Biofuels Industry Braces Ahead Of EPA Emissions Report

WASHINGTON, Nov 03, 2008 (Dow Jones Commodities News Select via Comtex)

 By Siobhan Hughes Of DOW JONES NEWSWIRES

he U.S. Environmental Protection Agency will soon release an analysis of greenhouse-gas emissions produced by biofuels, prompting industry fears that the report will curb development by painting biofuels as an environmental threat.

Early last month, representatives from Archer Daniels Midland Co. (ADM), DuPont Co. (DD) and the Biotechnology Industry Organization met with White House officials to air their concerns. Environmental groups sat down with White House officials two weeks later to support the EPA's approach.

The EPA determines which fuels are lower-emitting by looking to the entire life cycle of biofuels, from planting crops to distributing fuel. The controversy involves whether the EPA should factor in the ripple effects around the world of converting farms, pastures and other land into sources of biofuels.

"The early indications are that it will include a substantial reliance on this indirect land-use idea," said Bruce Dale, a Michigan State University professor who testified before the EPA's scientific advisory board last week. "That's got a lot of people in the advanced biofuels industry nervous. It largely won't affect existing grain-based ethanol because that is grandfathered in, but it has the capacity to derail the already advanced biofuels."

By law, most new biofuels plants must produce fuel with greenhouse-gas emissions at least 20% below 2005 levels. Any action taken wouldn't affect existing U.S. production capacity.

EPA spokeswoman Roxanne Smith said work is continuing but that the agency doesn't have a target date for its release. The EPA will issue its analysis as it proposes rules to continue implementing a 2007 energy law that steered a new course for biofuels policy.

By some forecasts, when an acre of corn is used for fuel, new land is plowed up elsewhere to grow corn for food. Somewhere along the way, acres that were once pastures get converted into cropland, and then, in an example of a worst-case scenario, rainforests are cut down to make room for pastures. That is the most damaging result because rainforests have a greater capacity to absorb carbon dioxide than pasture or grassland.

"The risk of having an increase in greenhouse gas emissions from any biofuel that uses productive land is very high," said Timothy Searchinger, a Princeton University lecturer whose study earlier this year concluded that corn-based ethanol increases greenhouse-gas emissions. He said the most likely results of expanding biofuels production are either that people go hungry as farms convert food into fuel or that more land is plowed up to grow food, which causes greenhouse-gas emissions, "both of which are very bad."

Businesses such as ethanol maker POET LLC and seed-corn seller DuPont contend that factoring in indirect land-use changes risks focusing on the worst-case scenarios. They complain that the models that deal with land conversion are flawed and say that forecasters have failed to account for idle cropland or to look at the chances of making more productive use of existing land.

"Some are trying to say that we're cutting down rainforests every time we grow more grain for ethanol," said Jeff Broin, the chief executive of POET, the largest U.S. ethanol maker. "Quite frankly, today there is more than a billion acres of idle cropland worldwide, land that has been in production before." He said "that could produce enough ethanol to replace gasoline worldwide."

Businesses and environmental groups say that the stakes are high, with businesses concerned that investments in their industry will dry up and environmentalists concerned about effects as far away as Brazilian rainforests.

"The last thing we want is for them to crunch numbers through a flawed model and publish these results, which will send a false message to investors that biofuels are bad for the environment," said Brent Erickson, a BIO official who met with White House officials last month.

But Nathanael Greene, a National Resources Defense Council analyst who met separately with White House officials, said "there's uncertainty in a lot of steps government has to take. I don't think that's an excuse for inaction, especially when the impacts can be large."

Of the 36 billion gallons of renewable fuels that Congress ordered to be blended into the fuel supply by 2022, 21 billion gallons of the total must be advanced biofuels. To qualify as an advanced biofuel, each type must have greenhouse-gas emissions that are at least 50% lower than the emissions associated with ordinary gasoline. New biofuels plants must produce fuels with emissions that are at least 20% lower.

A preliminary estimate by California's Air Resources Board suggests that some types of biofuels might not qualify. The preliminary analysis, which factored in indirect changes in land use, found that average corn ethanol is worse for the environment than e10 blends of gasoline. Low-carbon-intensity ethanol produced emissions only about 10% to 25% less than average corn ethanol.

The most environmentally friendly fuel was derived from waste. The next-best fuel was assumed to be cellulosic ethanol, followed by ethanol derived from Brazilian sugarcane.

The direction the EPA ultimately takes could depend on the outcome of the U.S. presidential election. Republican nominee John McCain opposes ethanol subsidies and mandates and turning food into fuel. Democratic nominee Barack Obama has been a defender of corn-based ethanol. If Obama wins, his defense of corn-based ethanol as a transitional fuel on the road to more advanced biofuels will be tested.

"There's nothing inherent about making corn ethanol that makes a transition," Princeton University's Searchinger said. "There are actually ways in which corn ethanol gets in the way of these others. For one, it pumps up the value of land so it makes it less economical to use land for other forms of biofuel." He said that "if you develop an infrastructure for ethanol, then you just waste a lot of money."

To see data from the California Air Resources Board analysis, go to Table 3 in the following: http://www.arb.ca.gov/fuels/lcfs/101608lcfs_supdoc.pdf

-By Siobhan Hughes, Dow Jones Newswires; 202-862-6654;

Siobhan.Hughes@dowjones.com

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