Renewable Fuel Standard: Low Expected Production Volumes Make It Unlikely That Advanced Biofuels Can Meet Increasing Targets
Published: 2016-11-28T00:00:00

Fast Facts:
The Renewable Fuel Standard program calls for greater use of advanced biofuels—fuel made from waste fats and oils or crop residues, for example—in the transportation fuel supply through 2022.
Yet, there is not nearly enough of this fuel to meet the program's targets—nor will there likely be enough in the near future. Experts we interviewed cited the high costs of creating advanced biofuel, the relatively low price of fossil fuel, the timing and cost to bring new tech to commercial-scale production, regulatory uncertainty, and other issues as challenges to increased production.

Highlights:
section_title: Why GAO Did This Study
paragraphs: The RFS generally mandates that domestic transportation fuels be blended with increasing volumes of biofuels through 2022, with the goals of reducing greenhouse gas emissions and expanding the nation's renewable fuels sector while reducing reliance on imported oil. Blending of conventional renewable fuels, primarily ethanol derived from corn starch which is required to reduce greenhouse gas emissions by 20 percent compared with petroleum-based fuels, has nearly reached the maximum called for under the RFS. Further growth in renewable fuels is to come from advanced biofuels, which must reduce life-cycle greenhouse gas emissions by at least 50 percent compared with petroleum-based fuels to qualify under the RFS. However, production of advanced biofuels has not kept pace with statutory targets. To promote the development and commercialization of advanced biofuels, the federal government has supported R&D efforts for biofuels since the 1970s.
GAO was asked to review issues related to advanced biofuels R&D. This report describes (1) how the federal government has supported advanced biofuels R&D in recent years and where its efforts have been targeted and (2) expert views on the extent to which advanced biofuels are technologically understood and the factors that will affect the speed and volume of production. GAO interviewed DOD, DOE, EPA, NSF, and USDA officials and worked with the National Academy of Sciences to convene a meeting of experts from industry, academia, and research organizations.
EPA generally agreed with the report.
section_title: What GAO Found
paragraphs: The federal government has supported research and development (R&D) related to advanced biofuels through direct research or grants, and the focus is shifting away from cellulosic ethanol and toward drop-in biofuels. Unlike corn starch-based or cellulosic ethanol, drop-in fuels such as renewable gasoline are fully compatible with existing infrastructure, such as vehicle engines and distribution pipelines. In fiscal years 2013 through 2015, the federal government obligated more than $1.1 billion for advanced biofuels R&D. Of this amount, the Department of Energy (DOE) obligated over $890 million. For example, DOE's Office of Science funds three bioenergy research centers affiliated with universities and national labs that conduct basic research for all stages of biofuel production. The Department of Agriculture (USDA) obligated over $168 million in fiscal years 2013 through 2015 to support advanced biofuels. For example, USDA scientists developed a novel process to increase production of butanol, a drop-in fuel that lowered production costs by over 20 percent. The remaining federal obligations during these years were through the Environmental Protection Agency (EPA), the Department of Defense (DOD), and the National Science Foundation (NSF), which obligated relatively less for such R&D. According to agency officials, agencies are shifting their focus to drop-in fuels in part because they are compatible with existing infrastructure. Officials from one federal funding agency said this compatibility makes drop-in fuels more desirable than cellulosic ethanol.
Experts said that several advanced biofuels are technologically well understood and some are being commercially produced, but they noted there is limited potential for increased production in the near term and cited several factors that will make significant increases challenging. Given that current advanced biofuel production is far below Renewable Fuel Standard (RFS) targets and those targets are increasing every year, it does not appear possible to meet statutory target volumes for advanced biofuels in the RFS under current market and regulatory conditions. Biofuels that are technologically well understood include biodiesel, renewable diesel, renewable natural gas, cellulosic ethanol, and some drop-in fuels. A few of these fuels, such as biodiesel and renewable diesel, are being produced in significant volumes, but it is unlikely that production of these fuels can expand much in the next few years because of feedstock limitations. Current production of cellulosic biofuels is far below the statutory volumes and, according to experts, there is limited potential for expanded production to meet future higher targets, in part because production costs are currently too high. Experts told GAO that technologies for producing other fuels, such as some drop-in fuels, are technologically well understood but that these fuels are not being produced because production is too costly. Among the factors that will affect the speed and volume of production, experts cited the low price of fossil fuels relative to advanced biofuels. This disparity in costs is a disincentive for consumers to adopt greater use of biofuels and also a deterrent for private investors entering the advanced biofuels market. Experts also cited uncertainty about government policy, including whether the RFS and federal tax credits that support advanced biofuels will remain in effect. While such policies should encourage investment, investors do not see them as reliable and thus discount their potential benefits when considering whether to invest.

section_title: Letter
paragraphs: The Renewable Fuel Standard (RFS) calls for increasing volumes of  renewable fuels to be blended into domestic transportation fuels through  2022, with the goals, as outlined by the Environmental Protection Agency  (EPA), of reducing greenhouse gas emissions and expanding the nation’s  renewable fuels sector while reducing reliance on imported oil. Blending  of conventional renewable fuels, primarily ethanol derived from corn  starch, has nearly reached the maximum called for under the RFS. Such  fuel is required to reduce greenhouse gas emissions by 20 percent  compared with petroleum-based fuels. The RFS calls for further growth  in renewable fuels to come from advanced biofuels—that is,  transportation fuels, other than corn-starch ethanol, that are made from  biological materials and that reduce life-cycle greenhouse gas emissions  by at least 50 percent compared with petroleum-based fuels. However,  production of advanced biofuels has not kept pace with targets in the  RFS. In part because of insufficient production, EPA, which is responsible  for implementing the RFS, has used its authority to set annual volume  requirements for advanced biofuels that are below the targets in the  statute starting in 2014. For example, for 2016, EPA set a volume  requirement of 3.61 billion gallons for total advanced biofuel, although the  statutory target is 7.25 billion gallons. This lower volume requirement  reflected in part, EPA’s expectation of how much advanced biofuel could  be produced.
To reach large-scale production, advanced biofuels must go through a  scale-up process from laboratory-proven technology to production on a  commercial scale—a process that can be time-consuming and expensive.  To promote this process, the federal government has supported research  and development (R&D) efforts for biofuels since the 1970s.
You asked us to review issues related to advanced biofuels R&D. This  report describes (1) how the federal government has supported advanced  biofuels R&D in recent years and where its efforts have been targeted  and (2) expert views on the extent to which advanced biofuels are  technologically understood and the factors that will affect the speed and  volume of production.
To describe how the federal government has supported advanced  biofuels R&D in recent years and where its efforts have been targeted, we  reviewed documents and obligations data and interviewed officials from  the Department of Agriculture’s (USDA) Agricultural Research Service  and National Institute of Food and Agriculture; the Department of  Defense’s (DOD) Defense Advanced Research Projects Agency; the  Department of Energy’s (DOE) Advanced Research Projects Agency– Energy, Bioenergy Technologies Office, Office of Science, and Vehicle  Technologies Office; EPA’s Office of Transportation and Air Quality; and  the National Science Foundation (NSF). We reviewed obligations data for  advanced biofuels R&D for fiscal years 2013 through 2015. In some  cases, agencies or offices estimated these obligations because they did  not track obligations data for advanced biofuels R&D separately from  other biofuels or bioenergy R&D. To assess the reliability of the  obligations data, we requested information from officials who maintain the  relevant databases about steps they take to maintain them. We  determined that the data we used were sufficiently reliable for the  purposes of our reporting objectives.
To describe expert views on the extent to which advanced biofuels are  technologically understood and on the factors that will affect the speed  and volume of production, we worked with the National Academy of  Sciences to convene a group of 19 experts for a 2-day meeting in May  2016. One additional expert was unable to attend the meeting, and we  interviewed him separately. (See app. II for a list of the experts we  consulted.) We analyzed summary statements agreed upon by experts at  the meeting as well as meeting transcripts to inform this report. To better  understand the extent to which advanced biofuels are technologically  understood and the factors that will affect the speed and volume of  production, we also interviewed representatives from 11 companies that  produce, or aim to produce, advanced biofuels. We selected these  producers on the basis of technology used and scale of production.  Specifically, we selected companies using well-established technologies  and producing at commercial scale, companies using first-of-their-kind  technologies and producing at commercial scale, and companies using  first-of-their-kind technologies and not yet producing at commercial scale.  Our interviews with producers provided key insights on and real-world  examples of the factors that influence the speed and scale of advanced  biofuel production; however, the results of our interviews cannot be  generalized to all producers. (See app. III for a list of the producers we  interviewed.) A more detailed description of our objectives and the scope  and methodology of our review is presented in appendix I.
We conducted this performance audit from June 2015 to November 2016  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Advanced biofuels are produced through a variety of combinations of (1)  a feedstock, which is the type of renewable biomass that is converted into  a renewable fuel, and (2) a conversion technology, which is used to  convert renewable biomass into fuel. The result is a final fuel product.  Advanced biofuels may be made from an assortment of feedstocks,  ranging from waste fats and oils to crops grown expressly for biofuels  production, such as grasses like miscanthus and switchgrass. (See   fig. 1.)
These feedstocks are converted into fuel using a variety of conversion  technologies that generally rely on chemicals, catalysts, enzymes, heat,  or pressure. Depending on the feedstock and conversion technology  used, the fuel may fit into one or more of three advanced biofuels  categories established in the RFS.
Advanced: renewable fuel, other than ethanol derived from corn  starch, that has life-cycle greenhouse gas emissions at least 50  percent lower than traditional petroleum-based fuels. This is a catch- all category that may include a number of fuels, including fuels made  from algae or ethanol made from sugar cane. This category includes  the following subcategories:
Biomass-based diesel: biodiesel or renewable diesel that has  life-cycle greenhouse gas emissions at least 50 percent lower  than traditional petroleum-based diesel fuels.
Cellulosic: renewable fuel derived from any cellulose,  hemicellulose, or lignin that is derived from renewable biomass  and has lifecycle greenhouse gas emissions at least 60 percent  lower than traditional petroleum-based fuels. This category of fuel  may include cellulosic ethanol, renewable gasoline, cellulosic  diesel, and renewable natural gas from landfills that can be  upgraded and used in vehicles designed to run on liquefied or  compressed natural gas.
Some advanced biofuels are compatible with existing engines and the  fuel distribution infrastructure. Such fuels, known as “drop-in” fuels,  include renewable diesel, renewable jet fuel, and renewable gasoline.  Other advanced biofuels are not fully compatible. For example, cellulosic  ethanol, like corn-starch ethanol, faces limits on the amount that can be  blended into gasoline, in part because it is more corrosive. Drop-in fuels  do not face this limitation because they are compatible with current  infrastructure.
EPA is responsible for implementing the RFS through several  mechanisms.  Specifically, EPA approves new combinations of  feedstocks, conversion processes, and fuels that can be counted toward  the statutory targets. EPA also has the authority to waive statutory targets  and set annual volume requirements for categories of renewable fuels,  including advanced biofuels. These volumes may deviate from the  statutory targets because of inadequate domestic supply, among other  reasons. For 2010 through 2013, EPA set annual volume requirements  for the cellulosic biofuels category that were below statutory targets, but  kept the overall volume for all advanced biofuels in line with the statute.  For 2014 through 2017, in addition to setting lower annual volume  requirements for the cellulosic biofuels category, EPA also set lower  overall volume requirements for all advanced biofuels. For 2013 through  2017 EPA also set volume requirements for biomass-based diesel that  were higher than the minimums set in the statute, which somewhat offset  the lower requirements for cellulosic biofuels. (See fig. 2 for a  comparison of statutory targets and volume requirements set by EPA.)
In addition to the RFS, there are federal tax incentives to promote the  production and use of advanced biofuels. These include the Biodiesel  Income Tax Credit, which provides a $1 per-gallon tax credit for  producers of certain biodiesel or renewable diesel. Separately, the  Second Generation Biofuel Producer Tax Credit provides advanced  biofuel producers a tax credit of up to $1.01 per gallon of advanced  biofuel produced and used domestically.
R&D related to advanced biofuels includes both basic and applied  research. In general, basic research focuses on gaining a fundamental  understanding of a material or process. Applied research explores the  potential of a material or process to satisfy a technology need.  Components of an advanced biofuels applied research portfolio may  include developing technologies to provide a reliable, affordable, and  sustainable biomass supply. To reach commercial-scale production,  advanced biofuels must go through a process of increasing the scale of  production, beginning with a research and development phase that  culminates in proving a given technology in a laboratory setting. Once a  conversion technology has been proven at laboratory scale, it can be  scaled up and tested in a pilot facility. Pilot-scale facilities are small-scale  facilities that verify the integrated performance of a given suite of  technologies from feedstock through final product. Once a technology has  been proven at this scale, it can be scaled up to a demonstration facility,  which verifies the performance of integrated technologies at a scale that  can be used to determine design specifications for a still larger facility.  Commercial-scale facilities, including both “first-of-its-kind” and  subsequent facilities, aim to produce commercial volumes economically  on a continuous basis, with a reliable feedstock supply and production  distribution system. Figure 3 illustrates the stages in the advanced  biofuels scale-up process.
section_title: Recent Federal Support for R&D Related to Advanced Biofuels Has Been Through Direct Research and Grants, and the Focus Is Shifting toward Drop- In Fuels
paragraphs: The federal government has supported R&D related to advanced biofuels  through direct research and grants in recent years, with the focus of this  R&D shifting away from cellulosic ethanol, an advanced biofuel that is not  fully compatible with current vehicle engines and fuel distribution  infrastructure, and toward drop-in biofuels, which are compatible with this  infrastructure. Agency officials said that they are focusing on drop-in fuels  in part because of this compatibility. As figure 4 shows, the federal  government obligated about $1.1 billion for R&D related to advanced  biofuels in fiscal years 2013 through 2015, of which DOE obligated over  $890 million, or about 80 percent of the total. USDA obligated over $168  million for such R&D in this time frame, or about 15 percent of the total.  Of these obligations, $3 million of DOE’s total and about $5.29 million of  USDA’s total were obligated for projects through the Biomass Research  and Development Initiative—an annual joint funding opportunity  announcement focused on biofuels and bioproducts. NSF, DOD, and  EPA spent relatively small amounts on R&D related to advanced biofuels  in fiscal years 2013 through 2015, compared with DOE and USDA.
subsections: section_title: DOE Funds the Majority of Federal R&D Related to Advanced Biofuels and Has Shifted Its Focus Away from Cellulosic Ethanol
paragraphs: In fiscal years 2013 through 2015, DOE obligated $890.4 million—the  majority of all federal funding for R&D related to advanced biofuels— through four offices: the Office of Science, the Bioenergy Technologies  Office, the Advanced Research Projects Agency-Energy (ARPA-E), and  the Vehicle Technologies Office. (see fig. 5.)
The following DOE offices obligated funds for basic and applied R&D on  all stages of advanced biofuel production, and overall have shifted away  from R&D on cellulosic ethanol:
Office of Science. In fiscal years 2013 through 2015, DOE’s Office of  Science obligated approximately $424.1 million for external R&D  related to advanced biofuels. According to an agency official, the  office supports basic R&D in this field primarily by funding three  bioenergy research centers. The Office of Science also awards  grants to fund projects at national laboratories and academic  institutions. Research covers all areas of biofuels R&D, including  sustainability, feedstock development and logistics, and conversion  technologies. DOE officials told us that, although they continue to  investigate cellulosic ethanol, drop-in fuels are more desirable  because they are compatible with current engine designs and fueling  infrastructure. According to an agency official, the office supports  basic research and focuses efforts on demonstrating proof of  concept—showing that laboratory results can be replicated in real- world conditions. For example, staff at one of the bioenergy research  centers supported by the Office of Science recently transplanted  poplar trees that had been cultivated for biofuel production under  laboratory conditions to the field to observe their growth. Once proof  of concept has been demonstrated in this way, research often  transitions to other federal offices and/or industry to conduct additional  applied research.
Bioenergy Technologies Office. In fiscal years 2013 through 2015,  this office obligated approximately $397.5 million for in-house and  external R&D related to advanced biofuels. The office conducts its  own basic and applied R&D at federal laboratories including the  National Renewable Energy Laboratory in Golden, Colorado, and  partners with industry and universities. The office focuses on  developing and transforming renewable biomass into commercially  viable high-performance biofuels, bioproducts, and biopower. The  office spent much of the past decade focusing R&D on cellulosic  ethanol, but after meeting key goals to reduce production costs, the  office shifted its focus to drop-in fuels in 2012. For example, the  Bioenergy Technologies Office funded a project by the nonprofit Gas  Technology Institute to develop a process for converting a broad  range of feedstocks—residue from wood harvesting and  manufacturing, algae, and corn stover—into drop-in fuels. According  to DOE officials, the process resulted in fuels that meet technical  specifications for gasoline and diesel while achieving a 90-percent  reduction in greenhouse gas emissions relative to fossil fuels. Officials  told us the technology was licensed in June 2015 to a company that  plans to build a demonstration plant.
ARPA-E. In fiscal years 2013 through 2015, DOE’s Advanced  Research Projects Agency-Energy obligated approximately $57.9  million for external R&D related to advanced biofuels. ARPA-E  awards funds for applied research to outside organizations, such as  private companies and academic institutions. The agency seeks to  fund high-impact energy technologies that are too early for private- sector investment. More than 87 percent of ARPA-E’s advanced  biofuel R&D projects are funded as part of the Plants Engineered to  Replace Oil (PETRO) program and the Transportation Energy  Resources from Renewable Agriculture (TERRA) program. Neither  of these programs directly supported cellulosic ethanol research.  During fiscal years 2013 through 2015, the agency obligated more  than $18 million for advanced biofuels projects through the PETRO  program, which seeks to fund technologies that optimize production  and conversion of plants for use as advanced biofuels, aiming to  significantly reduce production costs. In fiscal year 2015, the agency  obligated more than $32 million through the TERRA program, which  began that year and focuses on improving production of sorghum as  an advanced biofuel feedstock.
Vehicle Technologies Office. In fiscal years 2013 through 2015,  DOE’s Vehicle Technologies Office obligated approximately $10.9  million for in-house and external R&D related to advanced biofuels,  focusing on end-user considerations. The Vehicle Technologies Office  supports applied research to increase knowledge of the effects of  conventional and advanced biofuels on engines and improve the  efficiency of alternative fuel vehicles, among other things. It supports  this research primarily through collaboration with national laboratories,  universities, and industry. For example, the office is collaborating with  Cummins engine company to develop a compression ignition engine  capable of running on ethanol, which is usually a spark-ignition fuel,  and diesel, which is a compression ignition fuel. An agency official told  us that because compression ignition is more efficient than spark  ignition, such an engine allows ethanol to be used more efficiently,  thus decreasing petroleum consumption.
section_title: USDA Is the Second Largest Funder of Federal R&D Related to Advanced Biofuels and Targets Drop- In Fuels
paragraphs: In fiscal years 2013 through 2015, USDA obligated approximately $168.7  million for R&D related to advanced biofuels—making it the second  largest funder of federal R&D related to advanced biofuels. It obligated  these funds through two agencies: the Agricultural Research Service and  the National Institute of Food and Agriculture. Each agency accounts for  approximately half of USDA’s obligations related to R&D for advanced  biofuels.
Similarly to DOE, these agencies funded basic and applied research on  all stages of advanced biofuel production, focusing on drop-in biofuels,  biodiesel, and coproducts.
Agricultural Research Service. In fiscal years 2013 through 2015,  USDA’s Agricultural Research Service obligated approximately $85.5  million for in-house R&D related to advanced biofuels. According to its  officials, the Agricultural Research Service conducts both basic and  applied advanced biofuels R&D in four national research centers.  The Agricultural Research Service is USDA’s chief in-house research  arm, and its biofuels research is aimed at the production of advanced  biofuels, focusing on drop-in fuels, biodiesel, and bioproducts. For  example, scientists in Peoria, Illinois, developed a novel process that  increased production of butanol—a drop-in fuel—from corn stover and  lowered estimated production costs from $4.39 per gallon to $3.42 per  gallon. The key to this cost reduction is to recover the butanol  continuously as it is generated, which is done using a special  pretreatment and distillation process. Scientists at the same  laboratory also developed a new method of converting plant oils into  skin care and food ingredients with antioxidant properties that extend  shelf life. Agency officials told us that such high-value bioproducts  may pave the way for commercial production of advanced biofuels.  Such products may help offset the up-front cost and minimize the risk  of constructing large, commercial-scale biorefineries that produce  advanced biofuels.
National Institute of Food and Agriculture. In fiscal years 2013  through 2015, USDA’s National Institute of Food and Agriculture  obligated approximately $83 million for external R&D related to  advanced biofuels. The agency funds basic and applied research  through grants to academic institutions, non-governmental  organizations, government laboratories, and industry. According to  agency officials, the National Institute of Food and Agriculture’s  current advanced biofuels research focuses on drop-in fuels. For  example, the agency is investing in seven regional public/private  consortia developing supply chains for biofuels and biobased  products. One consortium, led by Washington State University,  successfully developed a series of processes to take logging residues  from Weyerhaeuser—a forest products company—and convert them  to alternative jet fuel.
section_title: DOE and USDA Obligated Funds to the Biomass Research and Development Initiative for R&D Projects
paragraphs: DOE’s and USDA’s obligations to support advanced biofuels R&D  included funds they contributed to the Biomass Research and  Development Initiative, which funds R&D projects through funding  opportunity announcements. Specifically, in fiscal years 2013 through  2015, USDA obligated $5.29 million to Biomass Research and  Development Initiative projects through its National Institute of Food and  Agriculture, and DOE obligated $3 million to these projects through its  Bioenergy Technologies Office. The Initiative’s 2015 funding opportunity  announcement called for applicants in the technical topic areas of  feedstock development, including harvest and storage; biofuels and  bioproducts development, including for chemicals that can potentially  increase the economic viability of large-scale fuel production in a  biorefinery; and biofuels and bioproducts development analysis, focusing  on analytical tools to better evaluate bioproducts. One of the selected  projects proposes to convert poplar trees to ethanol and polyurethane—a  material that is used in a variety of applications, including insulation and  foam cushioning.
section_title: NSF, DOD, and EPA Obligated Smaller Amounts for R&D Related to Advanced Biofuels
paragraphs: NSF, DOD, and EPA obligated less for R&D related to advanced biofuels  than DOE and USDA; combined, these three agencies accounted for  about 5 percent of the federal funds obligated for such R&D in fiscal years  2013 through 2015. In these years, NSF awarded approximately $45  million, mostly to academic research institutions, to fund external R&D  related to advanced biofuels that could include cellulosic ethanol or drop- in fuels. These funds supported mostly basic and some applied research.  One NSF-funded project at the University of Kentucky aims to develop an  improved process for the conversion of vegetable oils and animal fats into  a drop-in substitute for diesel. The process uses nickel, which is abundant  and inexpensive, as a catalyst for conversion, as opposed to the  expensive precious metals commonly used. DOD, through the Defense  Advanced Research Projects Agency, funded one R&D project related to  advanced biofuels during this period for a total of $9 million. This project  sought to develop more efficient methods of growing and harvesting  algae. According to EPA officials, the agency did not conduct any R&D on  new ways to produce advanced biofuels; rather, in its role of  administering the RFS program, it primarily conducted analyses to  determine the life-cycle greenhouse gas emissions of combinations of  feedstocks, conversion technologies, and the advanced biofuels  produced to determine if they meet the requirements to be counted  toward the statutory targets under the RFS.
section_title: Experts Agreed Several Advanced Biofuels Are Technologically Well Understood, but They Cited Several Factors That Make It Challenging to Significantly Increase Production
paragraphs: Experts said that several advanced biofuels are technologically well  understood but noted that among those currently being produced there is  limited potential for increased production in the near term. They further  cited multiple factors that will make it challenging to significantly increase  the speed and volume of production. In addition, current advanced biofuel  production is far below overall RFS target volumes, and those volumes  are increasing every year. Given expert views on the limited potential for  increased production and current production volumes, it does not appear  possible to meet the targets in the RFS for advanced biofuels under  current market and regulatory conditions.
subsections: section_title: Several Advanced Biofuels Are Technologically Well Understood, but They Are Not Being Produced at the Overall Volumes Called for in the RFS
paragraphs: Several advanced biofuels are technologically well understood, according  to experts, and some are being commercially produced in significant  quantities, but the overall volume being produced falls short of the volume  target in the RFS. For example, in 2015, about 3.1 billion ethanol- equivalent gallons of advanced biofuels were produced, falling short of  the statutory target of 5.5 billion gallons in the RFS for that year. By  2022, the advanced biofuels target increases to 21 billion gallons, so  production would have to rapidly increase to meet this target.
Biodiesel and renewable diesel—which typically fall under the category of  biomass-based diesel in the RFS—are among the types of advanced  biofuels that are technologically well understood, according to experts,  and they are being produced in the largest volumes. Biomass-based  diesel, which has its own minimum statutory volume target set in the RFS,  is the exception among the categories in that it exceeded its minimum of  at least 1 billion gallons for 2015. In 2015, about 1.5 billion gallons of  biodiesel were produced, according to EPA. In addition, about 300 million  gallons of renewable diesel were produced in 2015. Experts agreed that  expansion potential for these fuels is limited by the availability of  feedstocks (fats and oils), for which there are competing uses. For  example, soybean oil is also used as a cooking oil.
Cellulosic biofuels—specifically cellulosic ethanol and renewable natural  gas from landfills—are also technologically well understood, according to  experts, but current production is far below the volume needed to meet  the target for these fuels. Specifically, in 2015, about 142 million gallons  of cellulosic biofuel overall—including about 2 million gallons of cellulosic  ethanol and about 140 million gallons of renewable natural gas—were  produced. This cellulosic biofuel volume was less than 5 percent of the  statutory target of 3 billion gallons. According to experts, there is limited  potential for expanded production of cellulosic ethanol in the next 5 years  to meet the higher volumes called for in the statute. Experts said that the  most economical way to quickly expand production of cellulosic ethanol is  through “bolt-on” facilities, which use the cellulosic corn fiber remaining  after corn-starch ethanol production as a feedstock; however, the experts  said that such facilities would not boost overall cellulosic ethanol volumes  by more than about 750 million gallons even if added to every existing  corn-starch ethanol refinery. This is far short of the 2015 target of 3 billion  gallons. Several corn-starch ethanol producers are already using such  bolt-on facilities, and other corn-starch ethanol producers are expected to  follow suit, according to experts and producers we interviewed, because  these technologies require relatively low expenditures of capital and these  costs can be recovered relatively quickly. Experts said that significant  expansion of cellulosic ethanol production beyond current levels would  require construction of large stand-alone facilities and that even though  several such facilities have been built, attracting the investments  necessary to build more is unlikely until conversion yields and operability  improve and costs come down. Concerning renewable natural gas, which  is produced mainly from landfills, an expert noted that to be usable as a  transportation fuel, the gas must be purified and adjusted to  specifications. A renewable natural gas producer we spoke with said the  cost to upgrade landfill gas to meet such specifications is significant and  that landfill gas can be used for other purposes, including making  electricity, without this costly upgrading. The producer told us that despite  the additional cost, the incremental revenue from credits under the RFS  makes it worthwhile to upgrade landfill gas.
According to the experts, some other technologies for producing  advanced biofuels are also well understood, but these technologies have  produced relatively small volumes of fuel because they cannot compete  with petroleum-based fuels given current oil prices and despite federal  biofuels tax credits and other incentives. These technologies include  pyrolysis, which involves the thermal and chemical decomposition of a  feedstock without the introduction of oxygen. About 44,000 gallons of  cellulosic renewable gasoline blendstock and about 9,000 gallons of  cellulosic diesel were produced in 2014 and none in 2015 or 2016  because the producer went out of business. Both of these fuels are  considered drop-ins.
Experts agreed that algal biofuels are technologically well understood and  have significant future potential, but are still several years away from  being economical to produce because of the high cost of growing algae.  Experts estimated it may cost $1200 to $4000 per ton to produce algae  currently, and costs need to fall to $400 to $500 per ton to make the  process economical for fuel production. For example, one producer we  interviewed can reliably produce biofuel from algae but is focusing on  higher-value nutritional and pharmaceutical products.
section_title: According to Experts, Several Factors That Affect the Speed and Volume of Production Will Make Significant Increases Challenging
paragraphs: Experts identified several factors, many related to cost, that will affect the  speed and volume of production of advanced biofuels and make it  challenging to significantly increase production in the next 5 to 10 years.  These factors include the following:
Low price of fossil fuels relative to advanced biofuels. According  to experts, low fossil fuel prices affect advanced biofuels in two ways.  First, experts said getting consumers to accept higher blends of  advanced biofuels at the pump will require those biofuels to be priced  competitively with equivalent fossil fuels. While the average retail  gasoline price was over $4 per gallon in May 2011, it dropped to  under $2 per gallon in early 2016, making it harder to compete on  price at the pump. Similarly, retail diesel prices were over $4 per  gallon as recently as March 2014, but briefly fell below $2 in early  2016. Second, experts said low fossil fuel prices are a significant  impediment to biofuels investment. One expert noted that investment  in advanced biofuels technology has dropped since oil prices have  dropped, making it difficult to fund the R&D needed to reduce the cost  of biofuels. Experts agreed that one option to overcome this fossil  fuels price advantage would be to put a price on greenhouse gas  emissions—for example, through a carbon tax or similar mechanism.
High cost of converting cellulosic feedstocks. Experts told us that  conversion costs are a function of (1) the number of processing steps  it takes to convert a raw feedstock to a fuel; (2) the difficulty of  transporting and handling solid feedstocks as compared with liquid or  gaseous feedstocks; (3) the difficulty of handling and disposing of  waste products from the conversion process; and (4) infrastructure  challenges associated with a plant’s location, such as access to a  steady feedstock supply and rail lines to transport fuel. For example,  one expert noted that handling solid feedstocks on the front end of  conversion, as opposed to liquids or gases, is more time consuming  and complex, resulting in additional costs. These feedstocks, such as  corn stover or forest logging residues, may need to be ground or  chipped to a uniform size so they will more easily flow through  equipment, and debris such as rocks and dirt may need to be  removed to prevent damage to equipment. In addition, experts noted  that it can be costly to dispose of waste products from the conversion  process. Ideally, producers will find ways to monetize waste products  by creating coproducts, but more work is needed in this area to make  that a reality. For example, lignin—a part of plant matter that is left  over after conversion to cellulosic ethanol—can be burned to produce  energy. One producer told us using lignin in carbon fiber may be a  future possibility.
Time and cost to bring a new technology to commercial-scale  production. Experts told us that developing a biofuel technology and  bringing it from laboratory scale to commercial scale may take 12  years if every step works out well, and could take considerably longer;  one representative we interviewed from a company that produces  biofuel said this process may take 15 to 25 years. (See fig. 6 for  examples of laboratory-scale and commercial-scale advanced  biofuels production.) Once a biofuel technology is technologically  ready, the design, engineering, and construction of the first plant  normally take 3 to 4 years, according to experts. Such first-of-their- kind facilities often face challenges because the companies are still  optimizing the technology and may encounter problems that only  occur when building at commercial scale. One producer told us they  overbuilt their first commercial facility out of caution. Therefore these  facilities take longer and are more expensive to construct than  subsequent facilities. A representative of a company that produces  advanced biofuel told us that, compared to the cost of its first plant, it  has identified opportunities that could save about 25 percent on its  next plant.
Time and cost to secure fuel certification and acceptance.
Experts told us that once a fuel can be produced several steps remain  before it can be brought to market, including regulatory registration,  certification by ASTM International, as well as oil company and  vehicle acceptance. These steps can occur concurrently, but they  have different time frames. In addition, these steps are costly for  companies. For example, one expert said that passing the EPA  registration for a new fuel costs millions of dollars, while another noted  that ASTM certification of a new fuel is a longer and more expensive  process. Oil companies and vehicle manufacturers must also approve  a new fuel before they will be willing to blend it for use in  transportation fuels. New advanced biofuels must also have their  combination of a feedstock, a conversion process, and a final product  approved by EPA in order to be counted toward the annual volume  requirements under the RFS. A representative from one company we  spoke to told us EPA’s reviews are taking longer than expected. One  expert told us that two different advanced biofuels projects have been  recently cancelled specifically because of the time it has taken for  EPA to complete these approvals.
Uncertainty about government policy. Experts agreed that  uncertainty about government policy is a major barrier for the  commercialization of advanced biofuels because it sends mixed  signals to the market, which can limit investment. The future of the  RFS, the Biodiesel Income Tax Credit, and the Second Generation  Biofuel Producer Tax Credit may all be sources of uncertainty.  Regarding the RFS, there is uncertainty about whether it will remain in  place, and uncertainty about where EPA will set annual volume  requirements. As described in the sidebar on this page, the tax credits  have been allowed to expire and then have been retroactively  extended in the past. This uncertainty affects all stages of biofuel  production. For example, one expert stated that producers of farm  equipment will not invest in new harvesting technology to maximize  biomass feedstock yields if they see too much uncertainty in the  market for advanced biofuels over the next 10 years, while other  experts noted the difficulty in obtaining capital to build commercial- scale plants. Every advanced biofuels producer we interviewed also  cited uncertainty about government policy as a major barrier to  commercial-scale production. One producer said policy uncertainty  has increased since 2013 when EPA used its waiver authority to  reduce the RFS statutory volumes, causing investors to lose  confidence and interest in commercial-scale plants. Another producer  we interviewed told us that producers cannot rely on the Second  Generation Biofuel Producer Tax Credit in their investment decisions.
Underdeveloped feedstock supply chain. Experts agreed that the  lack of logistics for the entire feedstock supply chain—from securing a  contract to delivering and storing a feedstock—is an economic barrier  to the production of advanced biofuels. One expert noted that it may  take longer to set up contracts with farmers for feedstock delivery,  such as corn stover, than it takes to build an advanced biofuels plant.  Without a developed commodity market for advanced biofuel  feedstocks, producers must negotiate contracts with individual  farmers, which is costly and time consuming. One cellulosic biofuel  producer told us it faced challenges with feedstock transport and  storage in trying to minimize burdens on farmers. Specifically, the  producer noted that it was working with farmers to offer two different  contract models: to store bales of stover at the farm, or to store them  at the plant. Experts also noted that large amounts of dry cellulosic  feedstock in storage may be susceptible to fire, such as from lightning  strikes—something that has happened at one cellulosic ethanol  facility.
section_title: Agency Comments
paragraphs: We provided a draft of this report to EPA, USDA, NSF, DOE, and DOD  for review and comment. In its written comments, reproduced in appendix  IV, EPA generally agreed with the report and its findings. USDA and NSF  provided technical comments, which we incorporated as appropriate.  DOE and DOD did not have any comments on the draft.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Secretary of Agriculture, the Secretary of  Defense, the Secretary of Energy, the Administrator of the Environmental  Protection Agency, the Director of the National Science Foundation, and  other interested parties. In addition, the report will be available at no  charge on the GAO website at http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix V.
section_title: Appendix I: Objectives, Scope and Methodology
paragraphs: This report provides information related to advanced biofuels research  and development (R&D). Specifically, it describes (1) how the federal  government has supported advanced biofuels R&D in recent years and  where its efforts have been targeted and (2) expert views on the extent to  which advanced biofuels are technologically understood and the factors  that will affect the speed and volume of production.
To describe how the federal government has supported advanced  biofuels R&D in recent years and where its efforts have been targeted, we  reviewed documents and obligations data and interviewed officials from  the following agencies: the Department of Agriculture’s (USDA)  Agricultural Research Service and National Institute of Food and  Agriculture; the Department of Defense’s (DOD) Defense Advanced  Research Projects Agency; the Department of Energy’s (DOE) Advanced  Research Projects Agency–Energy, Bioenergy Technologies Office,  Office of Science, and Vehicle Technologies Office; the Environmental  Protection Agency’s (EPA) Office of Transportation and Air Quality; and  the National Science Foundation (NSF). We reviewed obligations data for  advanced biofuels research and development for fiscal years 2013  through 2015. In some cases, agencies or offices estimated these  obligations because they did not track obligations data for advanced  biofuels R&D separately from other biofuels or bioenergy R&D. In  addition, USDA’s Agricultural Research Service was not able to provide  obligations data for advanced biofuels R&D, but provided allocations data  instead. These data differ in that allocations are a delegation of authority  to obligate funds, while obligations are legally binding agreements to  outlay funds. According to officials from the Agricultural Research  Service, it does not track funding for its research projects by obligations  but rather by the allocation of funding by research project. Agency  officials told us that they have reasonable certainty that the allocations  they provided to us would align one-to-one with the obligations for agency  research projects. To assess the reliability of the obligations data, we  asked officials who maintain the relevant databases for information about  steps they take to maintain the data. We determined that the data we  used were sufficiently reliable for purposes of describing the scale of  advanced biofuels R&D by the federal government. In addition, to further  develop an understanding of the type of R&D done with federal funding,  we visited the USDA Agricultural Research Service’s National Center for  Agricultural Utilization Research in Peoria, Illinois and National Laboratory  for Agriculture and the Environment in Ames, Iowa. We also visited a  DOE Office of Science Bioenergy Research Center in Madison,  Wisconsin.
To describe expert views on the extent to which advanced biofuels are  technologically understood and on the factors that will affect the speed  and volume of production, we contracted with the National Academy of  Sciences to convene a group of 20 experts for a 2-day meeting in May  2016. One expert was unable to attend the meeting, and we interviewed  him separately. (See app. II for a list of the experts who participated.)  Participants, who were identified and recommended by the National  Academy of Sciences and approved by us, included experts in advanced  biofuels feedstocks, conversion technologies, and the use of biofuels from  industry, academia, and research organizations.
We asked these experts to discuss the technological readiness of a  variety of biofuels and the economic and other factors that may affect the  speed and volume of their commercial-scale production. Specifically, we  asked the experts to discuss the short-, medium-, and long-term technical  potential of a variety of advanced biofuels and the conversion processes  and feedstocks that can be used to make them, as well as any  opportunities and challenges associated with these fuels, conversion  processes, and feedstocks. We also asked them to discuss the most  important economic and scale-up factors that will affect the speed and  volume of commercial-scale production of advanced biofuels once they  are technologically ready, and any particular areas on which the federal  government should focus its R&D efforts to advance the technological  readiness of advanced biofuels. We analyzed summary statements  agreed upon by experts at the meeting as well as meeting transcripts to  inform this report.
To better understand the extent to which advanced biofuels are  technologically understood and the factors that will affect the speed and  volume of production, we also interviewed representatives, either in  person or over the phone, from 11 companies that produce, or aim to  produce, advanced biofuels. We visited POET-DSM’s cellulosic ethanol  plant in Emmetsburg, Iowa; Quad County Corn Processor’s’ cellulosic  ethanol plant in Galva, Iowa; and Solazyme’s demonstration plant in  Peoria, Illinois. Producers were selected on the basis of technology used  and scale of production to ensure a variety of perspectives. Specifically,  we selected companies that are using well-established technologies and  producing at commercial scale, companies using first-of-their-kind  technologies and producing at commercial scale, and companies using  first-of-their-kind technologies and not yet producing at commercial scale.  These selection criteria allowed us to obtain broader perspectives on the  logistical challenges of scaling up a technology, the factors involved in  processing different fuel types, and the factors involved in EPA  registration. These producer interviews provided key insights on and real- world examples of the factors that influence the speed and scale of  advanced biofuel production; however, the results of our interviews  cannot be generalized to all producers. (See app. III for a list of producers  interviewed.)
We conducted this performance audit from June 2015 to November 2016  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Expert Meeting Participants
paragraphs: The experts who participated in our meeting on advanced biofuels  research and development at the National Academy of Sciences on May  26 and 27, 2016, are listed below.
John Benemann  CEO, MicroBio Engineering, Inc.
section_title: Appendix III: Advanced Biofuels Producers Interviewed
paragraphs: The companies listed below are advanced biofuels producers we  interviewed between January and June of 2016 to inform this report.
Renewable Energy Group (REG)
Waste Management Renewable Energy (WMRE)
section_title: Appendix IV: Comments from the Environmental Protection Agency
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact:
section_title: Staff Acknowledgments:
paragraphs: In addition to the contact named above, Karla Springer (Assistant  Director), Tim Bober, Philip Farah, Cindy Gilbert, Connor Kincaid, Jesse  Lamarre-Vincent, Janice Latimer, Cynthia Norris, Madhav Panwar,  Marietta Mayfield Revesz, Dan Royer, Angela Smith, and Barbara  Timmerman made key contributions to this report.