Biofuels Earn BRAGging Rights

Biofuels Earn BRAGging Rights

In the first major overhaul of an environmental statute since 1976, the Toxic Substances Control Act bill, H.R. 2576, has already granted an exemption to biofuel manufacturers. 

The bill is being touted as a science and health-based approach to chemical regulation. The exemption is a response to an industry petition by the BRAG (Biobased and Renewable Products Advocacy) Group. 

It is a surprising move, given the fact that biofuels received short shrift from S. 2012, aka the Energy Policy Modernization Act of 2015, which became law as recently as April 20, 2016. 

It’s hard to go from being darling of the industry to demonized, but that is exactly what has happened to the biofuel industry. It began in 2005 with the Energy Policy Act, which mandated oil companies begin adding biofuels to gasoline. 

The Act was a response to the 1990 invasion of Kuwait by Iraq (which ultimately led to astronomical oil prices), and was aimed at creating an autonomous national energy base, even in the face of “Peak Oil” (predicted to occur between 2005 and 2010). 

The 2005 biofuel mandate, under the Renewable Fuel Standard, or RFS, was 7.5 billion gallons of biofuels, or renewable fuels, by 2012. At the time, the most familiar biofuel was corn ethanol, which the Environmental Protection Agency, or EPA, calls “conventional biofuel”. 

The requirement lit a fuse under the biofuels industry. In 2007, a new biofuel mandate – this one for 36 billion gallons by 2022 – prompted farmers in the Midwest to consign their corn crops to fuel instead of food, and ethanol factories – some little more than converted equipment sheds – sprang up like dandelions across the Heartland.     

Savvy investors know that where there is boom, bust will often follow. Thanks to $20 billion in subsidies, corn ethanol producers were not forced into competition, but the price of corn - $2 a bushel for almost 40 years prior to 2008 – rose to $5.50 a bushel. 

Producers who had locked in shipments at that price saw gasoline (and biofuel) prices fall at the end of the Great Recession (2007-2009). Many lost their factories, if not their shirts. Thirty-six ethanol plants were idled; 48 future plants abandoned.

Corn ethanol also created a global food crisis, according to some economists. In 2007, the price of a tortilla doubled in Mexico. In the United States, food prices rose by 75 percent. In countries from Algeria to Haiti, food riots emphasized the fact that food withdrawn for fuel was a dead-end policy that left populations, and their governments, stranded by the side of the road.

In retrospect, much of the crisis likely owed its roots to commodity trading practices and an impending recession. Whatever the cause, biofuels’ reputation remains tarnished by that era, so it is little wonder that Congress was unwilling to restore even some of that lost glamour via S. 2012. Sen. Jess Flake (R-AZ), for example, tried to prevent biofuels from accessing the Biofuels Infrastructure Partnership development fund. Flake, Sen. Dianne Feinstein (D-CA), and  Sen. Pat Toomey (R-PA) even proposed  eliminating the corn ethanol mandate from the RFS.

In spite of such opposition, the EPA continues to push for RFS levels for 2017, proposing that gasoline and diesel fuels contain 18.8 gallons of biofuels – 14.8 billion gallons of that to be corn-based ethanol.

This is 5.2 billion gallons behind the target defined in 2007, and Janet McCabe, acting head of the EPA’s Air and Radiation division, insists her agency is committed to keeping the program on track. The gap between past projections and future commitment is one the EPA explains by citing reduced demand for gasoline and diesel overall.

The EPA has also made it easier for biofuel manufacturers by amending some of the regulations – and fewer regulations are always good for business, as investors know. This relief, under the BRAG petition mentioned previously, exempts biofuel producers from reporting certain chemical substances that have already been “grandfathered in”.

The rule applies from June 1 forward, and includes unsaturated fatty acids (methyl esters) from corn oil, canola oil, tallow, and soybean oil. BRAG's Executive Director Kathleen M. Roberts applauded the EPA’s move and BRAG members’ perseverance in achieving the exemption.

Industry experts on the other side of the issue argue that the increased ethanol mandate is not good for combustion engines and exceeds the 10 percent corn-to-gasoline limit (commonly called the “blend wall”) beyond which engine wear and fuel mileage become unacceptable.

Interestingly enough, Henry Ford and Rudolf Diesel (inventor of the diesel engine) designed their vehicles to run on nothing but ethanol. In fact, the introduction of petroleum-based fuels was a response to America’s 1791 tax on alcohol designed to pay down debt incurred by the Revolutionary War.

The introduction of greater amounts of alternative fuels may mean modest engine retrofits across the industry, but for investors focused on sustainability it also means cleaner air and less corporate liability as carbon emissions top out at 400 parts per million (ppm) for the first time in history.  

After being stalled in the House for three weeks, H.R. 2576 was approved by Congress on June 8 and now needs only the President’s signature.

Companies to Watch:

Gevo, Inc. (NASDAQ: GEVO) is hitting a high note after two successful flights by Alaska Air Group (ALK) using Gevo’s renewable alcohol jet fuel, a 20-percent biofuel blend made from fermented corn. The use of biofuel is expected to reduce greenhouse gas emissions by 50 percent. For more information on alternative jet fuels, visit the Federal Aviation Administration, or FAA.

BlueFire Renewables, Inc. (OTC: BFRE) formerly known as BlueFire Ethanol Fuels, Inc., changed its name to BlueFire Renewables, Inc. in July 2010. Founded in 2006 and based in Irvine, California, the company has a license agreement with Arkenol, Inc. to use and sub-license their technology to convert cellulose and waste materials into ethanol and other high value chemicals.

Ceres, Inc. (NASDAQ: CERE), currently working on biotech sugar cane trails in Brazil, offers forage sorghum seeds used for growing feed for livestock, such as dairy and beef cattle. Sorghum is emerging as an “old fashioned” crop finding new uses in feeding humans and cattle, and in producing biomaterial for renewable fuels. Shares have been hot off and on since April 26 on news of two crop-trait patents that enhance growth even in marginal growing conditions.

Green Plains Renewable Energy Inc. (NASDAQ: GPRE)refines and sells ethanol, distiller grains and corn oil in the United States and has a market cap of $289 million.

Future Fuel Corp. (NYSE: FF) Q1 2016 earnings were down 13.8 percent from Q1 2015, up on biofuels but down on custom chemicals due to energy constraints. Dividends have been down since the end of 2014, but steady at 0.06 cents per share, and analysts have revised fiscal year-end estimates upward.

Jeanne Roberts is an award winning freelance writer covering the environment, sustainability, social justice, health, politics, and the natural world. She has roots in the corporate world as a California reporter and a communications specialist at a large public utility and has spent the past 10 years working as an editor for a small-cap stock site, and as an environmental/political/social justice blogger for The PanelistCelsias,Cooler PlanetDeSmogBlogEnergy, the Clean Tech Blog,EarthTechling, and various other online publications. Ms. Roberts has written a book on alternative energy sources, sustainable home building, and environmental initiatives for homeowners available on Amazon.

Originally published on June 13, 2016