From: Reuters
Published December 17, 2008 08:58 AM

U.S. will fail to meet biofuels mandate: EIA

NEW YORK (Reuters) - The United States will fall well short of biofuels mandates on the uncertain development of next-generation fuels made from grasses and wood chips, the government's top energy forecasting agency said on Wednesday.

"The key risk factor is rate of development of cellulosic biofuels technology," Howard Gruenspecht, the Energy Information Administration's acting head, said at press conference in Washington introducing the agency's annual energy forecast. "Near term growth of cellulosic ... is certainly a question mark."

The country, the world's top producer of the main biofuel ethanol, will only blend about 30 billion gallons of fuels like corn-based ethanol and the advanced fuels into gasoline by 2022. That is about 17 percent short of the U.S. mandate of 36 billion gallons by that year, the EIA said in the forecast.

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The United States enacted the mandate, known as the Renewable Fuels Standard, late last year in an effort to provide jobs and begin to wean the country off foreign oil.

It calls for corn ethanol, but also an increasing amount cellulosic ethanol made from fast-growing grasses and trees, and biodiesel made from non-food sources. Cellulosic is not yet made commercially.

Loopholes in the mandate that allow regulators to waive the requirements, if needed, could also result in lower blending, Gruenspecht, said.

So far, such waivers have not been approved. In August, U.S. environmental regulators rejected a request from Texas Gov. Rick Perry to halve the mandate, which he blamed for boosting corn prices and making it costly for farmers to feed livestock.

AMBITIOUS

Matt Hartwig, a spokesman for the ethanol industry group the Renewable Fuels Association, said, "Is the mandate ambitious? Absolutely." But research in cellulosic production being carried out on college campuses and federal research labs will help the country meet the target, he said.

Meeting the mandate could provide President-elect Barack Obama with challenges if he does not adjust policies. Obama has said he wants to boost the use of alternative motor fuels above the mandates.

His choice for agriculture secretary, Tom Vilsack, the former governor of Iowa, the top ethanol producing state, has recommended phasing out subsidies for corn-based ethanol and reducing tariffs on imports of Brazilian ethanol made from sugar cane. Steven Chu, Obama's pick for energy secretary, is also a strong proponent of advanced biofuels.

This year's oil price collapse and the credit crunch has hurt many biofuel companies financially and cut the amount of fuel some of them are making. VeraSun Energy Corp, the largest publicly traded ethanol company, filed for bankruptcy protection in late October. This month, company lawyers said eight of VeraSun's 16 plants were in "hot idle" mode, or ready to operate but not currently producing ethanol.

Ethanol producers are also pushing for changes in blending regulations to allow more of the fuel to blended into gasoline that is burned in regular cars. Currently rules limit gasoline to 10 percent ethanol, while specially made "flex- fuel" cars can burn fuel that is 85 percent ethanol.

For the moment U.S. ethanol capacity is too high, which is helping to make distilling ethanol barely profitable. U.S. capacity to make ethanol is slightly above the 2009 mandate for blending of 11.1 billion gallons of biofuels into gasoline.

(Reporting by Timothy Gardner; additional reporting by Ayesha Rascoe in Washington; editing by Marguerita Choy)

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