A recent swell in the production of special low-carbon fuels as part of a federal biofuels mandate has the oil industry and renewable fuel proponents drawing battle lines over how much of the fuels refiners must blend to comply with the law.
At the heart of the issue is the Environmental Protection Agency’s flagship biofuels program, the Renewable Fuel Standard, which requires the oil industry to buy, transport and blend the fuels officials deem less harmful to the climate.
The refiners would rather not have to deal with higher and higher volumes of alternative fuels, arguing that the program is flawed and will harm consumers, while environmental advocates and biofuels advocates say the amount of the biofuels required to be purchased by the industry needs to be increased to spur a new low-carbon fuel industry.
“The debate is more along the lines of what the biofuels industry produced, [compared] to what the oil industry” would like to blend, said a biofuels industry proponent.
But now, refiners have a new fight on their hands: The EPA recently added a gas, which is difficult for refiners to purchase, to its list of what counts as an advanced version of alternative fuels, known as “cellulosic” biofuels.
The Renewable Fuel Standard comprises a range of differing, sometimes competing, biofuel targets that fossil fuel producers are obligated to meet each year.
The EPA program requires that, in addition to blending billions of gallons of corn ethanol into the nation’s fuel supply, refiners blend other, more advanced second-generation biofuels called “cellulosic” fuels made from non-food crops, such as grasses.
Cellulosic biofuels are meant eventually to reduce the need for corn ethanol. Corn ethanol faces a growing number of critics that oppose diverting a large amount of corn used for food production to being used for fuel instead.
But the problem has been that not much cellulosic biofuel is being produced.
Opponents of the cellulosic mandate represented by the American Petroleum Institute and the American Fuels & Petrochemical Manufacturers have argued that the requirements are essentially a fraud because no cellulosic fuels have been produced in adequate volumes to meet the standard. The petroleum group had even dubbed the fuels “phantom fuels.”
Until now.
Production surged from virtually zero to near 40 million gallons in a matter of months, and output has been holding steady since then, according to EPA data reviewed by the Washington Examiner, turning the argument on its head.
That’s not because of higher output but because the EPA expanded what counts as cellulosic fuel to include biogas last year. The “Pathway II” rule allowed biogas to qualify as cellulosic biofuel based on its low lifecycle greenhouse gas count that is at least 60 percent lower than petroleum. The change resulted in a spike in the low-carbon fuels.
Now, the fight has become over how much to blend, when to purchase the fuels, or whether to buy expensive renewable fuel credits to comply with the low-carbon fuels targets that the EPA is preparing to set this summer.
“There will be a great deal of effort to create a crisis” over this, the biofuels proponent says, but ultimately the low-carbon fuels industry believes EPA’s “decision favors us” over the refiners.
But an expert representing the oil industry says refiners are approaching the change with caution. “We don’t want EPA to overplay their ability to project” how high the standard should go based on the recent surge. At the same time, the industry does not believe these new gas fuels are “produced by renewable means” and EPA is being “a bit disingenuous.”
The petroleum industry has one advantage: In 2012, the U.S. Court of Appeals for the D.C. Circuit sided with opponents of the mandate when it limited the EPA’s discretion to set the cellulosic fuel requirement based on what the court saw as an “aspirational” goal. Instead, the agency must base its blending goals on actual production, rather than pulling a number out of the air.
The industry has managed to curb EPA’s requirements using the court ruling in recent years. If the EPA set the mandate at an astronomical level, refiners would petition and get it reduced.
An American Petroleum Institute official says, to some degree, the 2012 lawsuit is still in play now, helping the industry make the argument that EPA must base its targets on actual annual production and not inflate projections based on the recent surge.
The trade group wants the EPA to stick to its initial projections under the 2014 requirements, not to exceed 17 million gallons for cellulosic biofuels.
Under the 2014 requirements proposed in November 2013 but not made final, the EPA reduced all renewable fuel volumes from what Congress enacted, except for the cellulosic target, which was raised from just over 800,000 gallons to 17 million gallons.
That was done with virtually no fuel being produced under the program in 2013.
A biofuel industry official tracking the issue says setting the blending target for cellulosic at a far higher level than 17 million gallons is doable and legally defensible.
The American Petroleum Institute also takes issue with how the EPA was able to boost the amount of cellulosic fuel under the law.
The trade group official says the EPA finalized a rule early last year that approved the use of biogas from landfills and municipal waste dumps as a cellulosic biofuel.
Although the petroleum institute and the industry protested the change – called the RFS Pathway II rule — it did not sue the agency and went along with the EPA while it contemplated its options.
Nevertheless, the group continues to disagree with the EPA over “biogas” not being what Congress intended in setting the cellulosic fuel mandate.
The fuel, API argues, should be derived from “cellulose,” biomass such as tree and grass trimmings, corn husks and the leftovers from harvest.
Refiners can’t produce or directly buy biogas, the official said. And with most of the surge in cellulosic fuels production coming from biogas, it will be difficult to reach the target.
Another big concern is that the EPA needs to finalize the rule for 2014. The EPA delayed the 2014 rule until this summer, creating uncertainty for both the petroleum and renewable fuel industries. EPA also says it will issue the targets for 2015 and 2016. Biofuel groups fear if the EPA delays the 2014 rule much longer it could erode the market for the low-carbon fuels just as production is ramping up.
At the same time, the energy industry and others are pushing for repeal of the entire Renewable Fuels Standard, cellulosic and all.
