Posted on June 23, 2009 by Christopher Davis

Biofuels are the subject of much recent interest and investment, as indicated by a recent Wall Street Journal article on biomass fueled power plants. Given the increasing scrutiny that is being given to “green” marketing claims by the Federal Trade Commission and various citizen groups (and the potential for SEC scrutiny of similar claims in public offering prospectuses), care should be taken to analyze and document the basis for any claims of carbon neutrality or other environmental benefits associated with particular biofuels.  

 Advantages cited by biofuel proponents include reduction of greenhouse gas (GHG) emissions as compared to fossil fuels, energy security, benefits from domestic production and green job creation. Downsides of biofuels production can include displacement of food crops and increased food prices, deforestation and conversion of grasslands to crop lands, GHG emissions associated with growing and converting biofuels, and other environmental impacts such as nutrient runoff and water consumption.


While all biofuels are renewable energy sources, this category includes a variety of liquid and solid fuels with a variety of sources and uses. For example, power plants can utilize biomass, generally in the form of wood or municipal solid waste. In the transportation arena, fuel can be made from corn and cellulose-based ethanol, or oils from soybeans, palm oil or animal wastes that can be used directly or chemically processed into biodiesel. Additional types of biofuels include syngas and algae-derived fuels. 

Numerous “clean tech” companies as well as established energy multinationals have invested in biofuels production. Examples include Mascoma Corporation and Verenium Corporation (cellulosic ethanol), Changing World Technologies (biodiesel from animal waste), GreenFuel Technologies (algae-based fuel) and Biogas Energy and Harvest Power (methane from agricultural wastes). Large energy and waste management companies are also investing heavily in biofuels, including Covanta (biomass-fired power plants), BP, Chevron, and Shell Oil (bio-ethanol and biodiesel), and Waste Management (landfill gas). The market for biofuels is sensitive to oil prices and demand for transportation fuels, as evidenced by recent bankruptcies and economic distress in the corn-based ethanol industry.

Biofuels are supported by a variety of federal and state mandates, subsidies and tax credits. For example, the Energy Policy Act of 2005 established a renewable fuel standard, and this standard was increased by the Energy Independence and Security Act of 2007. Further, the Food, Conservation, and Energy Act of 2008 provides financial assistance to biorefineries, funding for advanced biofuels and biomass research, biomass crop assistance, and tax credits for cellulosic ethanol production, among other measures. In addition, the American Recovery and Reinvestment Act of 2009 provides for loan guarantees, tax credits, and Department of Energy research related to biofuels and biomass energy.   Ethanol proponents are pressing Congress to further increase the mandate for ethanol use in transportation fuels, but many groups are simultaneously opposing such an increase.

Biofuels are often claimed to be “carbon neutral” (i.e., producing no net GHG emissions), because the plants from which they are derived only emit the same amount of carbon they would have released if they naturally died and decomposed, as compared to fossil fuels that release carbon stored in the earth’s crust that would not have been emitted. But not all biofuels are equal and generic claims of carbon neutrality need further scrutiny. 

Recently, a number of studies have attempted to assess the lifecycle GHG emissions of various biofuels. For example, several studies, including a leading study by the University of Minnesota and a California study performed in association with its low-carbon fuel standard, have concluded that corn-based ethanol may result in minimal net GHG emission reductions or even net GHG increases. This conclusion has been supported by scientists from The Nature Conservancy in a study published in Science that examines the GHG emissions and other environmental impacts of land use changes involved in the production of various biofuels. They conclude that there are significant differences in the “carbon footprint” of different biofuels based on how and where the underlying crops are grown.    In its recent proposed regulations for the National Renewable Fuel Standard, EPA has proposed to require evaluation of GHG emissions over the full lifecycle of various biofuels and to establish life cycle GHG emission reduction thresholds as compared to a lifecycle emissions analysis of baseline petroleum fuels – a requirement that is opposed by corn-based ethanol proponents.

It is clear that advanced biofuels, such as cellulosic ethanol and some types of biodiesel, hold great promise to reduce GHG emissions from transportation and other fuel uses. Such biofuels are clearly part of the solution in mitigating climate change and developing a sustainable energy economy, but careful scrutiny is needed to ensure that the full life cycle GHG emissions and other environmental impacts of biofuels are considered by policymakers and investors.

Posted by Christopher P. Davis, Goodwin Procter LLP

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