(MENAFN - Arab News) BP's decision to scrap plans for a US cellulosic ethanol refinery is a setback for second generation biofuels and opens the door to alternatives including Brazilian sugar ethanol, biodiesel and electric vehicles.
The US wants to cut dependence on foreign oil through a combination of more domestic oil drilling, improved vehicle fuel economy and local alternatives including biofuels, gas and electricity.
Biofuel makes by far the biggest contribution from alternative fuels, projected to account this year for 9.23 percent of non-renewable gasoline and diesel by volume.
Cellulosic biofuels, made from non-food crops, were supposed gradually to supplant corn ethanol in the US, as an alternative to help lower carbon emissions.
Made from raw plant biomass rather than cereal grain, they have been dogged by the cost of breaking down cellulose into sugar and by unreliable feedstock sources.
As a result, registered cellulosic ethanol production until this year was zero a nd it seems is likely to miss mandated blended volumes for years to come.
Cellulosic ethanol has fallen far behind mandated blending targets since these were launched in 2010, partly because these were so ambitious from a standing start for an untested technology in the teeth of a financial crisis.
The Environmental Protection Agency (EPA) downgraded this year's blending requirement to just 10.45 million ethanol-equivalent gallons, nearly 490 million gallons short of the 500 million mandated volume.
The US Energy Information Administration last month cast doubt on even that: "Production of cellulosic biofuel in 2012 is likely to be well short of the reduced 2012 requirement," it said, in its report, "Biofuels Issues and Trends."
EPA will announce the revised cellulosic target for 2013 by the end of this month.
The US Renewable Fuel Standard (RFS), expanded under the Energy Independence and Security Act (EISA), sets biofuel targets for minimum blending until 2022.
The target is split between conventional and advanced biofuels, defined according to how far the fuels cut greenhouse gas emissions compared with conventional gasoline.
Advanced biofuel includes sugarcane ethanol, biodiesel and cellulosic ethanol.
Cellulosic biofuel has its own mandate, within advanced biofuels, to make up almost half total, mandated annual biofuel consumption of 36 billion gallons by 2022.
The trouble is that cellulosic ethanol has failed to live up to those projections.
BP's cancelation last week of a planned refinery in Florida is a blow as it was to be the biggest cellulosic ethanol plant, with production of 36 million gallons annually from the end of 2014.
Remaining commercial-scale plans total about 100 million gallons annual production in the next year or two.
Presented with a cellulosic shortfall, the EPA has the option either to cut wider biofuel mandates by the same amount, or allow other biofuels to make up the difference.
The regulator makes no secret that it expects to maintain overall biofuels targets, and for advanced biofuels and especially Brazilian sugar ethanol to make up a large part of the difference.
"The most likely sources of additional advanced biofuel would be imported sugarcane ethanol and additional biomass-based diesel," it said in January, in its 2012 RFS ruling.
"We believe that the broader view of historical data on sugarcane ethanol imports supports our view that Brazil has significant export potential under the appropriate economic circumstances."
EPA argues that a significant shortfall will raise the price of tradable renewable identification numbers (RINs), until now in surplus, and so raise the price paid to biofuel producers.
Fuel blenders collect RINs with each gallon of biofuel they buy and must submit them at the end of each year enough to show that they have blended the required share of biofuel. If they blend more biofuel than they have to, then they can keep the RINs for future compliance or to trade.
The wider, advanced biofuel quota is scheduled to grow rapidly, under the EISA act, to 5.5 billion gallons i n 2015, of which 3 billion is supposed to be cellulosic ethanol.
It would take extraordinary growth for cellulosic production to reach 500 million gallons (from zero registered production last year), and that would still leave 5 billion gallons to be met by biodiesel and imported, mostly Brazilian, sugar ethanol.
EPA forecasts biodiesel blending next year of 1.28 billion gallons, equivalent to nearly 2 billion gallons of ethanol because it has a higher energy content.
Yet total US ethanol imports have averaged 348 million gallons annually over the last six years, and reached an all-time high of 731 million gallons in 2006, EIA data show.
One alternative gap filler not yet explored are electric vehicles (EVs), where these are powered by electricity generated from burning biomass.
While it is not simple to prove the origin of the electricity used to charge an EV battery, the potential reward from higher RIN prices could make this worthwhile.
"Expected increases in the number of ... electric vehicles and plug-in hybrids has the potential to dramatically increase the degree to which electricity is able to be used as a transportation fuel," EPA said in January.
"Verifying that the renewable electricity produced is used as a transportation fuel would still remain a challenge, however the potential for capitalizing on the RIN value ... may be a large enough incentive to overcome this challenge."
Other policy options include cutting cellulosic mandates or terminating the entire RFS, given wider problems which include possible impacts on food prices and the problem of a "blend wall" where not much more biofuel can be blended anyway using existing refueling infrastructure.
Meanwhile, waiting in the wings is compressed natural gas, the cheapest available road fuel (before accounting for added vehicle and infrastructure costs) and a potential new use for burgeoning shale gas.
- The author is a Reuters market analyst. The views expressed are his own.