising to 5 percent by 2013.

DOER said it will announce by Dec. 31, 2010 whether the percentage of biofuel mandated for fuels sold in the state will remain at 2 percent during the second year of the law, or be raised to 3 percent.

"At this point, we're going to have to begin a protocol of mandatory reporting, so that we actually know what the blends of diesel are [that are] coming in, so we can make sure that the mandate is met without causing any harm to consumers," Keough acknowledged.

The mandatory reporting rule will require suppliers to report to the state their sales of heating oil and diesel fuel in gallons; the content of advanced biofuels meeting the standard, down to the number of gallons sold by each supply source; and the content of biodiesel oil not meeting the state standard.

California Air Resource Board, or CARB, earlier this year adopted regulations intended to implement the state’s Low Carbon Fuel Standard, intended to fulfill Gov. Arnold Schwarzenegger's 2-year-old order to cut carbon production statewide by 10 percent by 2020 — rules that critics said would hurt the state's biofuels industry as well as boost gasoline prices [BRN, May 8; Jan. 12].

LCFS is designed to reduce greenhouse gas emissions from the transportation sector in California by about 16 million metric tons in 2020 by lowering the carbon content of transportation fuels used in California. The projected reduction is almost 10 percent of the total needed to achieve the State’s mandate of reducing GHG emissions to 1990 levels by 2020.

CARB approved LCFS regs after making changes that included additional review by December 2010 of the latest science on indirect land use impacts, as well as proposed carbon content specifications for several fuels. Those changes were the subject of a 30-day comment period than ended Aug. 19.

This month, CARB staff will send the LCFS with some additional changes out for comment. The final changes will include “some limited regulatory language changes, and completion of additional fuel pathways in the look-up table,” CARB spokesman Stanley Young told BRN on Wednesday.

“We expect to submit the LCFS regulation to the Office of Administrative Law for approval by the end of October,” followed by implementation on Jan. 1, 2010, Young said.

EPA is reviewing a set of proposed regulations that would implement changes to the nation's renewable fuel standard passed by Congress as the Energy Independence and Security Act of 2007. EISA tightened EPA's original renewable fuel standard of 2005 by more than doubling the volume of renewable fuels required to be used in transportation fuels as of 2012 — from the current 7.5 billion gallons to 15.2 billion gallons — as well as setting minimum volumes of cellulosic ethanol, and biomass-based diesel fuel within that overall renewable-fuel volume. Either cellulosic or biomass-based could count toward the amount of “advanced” biofuel required, and those fuels, in turn, could count toward the total renewable fuels used.

EISA also set specific amounts of renewable fuels to be used for each year from 2009 through 2023. Next year, for example, EPA has set a total of 12.95 billion gallons, to include at least 0.1 billion gallons of cellulosic and 0.65 billion gallons of biomass-based diesel fuels. Either sum could count toward the 0.95 billion gallons of "advanced" fuel called for. However, the agency is leaving to a future date the setting of minimum volumes for biomass-based diesel fuels.

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EISA would also set minimum percentage reductions in greenhouse gases for different renewable fuels: 20 percent for renewable fuels from facilities that began construction after Dec. 19, 2007; 50 percent for both biomass-based diesel and advanced biofuel; and 60 percent for cellulosic ethanol.

On June 9, EPA held a public hearing on the proposed biofuel regulations. A month later, the agency announced it had extended its deadline for accepting public comment on the proposed regulations, from the original July 27 to Sept. 25.

EPA spokeswoman Cathy Milbourn told BRN Wednesday that the agency has offered no word on a timetable for finalizing and adopting the regs, which according to the draft are set to take effect Jan. 1, 2010.

Schuyler of the New Fuels Alliance told BRN that his group and biofuel companies also disagree with Massachusetts’ looking to implement its mandate on an “averaging basis,” because it would force sellers of renewable fuel to show the state that they met the required biofuel averages on average, over the course of a full year the mandate is in effect.

"It is extremely problematic for the biofuel industry, because what that does is it maintains all the leverage within the oil industry. They would buy the biofuel when it’s cheap, and use their leverage to maintain their dominance over the fuel market,” Schuyler said. He said biofuel sellers prefer a quarterly averaging: “It helps the biofuel industry obtain offtake agreements and really provides them with the market certainty, from an investment perspective, that would allow them to grow their business.”

Keough said DOER has sought to foster the growth of biofuels in Massachusetts by exempting cellulosic ethanol from the state’s gasoline excise tax as a means of discouraging corn-based ethanol — a break that fuel producers receive in proportion to their use of renewable fuel that reduces by at least 60 percent their greenhouse gas emissions relative to gasoline. For a blend of E10 gasoline, consisting of 10 percent cellulosic ethanol and 90 percent petroleum, the state agreed to reduce its tax by about 2.3 cents per gallon.

The state also agreed to issue "early action" credits to biofuel makers that comply with the mandate sooner than the effective date, a credit that can be applied toward the first year the mandate is fully in effect.

"We think as soon as commercial-scale production of cellulosic ethanol takes place, that Massachusetts is going to be an ideal market for that. We think there's going to be important learning that gets done through this first year. We think it's important to get going, and get started," he said.

Massachusetts got started in developing the biofuels act when Patrick joined state Senate President Therese Murray (D-Plymouth) and the then-Speaker of the state House of Representatives, South Boston Democrat Salvatore DiMasi, in submitting a joint bill in November 2007. The bill incorporated recommendations made in April 2008 by an Advanced Biofuels Task Force of industry representatives, legislators, agency officials, and others, all appointed by the three officials.

In a report completed last year, the task force projected the state could produce about 160 million gallons a year — 6 percent of the gasoline consumed statewide in 2006 — of cellulosic ethanol from Massachusetts feedstocks. That activity, the task force concluded, could contribute $280 million to $1 billion per year to the Massachusetts economy by 2025, while generating 1,000 to 4,000 permanent jobs and 150 to 760 temporary construction jobs.

When the multiplier effects associated with indirect jobs are accounted for, the report found, the state could generate as much as between $550 million to $2 billion in activity, and between 2,500 and 9,800 jobs.

"However, the task force notes substantial uncertainties associated with these estimates," the panel added — namely the need to build production plants, to perfect the technologies behind renewable fuels, and to make production of those fuels economically viable.

"In light of these uncertainties, the recommendations of the Task Force reflect an intention to proceed strategically and cautiously with biofuels development — but to proceed nonetheless," the panel added.