Industry urges EPA to dismiss oil's cellulosic RFS waiver request

By Kris Bevill | February 17, 2012

Representatives and supporters of the cellulosic biofuels industry filed a series of letters with the U.S. EPA on Feb. 16 pushing back against petroleum refiners who earlier this year requested that the agency retroactively waive all cellulosic biofuel obligations for 2011.

On Jan. 20, the National Petrochemical & Refiners Association (now known as the American Fuel & Petrochemical Manufacturers), the American Petroleum Institute and the Western States Petroleum Association, filed a formal petition with the EPA, requesting that it waive requirements for obligated parties to pay for 2011 cellulosic biofuel volume credits. The petroleum representatives argue that there was no cellulosic biofuel available to purchase last year, so therefore they shouldn’t be held responsible to pay approximately $6.8 million for credits to replace their lack of use of a fuel that never existed. But in letters submitted to EPA Administrator Lisa Jackson on Feb. 16, ethanol supporters argue that the waiver credit requirements are necessary to provide support for a budding industry and retroactively waiving those requirements would have serious consequences in the advanced biofuels industry.

“The RFS was enacted to be forward-looking, and to drive the production and use of renewable fuels to mitigate the severe economic and environmental impacts of foreign oil dependence,” Brooke Coleman, executive director of the Advanced Ethanol Council, said in his letter. “This is the reason why the RFS requires the U.S. EPA to forecast the capacity of the cellulosic biofuel industry in out years and implement flexibility provisions in the event that the targets are not hit, as opposed to simply setting the standard to reflect the market that already exists. Retroactive adjustments to the volumetric requirements would, in essence, short-circuit this market signal and slow the development of our industry.”

The Biotechnology Industry Organization pointed out in its letter that contrary to the petroleum industry’s claims, obligated parties do, in fact, have options available to them besides simply paying for waiver credits to make up the entire cellulosic biofuels volume requirements. “For compliance year 2011, obligated parties have many opportunities available to them to meet their individual cellulosic volume obligations and should be expected to choose the lowest cost option for their individual business,” BIO President and CEO James Greenwood wrote in the letter. He said options available include purchasing or retiring RFS1 C-RINs to meet up to 20 percent of the obligation, purchasing cellulosic waiver credits and retiring advanced RINs or deferring their obligations for one year. “Given the variety of compliance options, there is no reason to grant the joint petition for erasing the 2011 cellulosic RVO [renewable volume obligation],” he said.

The Union of Concerned Scientists also weighed in on the request, telling Administrator Jackson in its letter that it would be a mistake to allow petroleum refiners to manipulate RFS requirements. “As the main customers for cellulosic biofuels, and as strategic investors in many of the cellulosic biofuel companies, the oil industry is in a position to interfere in the marketplace for these fuels,” UCS senior scientist Jeremy Martin said. “Giving them an incentive to undermine this marketplace is a very bad idea.” Martin further noted that the approximately $6.8 million requirement for 2011 cellulosic biofuel waiver credits is “less than one hour of profits earned by the top three U.S. oil companies over the last four quarters,” adding that the EPA’s adjusted mandates are reasonable and the compliance costs imposed on the oil industry are not burdensome.

The EPA is required to act on formal petitions within 90 days of their filing. EPA spokeswoman Cathy Milbourn confirmed that the agency has received the petroleum groups’ petition and said the agency is determining its next steps. In the agency’s final rule for 2011 RFS volume requirements, the agency noted that Congress did not specify what degree of certainty should be reflected in the agency’s cellulosic biofuel projections and the EPA believes volume requirements should be attainable, but high enough to provide incentive for the industry to grow. “Any estimate we use to set the cellulosic biofuel standard for 2011 will have some uncertainty in terms of actual attainment, and the level of such uncertainty generally rises with the volume mandate,” the EPA said in the final rule. “Our intention is to balance such uncertainty with the objective of providing an incentive for growth in the industry.”