July 28, 2009

Really Green Fuel: The EPA Opens the Door to Algae

Forget the summer of love. This is truly turning into the summer of algae.

More advanced than it appears.

The renewable energy and law blog of Stoel Rives LLP, a big law firm in the western U.S, reports that the Environmental Protection Agency will count algae as an advanced biofuel under Renewable Fuel Standard rules being developed. The EPA is said to be encouraged by recent interest in algae by heavyweights such as Exxon Mobil and Dow Chemical.

Biofuels such as cellulosic ethanol, sugar-cane ethanol and even biodiesel were envisioned in the RFS – but algae was absent.

Why do EPA’s steps towards including algae matter? Because when Congress created its mandate to blend advanced biofuel into the fuel pool, it created a big market for these fuels. By 2012, the law mandates that two billion gallons of these advanced biofuels be blended, a figure that rises by tenfold by 2022. It’s all in Section 202 of the Energy Independence and Security Act of 2007.

If EPA decides that algae should be included, that creates a big opening for companies such as Sapphire Energy similar to the opening for cellulosic ethanol makers such as Verenium Corp. For algae to be included, the law says it needs to have no more than 50% of the “lifecycle greenhouse gas emissions” of gasoline and diesel. This could be tricky, says David Woodburn, an alternative energy analyst with ThinkEquity. “The hard part for me is understanding how the EPA plans to calculate the GHG emissions of algae fuels, based on the variety of feedstocks (sugar, CO2, other), processes (open ponds, photobioreactors), and algae varieties being explored – especially before November,” he says, noting when the rules are supposed to be finished.

The inclusion of algae is potentially good news for Exxon, which recently said it would invest up to $600 million in a venture with Synthetic Genomics to study ways to turn algae into a crude-like oil. Without the EPA’s blessing, the volumes of oil that might one day be generated by this effort ironically wouldn’t have counted as advanced biofuels.

And, whoever said the federal bureaucracy isn’t responsive? In mid-July, Sen. Jeff Bingaman, chairman of the Energy and Natural Resources Committee, critiqued in-the-works Renewable Fuel Standard rules by pointed out that algae-based fuels “have no home in” them. He argued that the government shouldn’t “pick winners.”

Three days later, EPA official Sarah Dunham speaking at a National Academy of Sciences panel praised algae and said it would be included in the final rules, according to Stoel Rives, which cited InsideEPA.com, a subscription based news service. A copy of her presentation wasn’t readily available. If someone has a copy, please pass it along and we’ll post a link.

Now, will algae also qualify under Internal Revenue Service rules for the $1.01 gallon credit?

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