WASHINGTON (Dow Jones)--A federal rule that farmers and renewable fuel refiners have been waiting for might actually deny them a government production mandate for corn-based ethanol and soy-based biodiesel.
Under the law passed in late 2007, but yet to be implemented by the Environmental Protection Agency, corn ethanol must be declared to reduce greenhouse gasses by 20% and soy biodiesel must do so by 50%.
Although both fuels could fail to meet those levels in the EPA"s eyes, soy biodiesel has the most to lose, John Hoffman, chairman of the American Soybean Association told Dow Jones Newswires this week.
Congress, in the 2007 law, assured that all corn ethanol plants either already constructed or under construction would be guaranteed to qualify for the production mandate. They were grandfathered in, but that wasn"t the case for soy biodiesel.
Biodiesel is primarily made from soybean oil in the U.S. and it"s the only fuel right now that fits in the mandate category of 'biomass-based diesel' in Congress" renewable fuel standard. The standard mandates 500 million gallons of the fuel be produced this year, 650 million next year, 800 million in 2011 and 1 billion in 2012 and then at least 1 billion annually through 2022.
U.S. producers already pump out more biodiesel than the mandate calls for -- about 690 million gallons in 2008 -- but that would change if the EPA disqualified it from the mandate, industry officials said.
The biodiesel industry would lose most of the demand that the mandate would generate, said one industry official who asked not to be named.
About 433 million bushels of soybeans went toward the production of biodiesel in 2008, according to statistics maintained by the American Soybean Association.
Biodiesel Indirect Land Use
A government study concluded in 1998 that soy biodiesel reduces greenhouse gas emissions by 78% when compared to petroleum-based diesel and, according to Hoffman and other industry officials, that"s why there was little concern about the 50% rule that Congress passed in 2007.
But the EPA, which is in charge of writing the federal rule to implement Congress" 2007 renewable fuel standard, has decided to take into account international practices when deciding how damaging soy biodiesel is to the environment, according to Hoffman.
The EPA 'want to use numbers for somebody who is cutting down jungle in Indonesia' to judge the practicality of biodiesel here in the U.S., said an inustry official who asked not to be named.
'When [Congress] wrote the legislation ... they didn"t realize that the EPA would interpret this as international,' Hoffman said.
Manning Feraci, a vice president for the National Biodiesel Board, called the science the EPA is using to calculate greenhouse gas emissions by including 'indirect land use' in foreign countries 'unreliable, incomplete and inexact.'
And the use of that science, he said, 'would be harmful to the U.S. biodiesel industry and jeopardize the existing policy designed to displace petroleum diesel with advanced biofuels.'
Corn Ethanol Mostly Safe From EPA
As of now, in all of the corn ethanol plants either built and operating, built and idle, or in the process of construction, the U.S. should have the capacity to produce 13 billion gallons per year, according to Bruce Babcock, a professor at Iowa State University who does research on renewable fuels for the EPA.
All of ethanol from all of those plants, so long as construction began before December 2007, will qualify to meet the renewable fuel standard for 'conventional biofuels' and thus qualify for the government mandate.
The 'conventional biofuels' mandate requires 10.5 billion gallons be produced this year in the U.S., 12 billion next year, 12.6 billion in 2011, 13.2 billion in 2012, 13.8 billion in 2013, 14.4 billion in 2014, 15 billion in 2015 and then 15 billion each year afterward through 2022.
So if the EPA were to conclude that corn-based ethanol does not reduce greenhouse gasses enough to qualify as a 'conventional biofuel,' the fuels production nadir might fall short by 2 billion gallons of the of 2015 level that Congress had envisioned.
That, Babcock said, is quite a shortfall. But the professor also said he believes corn ethanol will qualify for the mandate.
-By Bill Tomson, Dow Jones Newswires; 202-646-0088; bill.tomson@dowjones.com