Biofuel Producers Reduce Compliance and Reputational Risks by Monitoring Feedstock Supply Chain Sustainability
Biofuels and bioenergy are poised for expansion as governments encourage their production to reduce greenhouse gas emissions and petroleum prices remain high. According to a report produced by the consulting firm McKinsey in August 2009, “growth in the demand for biomass of more than 8% a year is likely over the next decade.” [“Overview: Biomass, mobilizing a sustainable resource,” in Sustainable Bioenergy, London: Fulton Publishing, 2010, ISBN 978-0-9553720-4-9, p. 13.]
In the United States, a final rule published by the US Environmental Protection Agency (EPA) in February 2010 implements the changes in renewable fuel standards mandated by the 2007 Energy Independence and Security Act. The new “RFS2” regulations extend renewable fuel obligations for the refining industry a decade beyond the 2012 date that was set in previous legislation. European governments also are seeking to increase the role that bioenergy plays in their countries, both by encouraging domestic producers and by seeking to increase imports of feedstocks. Motivations on both sides of the Atlantic Ocean include not only a desire to moderate greenhouse gas emissions but also to improve energy security and independence.
Substantial greenhouse gas emission reductions will come from advanced biofuels, which is produced from ligno-cellulosic biomass, algae and waste oils, rather than fermented from corn starch. While EPA believes that corn-based ethanol reduces lifecycle greenhouse gas emissions by 20% compared to petroleum fuel, the advanced biofuels can meet standards of 50-60%. These numbers may be conservative, as biofuels produced for the aviation industry have claimed lifecycle reductions in the range of 80-84%.
The pulp and paper, food and feed products, and heat and power industries will continue to play an important role in bioenergy markets, along with transportation biofuel providers. Farmers around the world will benefit from increasing demand for biomass.
To achieve the growth forecast in the McKinsey report and by other sources, biofuel producers need to develop their supply chains to obtain predictable and reliable deliveries of feedstocks. Managing sourcing, logistics, quality and reliability poses one set of challenges, but others arise as well. Key among these is ensuring that sustainability criteria are not only met but documented in a verifiable way.
Meeting sustainability criteria are key to the success of biofuels, because a major driver for development of the biofuels industry is the claim that biofuels represent a qualitative improvement relative to continued depletion of fossil fuels. However, this claim can only be sustained if certain criteria are not only met, but also documented. Moreover, the greenhouse gas emission reduction benefits cannot come at the expense of other environmental, social, and economic impacts.
“Sustainable” biofuels reduce greenhouse gas emissions relative to the petroleum based fuels for which they serve as substitutes. In addition, the cultivation of their feedstocks does not exacerbate water scarcity in producing regions, threaten biodiversity, or cause food prices to rise. Farmers and others in the supply chain are compensated fairly for their work and labor standards are adhered to. Operations are planned taking into account environmental and social criteria, and managed in compliance with laws and regulations. In regions of poverty, biofuel operations contribute to social and economic development of local, rural and indigenous people and communities. Technology is managed for production efficiency and social and environmental performance, and any use of genetically modified organisms is disclosed. Land rights and land use rights are respected.
Governments and nongovernmental organizations alike have recognized the need for sustainability criteria for biofuels. In December 2009 the Roundtable on Sustainable Biofuels (RSB) at the Ecole Polytechnique Fédérale de Lausanne published version 1.0 of its “Indicators of Compliance for the RSB Principles and Criteria.” Also in 2009, an initiative to develop an international standard on sustainability criteria in biofuels got underway in ISO Technical Committee 248. And, in the United States, the EPA has made biofuel producers responsible for maintaining records from their feedstock producers that meet the defined sustainability criteria in that regulation.
It is not enough to label biofuels as “sustainable.” The claim must be established and proven. Biofuel producers must manage their supply chains for compliance to criteria that go far beyond the “due diligence” investigations that most supply chain managers now consider normal. Failures in supply chain management can damage a producer’s reputation and may subject it to regulatory enforcement.
Managing the risk of deviation from sustainability criteria is an important consideration for all biofuel producers. Producers should consider options that best fit their supply chain management capabilities. Direct oversight and management of the supply chain can be time and resource intensive. To reduce this burden, producers may wish to outsource second party audits of feedstock producers and processers, or require them to obtain third-party certification to criteria developed by RSB or others. In some cases producers may choose to work through industry consortia to outsource the oversight and certification of feedstock producers and processors in various locations around the world.
Futurepast can assist biofuel producers with the development of a strategy for supply chain management that will support in-house management activities and maximize benefits from outsourcing audits and compliance assurance efforts.
© Futurepast: Inc, 2010