U.S. offers $790M to next-gen biofuels

The U.S. government today announced $790 million in stimulus funding for the advanced biofuel sector—money that could ensure the country meets its own 2022 mandates for renewable fuels.

The news came as the U.S. Environmental Protection Agency said it was upholding the 2007 Renewable Fuels Standard, signed by former President George W. Bush, which calls for the gradual increase of biofuels blended into gasoline to 36 billion gallons in 2022 (see U.S. renewable fuels standard takes effect). That includes 15 billion gallons of corn- and grain-based ethanol, 16 billion gallons of cellulosic ethanol, and 5 billion gallons of differentiated fuel.

Today’s announcements are expected to provide the industry with some relief from the tightened credit market that has held up project financing as well as venture capital (see Cleantech investment drops but stimulus funds soar in 1Q09 and Record 2008 for cleantech with $8.4B in investments). But industry leaders say the industry is still in need of loan guarantees to further quell investors’ fears.

James Imbler, CEO of ZeaChem, said he thinks the reaffirmation of the 2022 target will have a significant impact.

“For the industry to develop, you’ve got to have clarity for investors,” Imbler told the Cleantech Group. “The government coming out and reaffirming that number is important because people would otherwise get nervous that the new administration would come in and throw out what the previous administration did.”

Without additional government support, the biofuel industry was “absolutely” going to have problems meeting the 2022 mandates because of the inability to finance further research and production facilities, said Arnold Klann, CEO of BlueFire Ethanol Fuels.

The new funds include $480 million for pilot- and demonstration-scale refineries; $176.5 million for commercial-scale refineries; and $130 million for research.

ZeaChem is on schedule to build its first biorefinery starting this summer but hopes to secure some of the funds to expand the scope of the facility (see ZeaChem starts work on first biorefinery). Meanwhile, BlueFire has raised $22 million, plus a $40 million government grant, and is trying to secure additional funds to build a second commercial facility (see BlueFire Ethanol to build second commercial facility).

“There are so many technologies out there that cannot get financing right now,” Klann told the Cleantech Group. “We’re totally shovel-ready for our Lancaster facility, and we’re in the process of raising money, but there’s tremendous resistance on the debt side because there’s very little liquidity on debt market, and there’s the whole issue of it’s a first-of-its-kind technology.

“By having the government step in to guarantee the market for the first-of-its-kind technology, some are going to succeed and some are going to fail, but at least it will show the pathway to getting there.”

For 2009, the EPA requires a 10.21 percent blend of biofuel in petroleum-based fuels, creating a market for 11.1 billion gallons of ethanol and biodiesel (see Ethanol blend increases while oil reaches new low). The market in 2008 was about 9 million gallons, up from 5 billion in 2006 (see Politicians want to increase ethanol production 10x).

The government funds also include $50 million to establish an algae biofuels consortium to accelerate the demonstration of the technology.

Andy Beck, vice president of public affairs for PetroAlgae, said he wants to see the money be put toward technology is ready to be deployed today. PetroAlgae has a demonstration facility for the technology it plans to license to customers, whereas Beck said some biofuel technologies will take three or four more years to be commercially viable.

Beck said the federal funding is just one step necessary for the sector to shift away from corn-based ethanol.

“It helps, but it’s not the only way the industry is going to get there,” Beck said.

The U.S. ethanol industry currently relies almost exclusively on corn, but the Obama administration said it needs to improve the efficiency of corn-based ethanol in addition to increasing the availability of cellulosic and other next-generation biofuels. The corn-ethanol industry has been criticized because of its water use (see Ethanol gets hosed), and because it has taken away from the food supply, increasing food prices by about 0.5 percent to 0.8 percent in 2008, according to a report in April from the Congressional Budget Office. The total increase in 2008 in food prices was 5.5 percent.

"Corn-based ethanol is a bridge to the next generation of biofuels," EPA Administrator Lisa Jackson said in a teleconference today.

Concerns about the environmental impact of farming corn prompted the California Air Resources Board in April to say it would reduce the carbon footprint of its fuel by 10 percent over the next decade, in part by cutting back on the use of corn-based ethanol. That measure is still under review.

The policies on a federal level toward biofuels have sometimes lacked clarity, Klann and Imbler said. But the Obama administration also announced today that the heads of the U.S. Environmental Protection Agency, the U.S. Department of Energy, and the U.S. Department of Agriculture will form a new group to identify policies to support advanced fuels and flex-fuel vehicles.

“They did something concrete by putting the money out there, and they’re dealing with the policy side by helping to cut through the bureaucracy,” Imbler said.

The three departments had the same goals but different ways to implement them, Klann said. That included loan guarantee programs with different requirements.

“It looked good, but it was difficult to utilize the funding,” he said.