Renewable Fuel Standards

Why biofuels?

Simply put the US needs a near term solution for our addiction to oil particularly in the transportation sector. All of the other alternatives (hydrogen electric etc.) require a new engine technology and complete swap-out of all of the infrastructure to support and service this new technology (new vehicle production, service stations, car dealerships and supplies etc.) This is trillions of dollars and decades away from being implemented on as wide a scale as is needed for it to become universal the way petroleum is.

Renewable Fuels Standards

In order to fulfill a commitment to developing more domestically produced renewable energy Congress enacted The Renewable Fuels Standard (RFS). This mandate is a very ambitious commitment to rapidly ramp up the availability of domestically produced biofuels.

RFS – Bingaman/Domeneci Bill – 36 billion gallons/yr Mandate by 2022 (Qualifies Domestically – Produced Biofuels Only) merged into Senator Reid’s Renewable Fuels, Consumer Protection and Energy Act of 2007 (S. 1449).

Meeting the demands of the Renewable Fuels Standard and potentially replacing petroleum altogether is a mammoth undertaking. It creates a huge market opportunity for the production of the next generation of biofuels.

Renewable Diesel is classified as a “Renewable Fuel”, “Advanced Biofuel”, and “Undiffferentiated Advanced Biofuel” for RFS purposes. Renewable Diesel fuel is “undifferentiated” because its properties are nearly identical to petroleum fuel and is therefore a complete replacement for petroleum based diesel, gasoline, and jet fuel. On the other hand, transesterified biodiesel is considered a “biomass based diesel” and its properties do not match those of petroleum diesel.

Biodiesel is dependent on the existing petroleum industry as biodiesel must be blended with petroleum diesel in small 5-20% ratios (B5, B20) in order to achieve widespread use as an on-road fuel because its physical properties have numerous and significant shortcomings. The RFS does not recognize biomass based biodiesel beyond 2012. Cellulosic Biofuel primarily refers to the production of ethanol. Ethanol as an on-road fuel has applications for only the light duty fleet and its energy content per unit volume is significantly lower than Renewable Diesel fuel. As an undifferentiated advanced biofuel, Renewable Diesel has significant market penetration potential.

Diesel (Distillate Fuel Oil) and Jet Fuel Market

The United States uses 144 billion gallons per year gasoline vs 86 billion gallons of diesel and Jet fuel per year. However, the total gasoline market (including the projected E85 replacement) is expected to only grow slightly by volume but will actually decrease when measured by Btu content between 2009 and 2030.

The slow growth of the gasoline market is in part due to the growth in the use of alternative fuels as well as diesel to power light duty vehicles. Between 2009 and 2030 the consumption of diesel and jet fuel is expect to grow 38% by volume and 40% by Btu content during the same period. Unlike light duty vehicles there is no current practical alternative path for powering ships, trains, heavy duty trucks, or aircraft with batteries, electricity or hydrogen.

Diesel (Distillate Fuel Oil) and Jet Fuel Market

Why focus on an alternative to diesel versus gasoline?

There has been significant funding for biomass biorefineries using cellulosic feedstock. Cellulose provides a relatively low energy density fuel which can be a good substitute for the gasoline market. VE is focused on a production process which would be the most well suited alternative to the higher energy density fuels like diesel.

Currently the United States uses about twice as much gasoline than diesel. There are, however, many reasons why the US will begin using more diesel in the future:
- Better fuel efficiency
o Diesel engines can get significantly better mileage (10%-40%) than a similar gas powered vehicle
§ Diesel engines use the more efficient direct fuel-injection method (fuel injected directly into cylinder) compared to the port fuel-injection setup in gas engines where gas is mixed with incoming air in the intake manifold, the diesel system has little wasted or unburned fuel.
§ Diesels also use about one third as much fuel at idle as gasoline units.
- Higher Energy Density
o Diesel fuel has a higher energy density than gasoline - 147,000Btus versus 125,000 Btus (18% higher energy density)
- Flexibility of Fuel in On Road Use
o Diesel engines has been proven to produce horsepower like a gasoline engine by winning at Lemans, while only diesel is able to produce real torque for towing large loads.
- Diversity of Uses
o While gasoline is used primarily for light duty vehicle use diesel has a wide variety of applications including: light duty cars and trucks, big rigs, construction, municipal and farm vehicles, buses, generators, trains, boats, heating oil, lubricants etc.
- Cost Less to Refine
o Diesel fuel is easier to refine and therefore takes less time to get from raw petroleum to final product than gasoline
- Lower Emissions
o Diesel vehicles are naturally 20-40 percent more energy efficient than gasoline vehicles resulting in a 10-20 percent reduction in GHG emissions
- Cheaper Maintenance and Longer Engine Life
o The average gas engine is good for only around 125,000 miles before needing a rebuild. A diesel can go more than three times this amount before needing an overhaul
- No Real Replacement
o While there may be replacements for gasoline powered cars (hydrogen, electric etc.) there are simply no similar replacements for the diesel engine on the horizon


Diesel and jet fuel are used in a large variety of applications including:
- Truck Fleets
- Power generation (peak use)
- Marine market (
- Small generators
- Heating oil
- Aviation
- School buses
- Construction equipment
- Farm equipment
- Light duty vehicles
- Trains

Fuel Properties

Below is a comparison of the fuel properties of biodisel, Renewable Diesel and Petroleum diesel.

Advantages of Renewable Diesel

Among the first of the next generation of biofuels which is both proven and being licensed for commercial production is Renewable Diesel. Advantages of Renewable Diesel:

• Not Biodiesel – Renewable Diesel technology produces fuel which has the same properties as the petroleum fuel it replaces and therefore doesn’t have any of the associated issues which have plagued the biodiesel industry
  Renewable Diesel fuels –
  - Are a drop in replacement for petroleum fuels
  - Enable delivery through existing distribution infrastructure including pipelines
  - Will improve ignition (higher cetane level)
  - Are less susceptible to freezing in cold weather
  - Have higher renewable content
  - Have greater fuel stability which enhances storage abilities
  - Lower NOx and GHG emissions
  

· Fuel Output Flexibility – Renewable Diesel technology produces fuels capable of meeting strict aviation specifications and any other hydrocarbon fuel, including diesel, gasoline and heating oil.

· Feedstock Flexibility – All fuel outputs can be produced using any lipid oil so Renewable Diesel technology can accommodate oils deemed the most available and cost-effective at any given time or geographic location – including those with very high free fatty acids.

· Maximum Energy Density - Unlike cellulosic ethanol which produces a product with significantly lower energy density than the fuel it replaces Renewable Diesel technology will produce fuel with the same energy density leading to higher performance and efficiency.

· Extremely Low GHG Emissions – Renewable Diesel technology produces significantly less lifecycle GHS emissions than corn ethanol and when using animal fats even less than either Biodiesel or cellulosic ethanol .

California’s Air Resources Board (CARB) recently found:-
- Renewable Diesel to be one of the lowest carbon-intensity fuels available today
- That use of Renewable Diesel is the most readily available means to reduce a vehicle’s GHG emissions

Why a Replacement for Diesel?

Currently the United States uses about twice as much gasoline than diesel. There are, however, many reasons why the US will begin using more diesel in the future:

• Better fuel efficiency
  Diesel engines can get significantly better mileage (10%-40%) than a similar gas powered vehicle

- Diesel engines use the more efficient direct fuel-injection method (fuel injected directly into cylinder) compared to the port fuel-injection setup in gas engines where gas is mixed with incoming air in the intake manifold, the diesel system has little wasted or unburned fuel.

- Diesels also use about one third as much fuel at idle as gasoline units.

• Higher Energy Density
  Diesel fuel has a higher energy density than gasoline - 147,000Btus versus 125,000 Btus (18% higher energy density)
• Flexibility of Fuel in On Road Use
  Diesel engines has been proven to produce horsepower like a gasoline engine by winning at Lemans, while only diesel is able to produce real torque for towing large loads.
• Diversity of Uses
  While gasoline is used primarily for light duty vehicle use diesel has a wide variety of applications including: light duty cars and trucks, big rigs, construction, municipal and farm vehicles, buses, generators, trains, boats, heating oil, lubricants etc.
• Cost Less to Refine
  Diesel fuel is easier to refine and therefore takes less time to get from raw petroleum to final product than gasoline
• Lower Emissions
  Diesel vehicles are naturally 20-40 percent more energy efficient than gasoline vehicles resulting in a 10-20 percent reduction in GHG emissions
• Cheaper Maintenance and Longer Engine Life
  The average gas engine is good for only around 125,000 miles before needing a rebuild. A diesel can go more than three times this amount before needing an overhaul
• No Real Replacement
  While there may be replacements for gasoline powered cars (hydrogen, electric etc.) there are simply no similar replacements for the diesel engine on the horizon
  

Current State of the Biodiesel Industry

At this moment in time, the biodiesel industry is experiencing extreme economic hardship. As a result, it is estimated that domestic biodiesel plants are producing at only 10% of capacity.

There are a number of reasons why the biodiesel industry is suffering:

- Mandates haven’t become effective yet (some states will implement next year e.g., MA and PA), and the recent Renewable Fuels Standard (RFS2) was delayed till 2010.
o Without mandates there is very little incentive for the petroleum industry to invest in or support biodiesel (the biodiesel industry is largely reliant on the petroleum industry for adoption into the on-road market)

- Current infrastructure is not compatible with biodiesel
o Infrastructure has not been developed and the volume is not available to support investment in infrastructure for wide scale distribution.

- Plant locations are often not in close proximity to feedstock, off take customers or both

- Lack of capitalization, lack of quality controls, inexperienced management

- The economics have been inverted - feedstock pricing volatility and price increases have made it difficult to make consistent profits and to be competitive

- Limited worldwide feedstock market

- Plant technology is often limited to a single or very few feedstock’s

- Excessive operating costs (labor and costs of inputs), running inefficient plants, lack of sophistication and automation, etc.

Although biodiesel is the only recognized alternative liquid biofuel other than ethanol, the petroleum industry is reluctant to incorporate it into the supply chain due to a number of characteristics which require special handling and treatment for biodiesel:

o Higher cold flow properties than petroleum diesel which limits the use and blends of biodiesel in colder climates

o Biodiesel tends to attract water in tank and storage systems

o Increased NOx emissions compared to petroleum diesel

o Oxidation instability – causing injector deposits, lacquer formation and fuel system corrosion

o Water separation causing bacterial growth and fuel injection system corrosion

o Biodiesel is a solvent which helps to clean out engines but can also cause increased maintenance (filter changes) and destruction of gaskets and other parts

The final blow for biodiesel is coming as the country considers a stipulation of the RFS2 which would limit the use of corn or soy as feedstock’s to meet the volume requirements of the bill. Corn and soy are non-conforming to indirect land use concepts. This proposed stipulation would drastically reduce the currently available feedstock for the biodiesel industry to support winter month biodiesel supplies for a large portion of the US. Although the final version of the RFS2 is pending, standards are moving in the direction of more restrictive limitations for the biodiesel industry.

But biofuels aren't going away. Over the course of the last year or so, new technologies have emerged and are becoming available which solve many of the issues which have plagued the first generation of biofuels (biodiesel and corn based ethanol). The growth of the next genertion of biofuels technology will be driven by among other things:

- The demise of the first generation of ethanol and biodiesel technology (as discussed above)

- Increasing Renewable Fuels Standards production volume requirements beginning in 2010

- California Air Resources Board (CARB) and RFS2 lifecycle GHG emissions requirements

- Onset of new sources of feedstock in volume (jatropha, camelina, penny cress, algae etc.)

- Increased value of RINs and other credits and biofuels incentives