API sues EPA over cellulosic biofuel mandate

By Kris Bevill | March 13, 2012

The cellulosic biofuel portion of the U.S. renewable fuel standard (RFS) has been in place for two years, and for two years the petroleum industry has complained that the program unfairly requires refiners to purchase credits for gallons of cellulosic biofuel that has not been produced. On March 9, the American Petroleum Institute took its complaint to court, filing a lawsuit in the D.C. Circuit Court against the EPA to challenge the “unachievable requirements” of the cellulosic biofuels mandate.

“EPA’s standard is divorced from reality and forces refiners to purchase credits for cellulosic fuels that do not exist,” Bob Greco, API director of downstream and industry operations, said in a statement. “EPA’s unrealistic mandate is effectively a tax on manufacturers of gasoline that could ultimately burden consumers.”

The RFS, which was established in the Energy Independence and Security Act of 2007, began requiring cellulosic biofuel volumes to comprise a portion of the total renewable fuels consumption mandate in 2010. The regulation commands the U.S. EPA to determine the amount of cellulosic biofuel that could be produced in the coming year by Nov. 30 of the previous year, and for calendar years 2010, 2011 and 2012, the EPA dramatically reduced the cellulosic mandate compared to the initial targets set forth in the 2007 legislation, owing to a delayed scale up in the cellulosic industry. This year’s cellulosic biofuel volume, for example, is set at 8.65 million gallons of fuel, compared to EISA’s suggested target of 500 million gallons. The EPA considers a number of factors before settling on a final volume mandate, including input from producers and assessments conducted by the U.S. DOE’s Energy Information Administration.

Once a volume mandate has been determined, if the actual gallons of cellulosic biofuel are not produced in that year, EISA requires obligated parties to purchase cellulosic credits as a substitute for the renewable identification numbers (RINs) that would be generated if the fuel had been made available on the market, at a cost determined by the EPA. In 2011, obligated parties were required to pay approximately $6.8 million for cellulosic credits in order to comply with the RFS volume mandate. The petroleum industry argues that the cellulosic credit requirement is a tax on refiners and has recently begun to blame those credit fees for a potential increase in gas prices for consumers. The ethanol industry and other groups, including the Union of Concerned Scientists, however, point out that the compliance fees are miniscule compared to the profits made by the oil industry. Further, the credit aspect is necessary to provide reassurance to investors entering into the risky emerging cellulosic industry, they say.

API filed requests with the EPA in 2011 and in early 2012 asking it to reconsider the cellulosic biofuel volume mandate. According to API, the EPA has not responded to either request which is why the group has elected to file a lawsuit on the matter. Ultimately, the group would prefer a cellulosic volume mandate that is based on two months of proven production rather than on anticipated production levels. The EPA has repeatedly stated in its final rules on cellulosic volumes, however, that it believes it should be optimistic when determining cellulosic volume requirements in order to provide incentive for growth in an emerging industry.