US EPA agrees to rethink cellulosic ethanol mandate

23 January 2014 19:28 Source:ICIS News

WASHINGTON (ICIS)--The US on Thursday told refiners that it would reconsider its 2013 mandate for consumption of cellulosic ethanol, raising the possibility that gasoline manufacturers might be freed from paying fines for not using biofuels that are unavailable.

In letters sent on Thursday to the American Fuel & Petrochemical Manufacturers (AFPM) and the American Petroleum Institute (API), the Environmental Protection Agency (EPA) said that it was granting their separate petitions for reconsideration of the agency’s 2013 cellulosic mandate.

Under that mandate, EPA had said that refiners must blend 6m gal (23m litres) of cellulosic ethanol into their conventional gasoline stocks.

Refiners and fuel blenders that fail to use the mandated volumes of cellulosic ethanol are required to pay EPA a 42 cent/gal fine, a penalty that API says amounts to an invalid tax.

However, producers of cellulosic ethanol have routinely failed to meet projected output levels, meaning that refiners had to pay EPA millions of dollars annually in penalties for not using cellulosic ethanol supplies that do not exist.

While the EPA’s 2013 cellulosic ethanol mandate was 6m gal, it appears that actual cellulosic biofuel production for last year will be around 700,000 gal, according to API.

That would mean a shortfall of some 5.3m gallons and related fines of around $2.2m for refiners and blenders for not using what the API and AFPM call “the non-existent fuel”.

API downstream director Bob Greco welcomed the EPA decision to rethink the 2013 mandate level.

“It’s refreshing that EPA has finally agreed to reconsider bad public policy, mandating biofuels that do not exist,” he said.

“We continue to ask that EPA base its cellulosic mandates on actual production rather than projections that - year after year - have fallen far short of reality,” he said.

“For four years running, biofuel producers have promised high cellulosic ethanol production that hasn’t happened,” he added.

Energy sector analyst Kevin Book at ClearView Energy Partners said that Thursday’s decision by EPA “is another example of EPA’s shift away from strict adherence to legislated RFS volumes to ‘reasonable’ production and consumption estimates”.

The Renewable Fuel Standard (RFS) is the federal law that mandates annual biofuel consumption levels. But under the law, EPA may alter the legislatively set consumption levels.

The EPA move, said Book, “leaves open the opportunity for industry groups to more easily challenge final targets in the future through administrative reconsideration rather than judicial review”.

Early last year API won a lawsuit against EPA in which a federal court invalidated the agency’s 2012 cellulosic mandate of 8.6m gal.

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By Joe Kamalick