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DECC Scientist Takes Green Groups’ To Task Over Biomass Claims
Greenpeace, Friends of the Earth and RSPB under fire from government for using unfinished research to campaign against carbon impact of biomass power By Jessica Shankleman 01 Aug 2013 Tension between the government and green groups over the environmental impact of biomass has cranked up a notch, after it emerged DECC’s chief scientist has written to three of the UK’s leading NGOs to criticise their publication of unfinished research as part of their campaign against biomass subsidies. Earlier this year, Greenpeace, RSBP, and Friends of the Earth (FoE) unveiled a factsheet claiming biomass generation in some instances produces more emissions than burning coal. Under the government’s current plans biomass energy will have to show lifecycle reduction in emissions of at least 60 per cent compared to emissions of the EU fossil fuel grid average, such as cutting down trees and transporting fuel. The government is expected to confirm the new sustainability standards for biomass this month, with the rules likely to come into effect next year. But green groups fear the new standard will not fully take account of the full lifecycle emissions associated with growing, harvesting and distributing biomass for fuel and have been lobbying for stricter sustainability standards on generators . They believe rising subsidies could cause a huge surge in demand for the UK’s forestry harvest over the next four years, potentially having an adverse impact on biodiversity and leading to greater reliance on imported biomass. The RSPB, Greenpeace and FoE factsheet Burning Wood for Power Generation , revealed preliminary findings of a nine-month research project by David Mackay, DECC’s chief scientific adviser, that was presented to them at a stakeholder meeting in March. Unlike Ofgem’s current carbon calculator, MacKay’s calculator includes the net reduction in the carbon stock caused by the removal of timber from forests, and the indirect emissions of burning biomass that would have been avoided if it had been used for other industries, such as construction. Mackay’s initial findings showed the carbon impact of biomass rises significantly when these two sources of emissions are taken into account. The preliminary results suggested biomass generation produces more emissions than burning coal in five scenarios of the 12 scenarios considered. The factsheet prompted an angry response from the biomass industry with the Renewable Energy Association’s Gaynor Hartnell accusing the NGOs of using “half baked” arguments to scaremonger the public about the impact of the sector. However, BusinessGreen has learnt the publication also drew criticism from MacKay, who accused the three NGOs of exploiting the “open and collaborative” approach to research at the department. A letter , released under freedom of information request, was sent to Rose Dickinson, parliamentary officer for RSPB, Mike Childs, head of policy, research and science for Friends of the Earth and Doug Parr, chief scientist of Greenpeace, on May 15th criticising the decision to publish data from the draft report. In the letter MacKay said he was both “surprised and disappointed” that the factsheet quoted his draft findings. Mackay said the NGOs had been told the calculator his team developed, known as the the Bioenergy Emissions and Counterfactual (BEaC) calculator, was not intended for public circulation until its final launch – originally expected this summer but since delayed to the Autumn. “I acknowledge that the factsheet describes BEaC as a prototype and the results as preliminary; but I don’t think using the material in this context without specific permissions accords with the spirit in which we shared the model with the reviewers,” he wrote. “I wish to continue an open and constructive relationship with all of DECC’s stakeholders and I would like to urge you to treat unfinished analysis and material shared for review with more care in future,” he concluded. All three NGOs have since told BusinessGreen they published the data in good faith, believing they had permission from DECC to share the information so long as it was made clear it was not the final version. They also all said they removed the BEaC information from their websites after receiving MacKay’s letter. Harry Huyton, head of climate change for the RSPB, defended its decision to publish, arguing DECC should be more transparent around its thinking on biomass. “The bigger point is that the [BEaC draft] findings were consistent with major research by the European Commission’s Joint Research Centre so we didn’t see it as controversial,” he said. “But we did see it as important and in the public interest for people to understand what this tool was showing.” Huyton also raised concerns that the government has delayed the final publication of the BEaC to Autumn, despite previously promising to published in the summer. He urged the government to include the findings of the BEaC in its final sustainability standard when it comes out this month. “We need an open public debate about impact of biomass and that’s in the interest of the industry as much as ours,” he said. “Otherwise, the risk is we repeat what we’ve seen in biofuels sector where denial of indirect impacts has mean that even now many years down the line we’re still having a big debate about how to get emissions right. We should get it right from the outset.” Childs similarly argued the preliminary findings were important for the future of the industry. “The draft results were very interesting – they showed that burning whole trees compared to trimmings was bad news for the climate,” he said. ” The companies involved in the industry may need to change their practices to make them sustainable.” Greenpeace’s Parr added that many other countries would be looking at the UK’s standards as a template and it was therefore crucial the government got it right first time. “We urgently need the best available science informing standards at UK and EU level given the reliance on bioenergy to reach renewable targets,” he added. However, a spokesman for the government maintained it was committed to supporting only sustainably produced bioenergy, which delivers “real” greenhouse gas savings, is cost effective, takes account of wider impacts across the economy, and manages possible risks such as adverse effects on food security and biodiversity. “We are developing a model BEaC to investigate the carbon impacts of different bioenergy feedstocks and help ensure we have robust evidence behind our bioenergy policies,” he said. “A preliminary version of the tool has been discussed with stakeholders, however, the tool is under development and is subject to review.” He added that the draft version of the model should not yet be used to draw firm conclusions. Paul Thompson, head of policy for the REA, said the letter highlighted the need for all sides of the debate to treat complex information on the environmental impact of biomass sensitively. “This letter confirms that certain groups have misused data from the Calculator, which was in draft form and not intended for public use, to support pre-existing positions,” he said. “It is important to be more careful in the treatment of these sensitive issues and data in order to advance the rational debate that we need on biomass sustainability. “We look forward to working with NGOs and the Government on implementing the forthcoming RO Sustainability Criteria in order to ensure high carbon savings and ecologically sustainable forestry practices.” Continue reading
Ed Davey Dismisses Fracking With Pledge To ‘Expand Renewables’
Last updated on 2 August 2013, 9:28 am UK energy and climate chief says government committed to clean energy, promising more support in energy bill By Nilima Choudhury UK government plans to invest in renewable energy will not be pushed off course by supporters of shale gas exploration, also known as fracking, Ed Davey has told RTCC. Britain’s energy and climate chief was talking after announcing a £66 million package to boost offshore wind in the UK, which the government says could “unlock £7 billion in the economy by 2020”. In the past 10 days the Sun Newspaper, former BP chief Tony Hayward and influential conservative columnist Tim Montgomerie have all called for Davey to scrap support for renewables in favour of shale gas, but he told RTCC the opposite was likely to happen. “We’re not changing our strategy except to even augment it so there’ll be more pro renewables. We have got the most ambitious renewable and low carbon energy strategy the country’s ever had,” he said. “And coupled with the energy bill to create the world’s first ever low carbon electricity market we couldn’t be clearer about our determination to expand renewables and low carbon.” Last month Prime Minister David Cameron opened the world’s largest offshore power generation project off the Kent coast, but generation remains small compared to the UK’s overall capacity of 80GW . Yesterday’s opening of the Lincs Offshore Wind farm saw UK onshore and offshore wind capacity pass the 10GW mark, according to trade body RenewableUK . The UK currently has an installed offshore wind capacity of over 3.3GW, with a further 1.3GW under construction. Costs Davey reiterated his ambition for the UK to be a “world leader” in the development of offshore wind, but acknowledges that the costs of offshore – currently higher than onshore or nuclear – have to be addressed. “We’ve been working with the industry to map out the potential for cost reductions and when we published the stuff on the strike prices [subsidies] recently we showed that if we get the cost reductions that we believe we can we could see 16GW of offshore wind by the end of this decade,” said Davey. “The potential for our industry is huge and actually being the leader gives a potential for exports and potential to learn how to innovate and how to get the cost benefits from large scale deployment. “I think it’s right that we are leading – the problems we’ve seen in the past has been that Britain has been a follower and as a result we’ve had to actually end up paying more because we’re depending on other suppliers and we’ve not had the industrial base development with the jobs that come to that.” “I think it’s great that under the coalition government we are making sure that we are not just a leader but remain a leader in the years ahead.” – See more at: http://www.rtcc.org/…h.LpDc9xun.dpuf Continue reading
Climbing The Ethanol Blend Wall With Biodiesel
Jul 25 2013, 12:32 Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The biggest story of 2013 for the first-generation biofuels industry and its analysts has easily been the arrival of the so-called “blend wall,” as the point at which the U.S. gasoline infrastructure can no longer absorb additional ethanol is known. The revised Renewable Fuel Standard (RFS2) mandates the consumption of increasing volumes of biofuel through at least 2022 (see figure below). Ethanol, which is a gasoline substitute rather than a gasoline replacement, is the primary biofuel used in the U.S. and is almost entirely derived from corn starch (although imported ethanol sourced from Brazilian sugarcane is accounting for an increasing fraction of the total). Most fuel ethanol is blended with gasoline prior to consumption to create “gasohol,” and the chemical differences between gasoline and ethanol limit this blend to 10% ethanol by volume (E10). While the EPA permits blends of up to 15 vol%, opposition from refiners, automakers, and drivers has made E15 consumption in the U.S. virtually non-existent. This E10 limit was not considered to be a serious hurdle when the RFS2 was designed in 2007 for two reasons. First, U.S. gasoline consumption was expected to steadily grow for the foreseeable future, ensuring that the volume at which the blend wall would be hit would do so as well. Second, most energy economists and policymakers assumed that the increasing numbers of flex-fuel vehicles (FFV) capable of running on ethanol blends of up to E85 on American roads would effectively eliminate the blend wall as a hurdle. Click to enlarge images. *TBD by EPA, but no less than 1 billion gallons. Source: Schnepf (2012) . The first six years of the RFS2 have seen these earlier assumptions turn out to be woefully inaccurate. The combination of high petroleum prices, poor economic growth in the developed world, and increased CAFE standards have caused current and anticipated U.S. gasoline consumption to decline (see figure below). FFV adoption has been decent but E85 consumption has remained low due to a combination of ignorance ( most FFV owners aren’t aware that they can consume E85) and opposition ( many consumers believe that ethanol causes ecological and humanitarian disasters). Source: EIA 2012 . This misguided reliance on the aforementioned assumptions resulted in widespread surprise when the blend wall was officially hit earlier this year. Refiners are obligated under the RFS2 to blend certain volumes of biofuel with the gasoline they produce in proportion to their sales. Compliance is demonstrated via Renewable Identification Numbers (( RIN ), which are tradable compliance commodities that are attached to each gallon of biofuel following its production and separated following its blending with gasoline; refiners are required to submit sufficient RINs to the EPA at the end of the year to cover their portion of the volumetric mandate. Refiners with insufficient RINs can purchase the balance from those with too many. The arrival of the blend wall confronted refiners with the prospect of being required to purchase more ethanol from biofuel producers than consumers could use. Corn ethanol RIN prices soared by more than 2,700% in a matter of weeks as refiners scrambled to purchase and blend ethanol (or the corresponding RINs) while market capacity still existed. This surge in RIN prices has resulted in a corresponding increase to the annual cost of compliance for refiners from $330 million (at 2012 RIN prices) to $14 billion (at current RIN prices). Climbing the Wall The status quo is unlikely to remain unchanged for long, given that continued increases in the annual volumetric mandates through 2022 will only serve to increase refiners’ costs of compliance under the RFS2 so long as RIN prices remain high. That said, by now it has become apparent that the conventional wisdom on how the industry would surmount the blend wall no longer holds true. Alternate means of doing so will need to be identified and developed in short order. Given the unanticipated nature of the blend wall’s arrival, the present situation creates a few unique scenarios for those investors wishing to play the blend wall (and willing to stomach a certain amount of risk and volatility). Four specific investment scenarios exist: 1) biomass-based diesel production increases to meet the difference between the blend wall and corn ethanol production, 2) ethanol producers use high RIN values to reduce ethanol’s market price below that of gasoline on a gasoline-equivalent basis, 3) high RIN values spark a wave of investment in producers of drop-in biofuels, and 4) the RFS2 is either modified or prematurely ended. This article covers the first scenario. Biomass-Based Diesel to the Rescue? This first scenario is the most likely to occur but also the most limited in scope. The RFS2 is divided into four biofuel categories: 1) renewable fuel, 2) advanced biofuel, 3) biomass-based diesel, and 4) cellulosic biofuel. The categories are nested so that biomass-based diesel and cellulosic biofuel both count as advanced biofuel and all three count as renewable fuel. For example, biodiesel can be used to satisfy a refiner’s volumetric obligation for the biomass-based diesel category, the advanced biofuel category, or the renewable fuel category. Corn ethanol is only allowed to meet the renewable fuel category and has been responsible for virtually all production under it as a result. Historically biodiesel and renewable diesel were just used to meet the biomass-based diesel category due to differences in RIN prices (in 2011, for example, biomass-based diesel RINs traded at a premium of up to $1.4/RIN over advanced biofuel RINs and $1.78/RIN over renewable fuel RINs). Each gallon of biodiesel qualifies for 1.5 RINs due to its high energy content relative to ethanol (each gallon of renewable diesel qualifies for up to 1.7 RINs). The increase in renewable fuel RIN values since the beginning of the year has brought the renewable fuel, advanced biofuel, and biomass-based diesel RIN prices into equilibrium , eliminating the price disparity between the categories that existed in 2011 and 2012. Biomass-based diesel production, which is on pace to reach 1.33 billion gallons for 2013, utilizes just under 50% of U.S. capacity when including both biodiesel and renewable diesel. (While imports can also contribute to the biomass-based diesel category, domestic production was responsible for 92% of the RINs generated under the category in 2012.) Most importantly, current production is equivalent to just 2.3% of diesel consumption (based on 2013 biofuel production and EIA estimated diesel consumption for the same year) while U.S. engine warranties permit biodiesel blends of at least 5 vol%. Renewable diesel, which is on pace to reach 120 million gallons in 2013 (and will likely be higher due to additional production coming online), is chemically identical to petroleum-based diesel and does not encounter blending limits. Based on these blending assumptions for biomass-based diesel fuels, then, the U.S. can handle another 1.4 billion gallons of biodiesel and much higher volumes of renewable diesel. Given the leeway that the biomass-based diesel category has before encountering its own blend wall, several voices in academia and the media have proposed producing sufficient biodiesel and/or renewable diesel to meet the difference between the volumetric mandate for corn ethanol production and the blend wall. Given the higher energy content of biomass-based diesel fuel, less production capacity would be needed to generate the necessary RINs than if additional corn ethanol were produced for the same purpose. For example, there is a difference of 400 million gallons between the 2013 blend wall ( 13.4 billion gallons of ethanol) and the 2013 volumetric mandate for corn ethanol (13.8 billion gallons). Were biodiesel used to make up this difference, only 267 million gallons would need to be produced over the 1.3 billion gallon biomass-based diesel volumetric mandate to generate the missing 400 million RINs for the corn ethanol category, equaling total biodiesel production of 1.57 billion gallons in 2013. The difference between the blend wall and the corn ethanol mandate is expected to increase to 1.2 billion gallons in 2014 (the mandate requires 14.4 billion gallons while the 10% blend wall will be 13.2 billion gallons of ethanol based on EIA consumption projections), so the volume of additional biomass-based diesel production would need to increase to 800 million gallons in that year, although that would still just result in total biomass-based diesel production of 2.1 billion gallons (assuming that the category’s volumetric mandate remains 1.3 billion gallons in 2014). This is still just roughly 67% of current U.S. capacity and excludes the use of imports to meet the mandate. Based on estimated future gasoline consumption and the 15 billion gallon annual cap on corn ethanol’s participation in the RFS2, new biomass-based diesel capacity wouldn’t be required until the next decade under this scenario. Note that the above doesn’t consider the advanced biofuels volumes not attributable to either biomass-based diesel or cellulosic biofuel, which reaches 1.5 billion gallons by 2015. At present this is largely met by imported Brazilian cane ethanol, which encounters the same blend wall as U.S. corn ethanol. At present, companies such as Gevo are attempting to produce corn biobutanol, which qualifies as an advanced biofuel but is capable of being used in higher blends than ethanol. Should these high-energy advanced biofuels fail to achieve commercialization by 2015 then biomass-based diesel will need to increase production by another 1 billion gallons, in which case additional U.S. capacity would be needed if the renewable fuel, advanced biofuel, and biomass-based diesel categories are all to be met. Renewable Energy Group ( REGI ) is one of the largest U.S. producers of biodiesel. The company has an annual nameplate biodiesel capacity of 212 million gallons. Its share price has largely moved in line with its quarterly diluted EPS since its IPO in early 2012 (see figure below). RIN prices, by broadly functioning as the value needed to incentivize sufficient production to meet the RFS2 volumetric mandates, ensure that biofuel producers such as REG will always receive sufficient income per gallon of biofuel sold under the RFS2 to remain profitable. Given REG’s positioning in the U.S. biodiesel market, it is well-suited to maximize its profitability because of both of the increased demand and higher RIN prices that would result from biomass-based diesel being used to meet the difference between the corn ethanol mandate and the blend wall in the coming years. RIN prices would insulate REG from both a fall in petroleum prices and any increases to feedstock costs resulting from a substantial increase to biomass-based diesel production. A number of renewable diesel producers are also positioned to take advantage of the scenario considered by this article. While renewable diesel capacity in the U.S. is much lower than biodiesel capacity, renewable diesel receives 1.7 RINs per gallon (compared to 1.5 RINs per gallon for biodiesel) and does not face biodiesel’s blending constraints. A number of companies have begun producing renewable diesel on a commercial scale in recent years, including Dynamic Fuels — a JV between Syntroleum ( SYNM ) and Tyson Foods ( TSN ) — Diamond Green Diesel — a JV between Valero Energy ( VLO ) and Darling International ( DAR ) — Amyris ( AMRS ) , and Solazyme ( SZYM ) . None of these companies are as well-positioned as REGI due to their diversified product lines and, in the case of the last two, lack of commercial-scale production at present. However, for investors willing to take on country risk in addition to industry risk, Neste Oil ( NTOIF.PK ) is the world’s largest producer of renewable diesel and jet fuel. The company operates four large facilities in Finland, Rotterdam, and Singapore. Neste’s renewable diesel can be (and has been) used under the RFS2, although its reliance on palm oil feedstock has opened it to controversy in the past. Playing Commodity ETFs A substantial increase in biomass-based diesel production would presumably result in a significant rise to agricultural commodity prices, particularly corn and soybeans. Economists at the University of Illinois Urbana-Champaign calculated back in February that 35.5 billion pounds of lipid feedstock would be needed in 2015 by biomass-based diesel producers under a scenario in which they increase production to meet the difference between the blend wall and the RFS2 mandate, including both the renewable fuel and advanced biofuel categories. This would be an increase of 260% over the 9.8 billion pounds needed to meet the 2013 biomass-based diesel volumetric mandate. By comparison, in 2010-11 the USDA estimated the total U.S. supply of lipid feedstocks to be 33.1 billion pounds. While many types of lipids can be used as biomass-based diesel feedstock, soybean oil remains one of the most attractive options due to its large supply and the ability to increase production relatively quickly; other lipid feedstocks, such as recycled cooking oil and animal processing wastes, are byproducts of unrelated processes and thus far less flexible when it comes to supply. Given the likely continued reliance on soybean oil as feedstock should biomass-based diesel be used to overcome the blend wall, investors could gain exposure to higher soybean prices by purchasing shares of the Teucrium Soybean Fund ( SOYB ) , which tracks soybean futures prices. Furthermore, an increase in soybean production on existing cropland could come at the expense of corn production since the two are frequently rotated on a seasonal basis, so investors could also consider purchasing shares of the Teucrium Corn Fund ( CORN ) , which tracks corn futures prices. (While continuous soybean production is not without its risks, it has been done in the past in response to favorable growing and/or market conditions.) Conclusion The arrival of the ethanol blend wall in the U.S. has caused RIN prices, particularly those of the corn ethanol category of the RFS2, to skyrocket as refiners have raced to meet their mandate obligations. High RIN prices have greatly increased refiners’ compliance costs under the program. Several options have been proposed in recent months as means of overcoming the blend wall, including the production of sufficient biomass-based diesel to meet both its own category as well as the difference between the corn ethanol category and the blend wall. Sufficient biomass-based diesel capacity exists in the U.S. to do so in the future, assuming that the biomass-based diesel volumetric mandate doesn’t increase. Furthermore, foreign capacity could also be utilized via imports of biomass-based diesel. A number of companies are positioned to benefit from such an increase in expansion, particularly Renewable Energy Group. The biomass-based diesel production increase required to overcome the blend wall would also strain domestic supplies of lipid feedstocks, putting upward pressure on corn and soybean prices. The Teucrium Fund offerings for these respective commodities are available for investors seeking to gain exposure to increased biomass-based diesel production in this manner. 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