[originally published in RealClear Energy]

Michael McAdams, the president of the Advanced Biofuels Association, sat down with leading energy expert Andy Lipow, president of Lipow Oil Associates, to discuss everything from the future of advanced biofuels to Lipow’s summer gas price predictions.

Michael McAdams: Thanks, Andy, for joining me today. Let’s start with something making headlines. Many biofuel groups are pushing the EPA to expand the E15 waiver. For readers who are unfamiliar, can you explain what’s behind that and where Washington looks to be headed on this issue?

Andy Lipow: The Clean Air Act grants a one-pound volatility waiver for gasoline containing 9-10% ethanol during the summer. For the rest of the year, this waiver isn’t required. In fact, today gasoline containing E-15 could be sold year-round in most reformulated gasoline markets across the U.S., except for California. This means markets such as Boston, New York, Washington D.C., Houston, and Dallas could sell E-15.

What the industry would like to see is an amendment to the Clean Air Act to extend the one-pound volatility waiver to gasoline with up to 15% ethanol. This would streamline operations for refiners and set up retailers and distribution systems for E-15 sales to consumers. And, of course, the ethanol industry would see this as the potential for an additional 7 billion gallons of ethanol demand in an industry that is plagued with capacity oversupply.

Regarding recent EPA actions, they’ve approved a rule change removing the one-pound volatility waiver for gasoline and ethanol blends containing 10% ethanol in eight Midwestern states. Now, this may sound a little counterintuitive, because what the EPA is doing by removing the gasoline volatility waiver is putting gasoline containing 10% and 15% ethanol on equal footing and requiring refiners to make a base blend that can accommodate both. The ethanol industry is hoping that these eight states will now be able to distribute and sell E-15 throughout the region, which could increase ethanol demand by up to a billion gallons annually.

That’s quite a bit of gallons when you think about where we started the program. However, I predict that the actual increase in demand in 2025 will fall between 50-100 million gallons.

 As the leader of an organization representing the primary producers of advanced biofuels in the country, it is my view that the administration has not fully leveraged the potential of low-carbon, advanced biofuels to be part of an all-of-the-above strategy in reducing carbon emissions. However, it is interesting that the newest EPA tailpipe rule will allow more plug-in hybrids than originally proposed. How do you foresee this decision influencing the way the EPA thinks about tapping advanced biofuels to supplement the emission reductions from hybrid vehicles moving forward?

The EPA rule to allow more plug-in hybrid vehicles, rather than solely focusing on 100% electric vehicles, allows for the continued demand for low-carbon, liquid fuels. The automobile industry would prefer to utilize ethanol fuels to reduce emissions. And this would open opportunities for increased consumption of ethanol derived from cellulosic biofuels, and can achieve greater greenhouse gas emissions.

For the broader advanced biofuels landscape, the biggest opportunities still lie primarily with trucks and planes. For trucks, the advanced biofuels of choice are biodiesel and renewable diesel, and for planes it’s sustainable aviation fuel. To foster growth of these fuels, the EPA will need to raise the obligated volumes outlined in the Renewable Fuels Standard moving forward.

A follow-up on that: policy support plays a pivotal role in the widespread adoption of any low-carbon energy source, as underscored by the EPA’s recent tailpipe rules. Advanced biofuels, including cellulosic fuels, are no exception. However, a recurring challenge has been the misalignment between policy mandates and actual production capacity, as well as feedstock availability. We are seeing this play out today in the renewable volume obligations of the renewable diesel and biodiesel market. Can you comment on the mismatch between EPA mandates and actual gallons of renewable diesel and biodiesel produced?

There are two issues at play here. First, the EPA has recognized the shortfall in the renewable volumes satisfied by ethanol blending, and in their rules, they have shown that advanced biofuels are going to make up for that deficit as we go forward.

The second issue in the Renewable Fuels Standard is that the EPA has underestimated the renewable diesel production capacity that’s coming online, as well as the availability of feedstocks to meet that capacity. As a result, as we look forward, the EPA has encouraged all the stakeholders to look ahead and comment on what the renewable volume obligation should be in 2026. It is my opinion that the EPA could easily increase the biomass-based diesel volume category by 800 million gallons — and that’s physical gallons, not Renewable Identification Numbers (RINs) — as it is becoming clear that the renewable diesel capacity, as well as the feedstock availability can support that type of increase.

While much of the mainstream discourse has centered on passenger vehicles, it’s important to acknowledge that there are significant segments of the transportation system where electrification isn’t a feasible solution for reducing carbon emissions. This is particularly true in the aviation sector, which contributes 11% of United States transportation-related emissions. The administration has underscored the importance of achieving 3 billion gallons of Sustainable Aviation Fuel (SAF) by 2030. What measures are required to reach this target? Renewable diesel can be converted into SAF and will play a large role. What are we seeing in the renewable diesel market right now and where are the growth opportunities?

First, let me provide some context on jet fuel demand. In 2023, gasoline demand in the U.S. was about 137 billion gallons, distillate demand stood at 60 billion gallons, and jet fuel demand amounted to 25 billion gallons. In 2023, the domestic biofuels industry produced 25 million gallons of SAF, a far cry from the 3 billion gallon target.

We certainly have renewable diesel capacity that can be modified to produce additional quantities of SAF. In fact, we’re seeing that being done by Diamond Green Diesel at the Port Arthur facility spending over $315 million to produce 235 million gallons of SAF rather than renewable diesel.

However, the main challenge in ramping up SAF production lies in its economics. While plants across the country could adapt their operations to increase SAF output, the feasibility hinges on factors such as the price of SAF and the potential returns from the capital investment. Despite the theoretical capacity for increased production, the economic viability remains a key concern.

Another avenue for SAF production involves converting alcohol to jet fuel, leveraging the abundant ethanol production capacity in the US. But once again, they’re hampered by high construction costs, as well as high operating costs, which makes it very difficult to produce SAF economically.

From a policy perspective, incentivizing the use of SAF through tax credits could be a more effective approach than mandating production. Mandates may face logistical challenges in meeting construction timelines, whereas tax credits offer a more flexible incentive mechanism for encouraging greater SAF adoption over fossil fuel jet fuel.

With summer quickly approaching, the fuel industry enters a pivotal period marked by heightened travel and intensified focus on gas prices. This year, given the backdrop of an election season, gas prices are poised to garner even greater scrutiny. What are your predictions for fuel prices during the upcoming summer season?

I anticipate that the national retail average for gasoline will peak this summer at $3.75 a gallon, which is roughly 20 cents a gallon more than we’re seeing today. The majority of that increase is due to refiners switching from the less expensive winter-grade gasoline to the more expensive summer-grade gasoline. There are more than adequate supplies of crude oil as well as gasoline inventory to temper additional price increases.

For the demand that we anticipate during the summer, the biggest fear in the market is a geopolitical event in the Middle East or elsewhere, that raises the price of crude oil. And that increase in cost is passed through to the consumer in the form of higher gasoline prices. One wildcard that’s out there is the success of Ukraine in destroying Russian refining capacity. And that can turn Russia into a gasoline importer. Since the United States is connected to the world energy markets, actions by Russia can ultimately impact the price of gasoline here.

I really appreciate you putting a number to it.

Oh, I get that question every day, Mike.

Are you optimistic about where we find ourselves today and our ability to achieve net zero goals by 2050?

There’s reason to be optimistic that advanced biofuel use is going to increase. We see additional renewable diesel capacity coming online, as well as additional feedstock availability. But not only that, we’re seeing the development of new markets, whether it’s low carbon fuel standard programs that was recently enacted in New Mexico, or legislation that was recently introduced in Illinois, New York, New Jersey, and Massachusetts, with additional interest from other states like Minnesota, Colorado, Michigan, and Pennsylvania. But on a worldwide basis, you’re also seeing increased demand from the European Union Emissions Trading System regarding fuels used in vessels going into and out of the European Union. And while we have federal policies, if the feds don’t act, it seems that many states will be leading the way to increase the demand of low carbon-based fuels.