OMAHA (DTN) -- The Environmental Protection Agency released a much-anticipated new Renewable Fuel Standard Wednesday that penalizes corn-based ethanol for international indirect land use changes, despite an aggressive push back from biofuels and agriculture groups.

At the same time, administration officials announced the findings of an interagency biofuels group created by President Barack Obama that are supportive of the biofuels industry but also point the finger at the federal government for the slow development of the cellulosic ethanol industry.

Under the new RFS, EPA said 12.95 billion gallons of biofuels will have to be added this year, up 17 percent from last year, Dow Jones newswire reported. Some 6.5 million gallons must come from cellulosic ethanol -- much less than the original goal of 100 million gallons. And 1.15 billion gallons must come from biomass-based diesel over the two years from 2009 to 2010.

On balance, the news is good for U.S. farmers who supply corn to ethanol plants, for current ethanol producers who are grandfathered in under the new RFS and for cellulosic ethanol developers who for years have been calling for an effective loan guarantee program.

Though the U.S. ethanol industry would much rather not be penalized for so-called international indirect land use change, or ILUC, one ethanol industry group said the new RFS was "workable" for corn ethanol.

The theory of ILUC is that expanded U.S. corn acres planted in response to increased ethanol production are causing farmers in other countries to make certain land use decisions.

During a White House briefing Wednesday, EPA Administrator Lisa Jackson said the models used to calculate ILUC emissions have "become more sophisticated."

"We listened to public comments and listened to USDA," she said.

EPA included in the new RFS updated information on corn yields and how ethanol co-products fit into the picture. Jackson said EPA considered the likelihood that more corn-based ethanol plants would be using dried distillers grains as an ethanol feedstock.

In addition, in looking at ILUC, Jackson said EPA expanded the pool of the number of countries it examined in terms of land use change from 40 to 160.

"We found that indirect land use change factors were less when we expanded to 160 countries," she said.

U.S. Agriculture Secretary Tom Vilsack said the new RFS has made it so "corn ethanol has a future" in the biofuels industry.

According to EPA's modeling, corn-based ethanol achieves a 21-percent greenhouse-gas reduction compared to gasoline when international indirect land use change is included.

Without ILUC, the Renewable Fuels Association said corn-based ethanol achieves a 52 percent GHG reduction. Cellulosic ethanol achieves GHG reduction of 72 percent to 130 percent depending upon feedstock and conversion process. All GHG reductions for ethanol exceed those mandated by the RFS2.

In a written statement, the RFA praised the U.S. Environmental Protection Agency for passing the regulations to provide regulatory certainty for the biofuels industry.

However, RFA expressed its disappointment about the inclusion of ILUC.

"EPA continues to rely on oft-challenged and unproven theories such as international indirect land use change to penalize U.S. biofuels to the advantage of imported ethanol and petroleum," the statement said.

Corn-based ethanol must achieve a 20-percent reduction in greenhouse-gas emissions compared to gasoline in the new RFS.

This means new corn-based ethanol plants could conceivably make technological adjustments to reach the 20-percent threshold. That could include using biomass or even landfill gas instead of natural gas to power ethanol production.

Advanced biofuels such as ethanol produced from sugarcane or biodiesel must achieve a 50-percent reduction compared to gasoline, while cellulosic biofuels are required to achieve a 60-percent reduction compared to gasoline in the RFS.

The new RFS grandfathers in corn-based ethanol plants that were operating at the time the 2007 energy act became law.

EPA has not done the same for what is expected to be about another 1 billion gallons of corn-based ethanol capacity -- representing about 10 or 12 new plants -- expected to come online to meet the 15-billion-gallon cap on corn-based ethanol in the RFS.

Jackson said the new RFS allows total corn-based ethanol production to go beyond the 15-billion-gallon cap, as long as new corn-based ethanol plants produce ethanol that is found to reduce GHG emissions by 20 percent when compared to gasoline.

"The real sticker is how the remaining corn-based ethanol plants that must be built qualify," said Matt Hartwig, RFA communications director. "Ultimately, we think it will be very workable."

The interagency report released Wednesday also offers direction for the biofuels industry.

The report said the U.S. will not meet its goal of producing about 36 billion gallons of biofuels by 2022, including some 21 billion gallons of cellulosic ethanol.

In addition, the report calls for a more coordinated effort from federal agencies on biofuels policies, most notably making improvements to the federal loan guarantee program that has faced heavy criticism from the ethanol industry.

Very few next-generation biofuels companies have actually received loan guarantees, which are needed to minimize the financial risk of developing unproven technologies and to help make advanced biofuels competitive with gasoline and other fuels.

"We are pleased to see this plan address some of the concerns raised by cellulosic and next-generation ethanol technology companies concerning federal loan guarantee programs," RFA President Bob Dinneen said in a written statement. "These loan guarantees must be made to work for cellulosic ethanol producers if this plan and the president's stated goals are to be realized."

The administration also announced that USDA has created a proposed rule for the Biomass Crop Assistance Program to convert biomass to bioenergy and bio-based products. BCAP provides matching payments to farmers and others who deliver biomass for the collection, harvest, storage and transportation to eligible biomass conversion facilities.

Todd Neeley can be reached at todd.neeley@telventdtn.com

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