As reported by Agriculture.com’s Don Looker, Margo Oge, director of transportation and air quality at the EPA, did not attend this year’s Iowa Renewable Fuels Association summit because she was busy writing the second draft of the EPA’s new renewable fuel standards. The new standards are expected to be announced very soon, and the continued recovery of the American biofuels industry may hang in the balance.

Per the Energy Independence and Security Act of 2007, all new ethanol plants must produce fuel that has a carbon footprint that is at least 20% smaller than that of conventional gasoline. Biodiesel’s carbon footprint is required to be 50% less than that of its conventional counterpart.

At issue in the EPA’s new standards is how to calculate the carbon footprint of ethanol and biodiesel. The first draft of the standards used the concept of “indirect land use change” to calculate the carbon footprints. “Indirect land use change” assumes that as more and more US cropland is used to produce feedstock for biofuels, forest land and grassland will have to be cleared elsewhere to make up the difference. Looking at the effects on the environment on a global scale, it does little good to convert large amounts of US crop land to growing biofuels if doing so results in Brazil cutting down more of its rainforests to supply the world with food. And it makes sense, in a global economy, that taking large amounts of cropland out of commission for food production means that that food would need to be grown somewhere else. However, the extent of indirect land use change and the methods used to calculate it are hotly disputed.

For example, Mark A. Edelman, Professor of Economics & Public Policy and Director of the Community Vitality Center at Iowa State University, published a paper on the issue in this month’s AgMRC Renewable Energy Newsletter. He believes that the most important factors in the conversion of Brazilian rainforest land for agricultural uses are the decline in value of Brazil’s currency and the end of export taxes, both of which encourage foreign demand for Brazilian agricultural products, and the Brazilian government’s own policies, which support continued agricultural development. Therefore, he claims that the US biofuel industry has little to no impact on what happens to Brazil’s rainforests. With so many other factors influencing the amount of land that is converted from rainforest to cropland, it is hard to separate out and measure the effect of indirect land use change directly.

Under the first draft of EPA rules, which included an attempt to measure the carbon footprint of indirect land use change, ethanol only came out 16% lower than gasoline, and biodiesel was only 22% lower. So, under those standards, fuel from existing biodiesel and new corn ethanol plants would not qualify for the Energy Independence and Security Act of 2007’s biofuel mandates, which would have a tremendously negative impact on the industry.

However, according to Agriculture.com, the second draft of the rules is expected to be much more favorable toward American ethanol and biodiesel producers. The article quotes Monte Shaw, executive director of the Iowa Renewable Fuels Association,as saying “All the signals we’ve been getting are that they did recognize that some of the science was very preliminary.” If we can’t measure indirect land use change with certainty, should we measure it at all? The EPA’s answer is coming soon!

Stocks that could move when the announcement is made: Pacific Ethanol (PEIX), Biofuel Energy (BIOF), Green Plains Renewable Energy (GPRE), Cosan (CZZ), Archer Daniels (ADM) and Verenium (VRNM)