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By SIOBHAN HUGHES
WASHINGTON—A group created by U.S. President Barack Obama outlined a broad agenda Wednesday for ensuring that the country increases the amount of biofuels used in cars, trucks, and airplanes.
The President's Interagency Working Group said the U.S. wasn't on track to meet federal mandates of adding 36 billion gallons of biofuels to the fuel supply each year by 2022. Underscoring that point, the Environmental Protection Agency said Wednesday it expected only 6.5 million gallons of cellulosic biofuel to be produced this year, well under the 100 million mandated by Congress.
The recession has hurt financing for biofuels development, the working group said. It also blamed insufficient coordination among government agencies.
Mr. Obama in May created the biofuels working group, led by the secretaries of energy and agriculture and the EPA administrator. He unveiled its report, as well as a new task force to work on clean-coal technology, after meeting a group of governors to discuss energy policy.
"Even if you disagree on the threat posed by climate change, investing in clean-energy jobs and businesses is still the right thing to do for our economy," Mr. Obama said. "Reducing our dependence on foreign oil is still the right thing to do for our security. We can't afford to spin our wheels while the rest of the world speeds ahead."
The president said the clean-coal task force would be charged with figuring out how to deploy affordable technology for reducing emissions from coal on a widespread scale within 10 years. By 2016, he said, 10 commercial demonstration projects should be up and running.
"I am convinced that America can win the race to build a clean-energy economy, but we have to overcome the weight of our own politics," Mr. Obama said.
To boost financing for biofuels, the working group said that research loans and loan guarantees from the energy and agricultural departments "could be targeted more effectively to support the emerging industry."
Developers of next-generation biofuels have complained that Energy Department loan guarantees were difficult to win because the industry's economics didn't fit neatly into traditional project-finance models.
The group suggested that the EPA could lift the limit on the amount of ethanol in the gasoline supply from 10% to 15% or 20% if testing showed the higher blends to be suitable in light-duty vehicles. The EPA has promised to make a decision by midyear.
But the group warned that the existing fuel-distribution system will need upgrades to handle gasoline with higher ethanol concentrations.
Saying that higher-concentration ethanol blends will require investment in a new storage and distribution structure, the group suggested that "expansion of the biofuels industry should focus on advanced biofuels and direct-substitute fuels that can leverage the existing American multitrillion-dollar liquid-fuels infrastructure."
That would be a boost to emerging companies developing so-called drop-in fuels, which are hydrocarbons made from plants that are already being tested in airplanes.
"Significant users of liquid fuels, such as the air transportation industry and the military, have needs that cannot be fully met today by ethanol or electric power sources," the group said.
The group nodded to concerns that were raised two years ago about the risks that the expanding ethanol industry was pushing up food prices by taking over land used for growing food. The group said that "more intensive, multiple-year management strategies could be used to get greater production from the same amount of land, and thus reduce pressure to expand production onto environmentally sensitive or marginally viable lands."
The group also said that as more farms and forests are used to make biofuels, "careful consideration of feedstock production practices and location of biomass conversion plants will be required to avoid serious impacts on existing food, feed and fiber markets and the quality of natural resources upon which we all depend for clean air and water."
The group suggested the U.S. government should use more biofuels in its flex-fuel vehicles, especially in the urban areas of the upper Midwest.
Also on Wednesday, the EPA issued new standards for the amount and kinds of biofuels that may be added to the motor-fuel supply.
The EPA said that some 12.95 billion gallons of biofuels will have to be added this year, up 17% from last year. 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.
The new mandate reaches every aspect of the biofuels industry, determining winners and losers from among a host of crops and production processes.
Currently, corn-based ethanol is the predominant biofuel, but a 2007 law limits the amount of biofuel that may be derived from cornstarch. The EPA must write rules to steer the nation into new types of biofuels.
The winners included sugar-cane-based ethanol and cellulosic ethanol, which the EPA said were cleaner than traditional gasoline and would qualify as the sort of advanced biofuels that the 2007 law mandates. The EPA also indicated that some corn-based ethanol plants may be considered clean, provided that they operate using "new efficient technologies."
By law, the U.S. must use of 36 billion gallons of biofuels a year by 2022, with 21 billion of those gallons in the form of "advanced biofuels."
As part of an effort to decide which biofuels to promote and which ones to disqualify, the EPA had to set a standard for measuring greenhouse-gas emissions from biofuels. The result was a score card that gave various types of biofuels grades for cleanliness.
—Henry J. Pulizzi contributed to this article.
Write to Siobhan Hughes at siobhan.hughes@dowjones.com
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