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Iowa biofuels industry nervously awaits EPA's fuel rules

The Iowa Renewable Fuels Association drew an impressive roster of speakers to cheer on a recovering ethanol industry and a stalled out biodiesel sector at its annual summit in Des Moines Iowa, Monday.

But the real news was the missing speaker, Margo Oge, director of transportation and air quality at the Environmental Protection Agency.

Oge is in charge of writing the sometimes controversial second set of renewable fuels standard rules, as mandated by a 2007 energy bill. The rules are a crucial step to ramping up biofuels use in the nation's fuel supply. And they've rattled the industry because the first draft included the concept of indirect land use change, which made fuel from existing biodiesel plants and new corn ethanol plants appear ineligible for the mandates that require fuel blenders to use them.

The concept assumes that increased acreage for crops needed for biofuels in the U.S. will result in deforestation and plowing savannahs in the tropics, leasing to more output of greenhouse gases.

When EPA factors in indirect land use effects, attempting to estimate carbon dioxide and other greenhouse gases put out by deforestation and plowing up grasslands, ethanol is only 16% greener than gasoline. For new corn ethanol plants, the Energy Independence and Security Act of 2007 requires a 20% reduction for new plants. Under the new law, biodiesel has to be 50% greener. EPA’s first estimate put its carbon output at only 22% lower than regular diesel fuel.

Monte Shaw, executive director of the Iowa Renewable Fuels Association, told Monday that Oge wasn't able to travel from Washington to Iowa because she was working on the next draft of the renewable fuel standard over the weekend.

Shaw said he thinks the new rules may be announced this week, although he wasn't told that by Oge.

And some, in the biodiesel industry at least, think that EPA may have decided that biodiesel is, in fact, 50% greener than regular diesel, even if it keeps the indirect land use concept in its rules.

But Shaw believes EPA may not keep the effects of indirect land use as released in its first draft of the rules last May.

"All the signals we've been getting are that they did recognize that some of the science was very preliminary," Shaw said.

Another speaker at the conference, USDA Under Secretary for Rural Development, Dallas Tonsager, also hinted that the rules are just about to be released.

When asked when, he replied, "I would get into trouble if I said anything other than soon."

Tonsager earlier told members of the Iowa Renewable Fuels Association that he hopes the next stage of biofuels development involving cellulosic ethanol will follow the pattern of ethanol and be driven by local investment.

"We're about to embark on building a new industry that's twice as large as the ethanol industry by 2022," Tonsager said.

By that date, the 2007 energy law mandates that 36 billion gallons of fuel come from renewable sources. By 2015 the corn based ethanol mandate peaks at 15 billion gallons, with advanced biofuels that include cellulosic adding another 21 billion gallons of capacity by 2022.

"We have the opportunity to redevelop rural America in ways we haven't seen since the end of World War II," Tonsager told the group.

Later, he told that his agency has also helped the existing ethanol industry with loan guarantees for commercial loans. "We'll guarantee it for working capital purposes," he said.

After a rough year, Iowa's ethanol industry has re-emerged into black ink.

As Shaw told his group's members, "I'm proud to report that by the end of 2009 every one of Iowa's 39 ethanol plants was back on line and producing at or above capacity."

The biodiesel industry, in contrast, is shutting down until Congress renews the $1 a gallon tax credit, which expired at the end of 2009. The industry is operating at 85 million gallons, according to a study released at the meeting. Its potential capacity is 320 million gallons.

The Iowa Renewable Fuels Association drew an impressive roster of speakers to cheer on a recovering ethanol industry and a stalled out biodiesel sector at its annual summit in Des Moines Iowa, Monday.

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