RIN Futures Become a Reality

In a development that will increase liquidity and transparency in the RIN market, two major providers are making RIN future contracts available to be traded.  Both CME Group and the IntercontinentalExchange (ICE) will have RIN products available to be traded by mid May.  CME Group and ICE will enable over the counter trading (OTC) of D4 RINs, D5 RINs, and D6 RINs.  D6 RINs are the most common RINs, typically fulfilled by corn ethanol production.  D5 RINs are the most flexible premium RINs, representing advanced biofuel that may consist of biogas, advanced drop in fuels, or other fuel types that meet the 50% GHG reduction standard.  D4 RINs are biomass-based diesel RINs, fulfilled primarily by biodiesel and renewable diesel fuels.  The development of a futures market could provide a substantial boost to the development of advanced biofuel facilities by enabling their financing.  Many financial market participants have in the past regarded RIN revenue as too speculative to include in a plant's pro forma but are likely to be reassured by the presence of RINs in the OTC market.  We speculated in our recent white paper that the EPA's rulemaking on Quality Assurance Programs (QAPs) could facilitate the establishment of a RIN futures market.  See http://www.stoel.com/showarticle.aspx?Show=10180

Graham Noyes Among the "Top 100 People in Bioenergy" for 2012-13

I’m excited to report that my colleague and fellow Renewable + Law blogger Graham Noyes was recently named among the “Top 100 People in Bioenergy” by readers of Biofuels Digest and the publication’s editorial board. Graham was one of only three attorneys to make the list, which was headed by U.S. Agricultural Secretary Tom Vilsack for the third consecutive year. CEO Jonathan Wolfson and President Harrison Dillon of client Solazyme placed fourth in the list.

More than 300 individuals received votes in the annual poll, including company executives, scientists, researchers and policy leaders. Overall, leaders from organizations in 13 different countries were recognized in the poll. You can read the full list here.

Congrats, Graham!

D.C. Circuit Rejects Challenge to Introduction of E15 Ethanol Fuel Blend

In a decision released this morning, the DC Circuit rejected a challenge to the introduction of E15, a gasoline blended with 15 percent ethanol, under an EPA waiver grant. Currently, the national gasoline supply consists largely of E10, a 10 percent ethanol/gasoline blend. With fuel manufacturers confronting mandatory annual increases of renewable fuels under the Renewable Fuel Standard (RFS), Growth Energy, a trade association representing the ethanol industry, had sought an EPA waiver for a new 15 percent ethanol/gasoline blend. The EPA provided partial waivers (1 and 2), under the Clean Air Act for the E15 blend, restricting the fuel’s use to light duty motor vehicles and engines from model-year 2001 and newer. Three sets of industry groups representing engine manufacturers, food producers and petroleum suppliers then sued, challenging the EPA’s waivers.

The Ruling

In a 2-1 decision, the court declined to make a decision on the merits, finding that the petitioners lacked standing to bring the action. In a strongly worded dissent, Circuit Judge Brett Kavanaugh disagreed. Kavanaugh then addressed the merits of the case, finding they were “not close.” He concluded that in granting the E15 partial waiver the “EPA ran roughshod over the relevant statutory limits.”

Where We Go From Here

The decision preserves flexibility for implementing the RFS renewable fuels mandates – for now. However, the lack of a decision on the merits means the EPA waiver process remains vulnerable to judicial challenge. In the meantime, the debate over corn-based ethanol fuel mandates may be shifting to Congress, as predictions for historically low corn crop yields continue to accumulate.

Download a copy of the decision in Grocery Manufacturers Association, et al v. Environmental Protection Agency (PDF)

This Week in Biofuels, A Patent Perspective

On December 7, 2010 the United States Patent Office published several new biofuels-related patents, including one to Amyris Biotechnologies relating to a jet fuel or diesel fuel including a bioengineered isoprenoid component.

  1. US Patent 7,846,712 (Alliance for Sustainable Energy, LLC) claims an isolated polynucleotide having an amino acid sequence that is at least 95% identical to the sequence of KmLAT1, an arabinose transporter gene cloned from Kluyveromyces marxianus. The specification relates more broadly to providing new yeast strains capable of using L-arabinose to produce ethanol at relatively high yield. According to the specification, this can be achieved: 1) by introducing two L-arabinose transporters, specifically introducing KmLAT1 and PgLAT2 (from Pichia guilliermondii), into yeast such as S. cerevisiae to improve arabinose transport kinetics; and 2) by cloning bacterial araA, araB and araD genes into yeast such as S. cerevisiae in which the aldose reductase gene is disrupted to enable making ethanol from L-arabinose.

     
  2. US Patent 7,846,323 (Syntroleum Corporation) claims a method of making an isoparaffinic product useful as a jet fuel, as well as a method of co-producing liquid petroleum gases (LPG), isoparaffinic naptha and jet fuel. The specification describes the method as involving a hydrotreating step, a hydroisomerizing step, and a fractionation step having recycle of the hydroisomerization products. More specifically, a renewable feedstock of triglycerides and/or free fatty acids such as from animal fats, animal oils, vegetable fats, vegetable oils, plant fats, plant oils, rendered fats, restaurant grease, waste industrial frying oils, and/or fish oil is hydrotreated to produce a hydrotreated heavy fraction including n-paraffins. In the case of the method for producing the isoparaffinic product, the hydrotreated heavy fraction is hydroisomerized to produce an isoparaffinic fraction and a heavy fraction, which are separated so that the heavy fraction can then be recycled back to the hydroisomerization step. In the case of the method of co-producing LPG, isparaffinic naptha and jet fuel, the hydrotreated heavy fraction is hydroisomerized to produce a hydroisomerized heavy fraction and isoparaffin. The hydroisomerized heavy fraction is recycled back through the hydroisomerizer and is then itself hydroisomerized to produce an isoparaffinic product, which is fractionated to produce LPG, isparaffinic naptha and jet fuel. According to the specification, the jet fuel has improved cold flow properties.

     
  3. US Patent 7,846,222 (Amyris Biotechnolgies) claims a fuel composition comprising one of a group of specified isoprenoid compounds such as farnesane, among other ingredients, and having a flash point of at least 38 degrees C. The specification is directed to a method of biologically manufacturing the isoprenoid compounds referenced in the claims. The specification exemplifies the production of alpha-farnesene and Beta-farnesene in bioengineered E.Coli and S. cerevisiae host strains, and the chemical hydrogenation of the microbially-derived Beta-farnesene to farnesane.

This Week in Biofuels, A Patent Perspective

On December 2, 2010, the United States Patent Office published two Novozymes applications relating to bioethanol production from lignocellulosic biomass and an Iogen application relating to bioethanol production from lignocellulosic. On the same date, the World Intellectual Property Organization published a Solazyme application relating to biodiesel, renewable diesel and jet fuel production.

  1. US Patent Pub. No. 2010/0306879 (Novozymes) is directed to polypeptides having cellobiohydrolase activity useful for saccharifying cellulosic material in the production of ethanol. The patent application identifies two Family 6 Cellobiohydrolase polypeptides, one isolated from Thielavia hyrcaniae NN045097 and one isolated from Thielavia hyrcaniae NN045178.
     
  2. US Patent Pub. No. 2010/0304437 (Novozymes) is directed to polypeptides having cellulolytic enhancing activity and to saccharifying cellulosic material in the production of ethanol using an enzyme composition in the presence of a polypeptide having cellulolytic enhancing activity. According to the specification, ‘cellulolytic enhancing activity’ means a biological activity catalyzed by a GH61 polypeptide that enhances the hydrolysis of a cellulosic material by enzyme having cellulolytic activity. The specification provides a procedure for determining celluloytic enhancing activity and identifies an Aspergillus fumigatus gene encoding a Family 61 polypeptide having cellulolytic enhancing activity.
     
  3. US Patent Pub. No. 2010/0304438 (Iogen) is directed to modified beta-glucosidase enzymes that exhibit improvements in one or more kinetic parameters (i.e KG, KG2, kcat) relative the wild type beta-glucosidase. The application generically refers to modified Family 3 beta-glycosidases, which comprise genetically engineered amino acid substitutions selected from V43I, V43C, V101A, V101G, F260I, F260V, F260Q, F260D, 1543N, 1543A, 1543S, 1543G, and 1543L (TrCel3A numbering) and which have an amino acid sequence that is at least 80% identical to the amino acid sequence of the parental Family 3 beta-glycosidase from which it is derived. The application more specifically refers to modified beta-glucosidase enzymes derived from the Trichoderma reesei Cel3A beta-glucosidase and which have amino acid substitutions at one or more of positions 43, 101, 260 and 543, and optionally have further substitutions at least at one or more positions 66, 72, 96, 235, 248 and 369. According to the specification, the modified beta-glucosidases are useful in industrial process requiring efficient conversion of cellobiose to glucose, such as the hydrolysis of pretreated lignocellulosic feedstock.
     
  4. WO2010/138620 (Solazyme) relates to methods of extracting a lipid from a microorganism. The method involves: lysing a cultured microorganism to produce a lysate, wherein the microorganism has not been subjected to a drying step between culturing and lysing; treating the lysate with an organic solvent for a period of time sufficient to allow the lipid from the microorganism to become solubilized in the organic solvent; and separating the lysate into layers comprising a lipid:organic solvent layer and an aqueous layer. The specification exemplifies the use the microalgae as Chlorella protothecoides as the microorganism and coconut oil as the organic solvent. The specification also indicates that Prototheca moriformis can be preferably used and discusses methods of culturing and transforming Prototheca. The application also relates to methods for producing hydrocarbon or lipid compositions for production of biodiesel, renewable diesel, jet fuel, and lipid surfactants, the compositions having various carbon chain lengths, including C8, C10, C12, C14 and C18.

Secretary Chu Announces $80M for Biofuels

DOE Secretary Chu's announcement today regarding $80 million of ARRA funding for biofuels is potentially a positive development for the long-term development of the biofuels industry.  What is worrisome from a practical perspective  is the division of funding.  The National Alliance for Advanced Biofuels and Bioproducts, centered in St. Louis, received $44 million to develop a systems approach for the sustainable commercialization of algal biofuel and bioproducts.  The National Advanced Biofuels Consortium, based here in the Pacific Northwest, received up to $34 million to develop infrastructure compatible biomass-based fuels.  Meanwhile eight infrastructure projects received up to $1.6 million to support expanded fueling infrastructure for ethanol blends. While the Administration is ahead of the curve in recognizing the importance of long-term support for the development of advanced biofuels, it is overlooking the increasingly challenging environment in first generation biofuels.  Simply put- and purely in my opinion- there will be no second generation of biofuels if the first generation does not again thrive.  The ethanol industry has hit a blend wall that the EPA has not been willing to help them overcome in the short term.  Adding $1.6 million in E-85 infrastructure is but a chip in that wall when one considers the massive costs involved in building a national infrastructure.  On the biodiesel side, the current industry has not yet received an extension of its tax credit and was already facing severe challenges.  The investors who supported the expansion of the first generation biofuels industry are still tracking their investments and the policy support for the industry.  While government funding will further the development of the science of advanced biofuels, private sector involvement will be essential to the ultimate commercialization of these fuels.  To accomplish its ultimate goals, the Administration will need to begin to address these issues in a systematic manner.

EPA: Possible Increase in "Blend Wall"

 

The U.S. Environmental Protection Agency (“EPA”) expects to make a final determination in mid-2010 regarding a potential increase in the current 10% allowable ethanol content in fuel, the so-called “blend wall”.

 

In May 2009, Growth Energy, a biofuels industry association headed up by General Wesley Clark, requested a waiver that would allow the use of up to 15 % ethanol in gasoline. As mandated by the Clean Air Act, EPA was required to respond to the waiver request by December 1, 2009. The EPA responded earlier this week in a letter explaining that despite not completing all the applicable tests, early test results on 2 vehicles indicated that engines in newer (i.e. later than 2001) vehicles could probably handle an ethanol blend higher than the current limit. The EPA’s final determination will follow completion of testing on 19 vehicles (the number recommended by the Department of Energy (“DOE”)) which may take another 6 months.

 

The EPA recognizes that the limit on blends must be raised to achieve the renewable fuel mandate of 36 billion gallon by 2022. EPA has been reviewing public comments and working with DOE to determine the feasibility of a higher ethanol blend. Concerns include the impact on engine component longevity when a higher blend is used long term and appropriate labeling at the fuel pump. 

 

Full text of the letter: http://www.epa.gov/otaq/additive.htm

IRS Issues Notice on Depreciation of Ethanol Facilities

On Monday, August 24, the IRS issued Notice 2009-64.  The notice sets forth a proposed revenue ruling that concludes that ethanol facilities are depreciable over 7 years (rather than 5 years).  A link to the notice appears below.

The proposed ruling classifies ethanol facilities as assets used in Waste Reduction and Resource Recovery Plants (7 years) and not assets used for manufacture of Chemical and Allied Products (5 years).

The IRS did not state when it will issue a final revenue ruling.  The notice does request comments , which must be submitted by November 23, 2009.

The reasoning underlying the proposed ruling is subject to potential criticism.  This may explain why the ruling was issued in proposed form and comments requested.  

Clients that are interested in learning more about the proposed ruling or submitting comments should speak with their favorite Stoel Rives attorney.

Show me the Money: $5.5 million available for Ethanol Blends

Today, the Department of Energy (DOE) announced the release of a funding opportunity announcement (FOA) related to ethanol blends.  The FOA provides up to $5.5 million from the American Recovery and Reinvestment Act to increase the use of higher ethanol blends through expanding refueling infrastructure and funding outreach to promote public awareness.

$3.5 million is available to fund refueling infrastructure related to higher ethanol blends.  Potential projects include modifications, upgrades, or expansions of fuel pumps at retail gas stations.

$2 million is available to fund national campaign projects that increase public awareness of the benefits, safety, and use requirements of higher ethanol blends.

Applications for this FOA are due October 4, 2009.

Advanced Biofuel Producer Payments - FY 2009 Deadline Approaching!

Advanced biofuels producers must enroll by August 11, 2009 to be eligible to receive payments from the USDA for FY 2009 production under Section 9005 of the 2008 Farm Bill.  Eligible producers of advanced biofuels may receive payments for advanced biofuels produced from October 1, 2008 through September 30, 2009 (FY 2009).  $30 million is available for distribution under this program for advanced biofuels producers in FY 2009. 

The amount of payments made to individual producers will depend on the number of program participants and the volume of advanced biofuels being produced. Payments will be made in one lump sum to eligible producers after FY 2009.  Contact your local USDA Rural Development State Office for application materials or to learn more.
 

EPA Extends RFS 2 Comment Period

Last week, the US EPA extended the rulemaking period on RFS 2 until September 25, 2009.  This extends the period by 60 days.  While this rulemaking is  highly complicated and contentious, it is unclear that extending the comment period will improve this situation.  In addition, the effective date of the regulations continues to be delayed.  This could undermine Congress' intentions in passing the Energy Independence and Security Act that established RFS 2.  Let's hope EPA is able to move quickly and efficiently in finalizing and implementing the regulations.

Show Me the Money: Renewable Energy Financing in the Farm Bill

In an earlier blog, my colleague, Debra Frimerman reported about the Rural Energy for America Program (REAP).  REAP provides grants and loan guarantees to agricultural producers and rural small businesses to purchase renewable energy systems, make energy efficiency improvements and conduct feasibility studies for renewable energy systems.

REAP is a program under the Food, Conservation, and Energy Act of 2008 (the "2008 Farm Bill").  The 2008 Farm Bill also includes numerous other programs to help develop renewable energy in rural areas and promote the production of sustainable feedstocks for renewable energy production.  Please see this recent alert for specifics.

 

$18 Million of Value-Added Producer Grants Available

USDA Rural Business-Cooperative Service is accepting applications for $18 million in Value-Added Producer Grants.  Funds are available for value-added agricultural projects, including farm-based renewable energy projects, for either planning or working capital purposes.  Examples of eligible projects include developing ethanol and biodiesel plants, pelletizing biomass and installing anaerobic digesters.

The maximum grant award is $100,000 for a planning grant and $300,000 for a working capital grant.  Applicants must provide matching funds of at least 100% of the grant award.  Eligible applicants include (1) independent agricultural producers, (2) eligible agricultural producer groups, (3) farmer-owned or rancher-owned cooperatives and (4) majority controlled producer-based businesses.  

Check out our client alert on this opportunity for more information. 

President Obama Directs USDA to Promote and Expand Biofuels

On, May 5, 2009, President Obama announced federal efforts to increase investment and use of advanced biofuels. The President signed a Presidential Directive establishing the Biofuels Interagency Working Group, ordering the Department of Agriculture (“USDA”) to implement financing opportunities from the Food Conservation and Energy Act of 2008 (“FCEA”), and announcing additional Recovery Act funds for renewable fuel projects.

The Biofuels Interagency Working Group will be co-chaired by the Secretaries of Agriculture and Energy and the Administrator of the Environmental Protection Agency. The Biofuels Interagency Working Group will coordinate existing policies and identify new policies to support the development of sustainable next-generation biofuels production. 

President Obama has directed the USDA to immediately begin restructuring existing renewable fuels investments in order to preserve industry employment and develop a comprehensive approach to accelerate the production of American biofuels. Further, the USDA has 30 days to begin deployment of renewable energy financing opportunities from the FCEA. Financing opportunities under the FCEA include loan guarantees and grants for research, development, construction and retrofitting of demonstration and commercial scale biorefineries. 

President Obama also announced that $786.5 million from the American Recovery and Reinvestment Act (for more information on the American Recovery and Reinvestment Act please see Show Me the Money: The Law of the Stimulus) will be used to expand commercial biorefineries and jumpstart advanced biofuels research and development. The money will be divided as follows:

  • $480 million for integrated pilot and demonstration scale biorefinery projects
  • $176.5 million for commercial-scale biorefinery projects
  • $110 million for fundamental research
  • $20 million for ethanol research

 

Is More Bad By-Product News Coming for Biofuels Producers?

(this article was written by my colleague, Rick Goldfarb, and may also be accessed at www.foodliabilitylaw.com)

2008 was a terrible year for makers of ethanol and biodiesel. Huge spikes in the prices of raw materials, natural gas and transportation and drops in the prices they received for their main products have driven many of them to cut back production, shutter plants or even seek bankruptcy protection.  In addition, U.S. biodiesel producers saw themselves faced with an antidumping investigation by the EU that might affect their export market.

If you thought it couldn’t get any worse, hang on.

 

The National Grain and Feed Association reports that at the International Feed Expo in Atlanta on January 27, Dr. Daniel McChesney of the Food and Drug Administration spoke about studies the agency has reviewed concerning distillers’ grains, the main by-product of ethanol, and glycerin, the main by-product of biodiesel. The information presented by the FDA’s Center for Veterinary Medicine is of concern to anyone in the biofuels industry, as well as anyone who feeds livestock or purchases, processes or consumes meat and poultry.

 

The FDA has tested 45 samples of distillers’ grains from ethanol plants and in over half of them detected antibiotics, including virginiamycin, erythromycin and tylosin. NGFA later learned that the concentration of those antibiotics exceeded the level (0.5 ppm) from a letter of no objection relating to virginiamycin issued in 1993 to the predecessor of Philbro Animal Health. There are no safe levels established for the other two antibiotics in feed grain. The FDA has 15 more samples to test and intends to make its final report available this summer.

 

With regard to biodiesel-derived glycerin, Dr. McChesney stated that the FDA does not consider it to be GRAS, or generally recognized as safe, for use as animal feed. Two issues raised concerns: 

 

·         Many samples contained more methanol than the 150 ppm level recognized as safe for animal feed; and

 

·         Samples contained salt in concentrations as high as 16,500 ppm.

 

Accordingly, the FDA will be conducting a safety review of glycerin as a by-product of biodiesel. This will focus on the type of feedstock used, the manufacturing process and how the glycerin is introduced into feed. 

 

Developing markets for by-products has been a significant challenge for the emerging biofuels industry. The latest news of the FDA’s concerns about both distillers’ grains and glycerin will increase those challenges in an already difficult environment.

 

Article: The Implications of Ethanol Plant Optimization

A recent article co-authored by Boise partner John Eustermann in Ethanol Producer magazine highlights certain considerations that plant managers must keep in mind in the event of ethanol plant optimization.  These considerations include examination and re-evaluation of common project-related documents, such as technology licenses and permits/site control issues, when investigating optimization activities or technological modifications to the plant.

EPA Stalls Regarding RFS Waiver

EPA Administrator Stephen Johnson granted himself a continuance last week to make his decision on whether to grant Texas Governor Rick Perry’s request for a waiver of the Renewable Fuel Standard (RFS). As an attorney accustomed to living with deadlines, I certainly appreciate the lure of being able to grant oneself a continuance. Like many others participating in the biofuels industry, however, it is somewhat frustrating to encounter yet another delay on the policy front.

To be fair, Administrator Johnson has his work cut out for him in resolving this issue. Advocates on both sides see potentially substantial impact from a decisive ruling on the waiver. The waiver provision has been described as a pressure relief valve for the RFS. The interesting thing about this pressure valve is that no one knows what pressure the valve will withstand before it releases. Oil industry advocates would prefer a “hair trigger” type pressure release valve whereas biofuel advocates would like to see a more robust fixture.

Governor Perry’s request has some unique attributes. He actually based his request not on the RFS causing difficulty for the petroleum industry- which would have been difficult since ethanol has typically been less costly than gasoline and in ample supply- but on food and livestock supply arguments. Governor Perry’s request also precedes the ramp up period in the RFS when the real challenges will likely begin and thus his request could be viewed as an early attempt to hobble the RFS.

Let us hope that cooler heads prevail. Given the tremendous energy security and cost issues presently caused by our fossil fuel dependence, now is not the time for the EPA to start buckling on the RFS. As noted by the NBB’s CEO, Joe Jobe, "If the RFS is waived or cut in half in 2008, then the growth of all biofuels, including 'advanced biofuels' such as biodiesel, will be severely hindered." As Jobe and others have noted, these advanced biofuels may hold the real key to relieving the pressure on both fuel and food prices in the future.

Ethanol - Coming Soon to a Pipeline Near You?

U.S. Senators Tom Harkin and Richard Lugar introduced legislation July 21, 2008 to give ethanol pipeline owners the same tax benefits they receive for moving petroleum products. "While the most efficient mode for transporting liquid biofuels is by pipeline, a provision in the tax code is effectively blocking Publicly Traded Partnerships (PTP) – that build and operate most liquid pipelines – from moving forward. By law, PTPs are supposed to earn 90% of their income from the exploration, transportation, storage, or marketing of depletable natural resources, including oil, gas, and coal, but not renewable fuels."  The Harkin-Lugar bill would change the federal tax code to state that PTPs can earn "qualified" income from the transport, storage, or marketing of any renewable liquid fuel approved by the Environmental Protection Agency.

According to John Eustermann, a partner in our Boise office specializing in biofuels, while the measure is seen by those in the ethanol industry an encouraging step towards moving ethanol to the retail pump, it's part of a long-term effort he's seen to augment the almost exclusive transport of ethanol via rail cars.  Challenges will include the potential incompatibility and understanding the short- and long-term risks of transporting fuel-grade ethanol through pipelines, whether dedicated or existing.