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2012 Renewable Fuel Standards Struck Down; 2013 Standards Proposed

2012 Renewable Fuel Standards Struck Down; 2013 Standards Proposed

On January 25, a federal court of appeals ruled the Environmental Protection Agency (EPA) overestimated the amount of cellulosic biofuels it required refiners, importers and blenders to incorporate into their products in 2012. The EPA mandate required the oil industry incorporate at least 8.65 million gallons of cellulosic biofuels into gasoline and diesel fuels. At the same time, EPA records indicated no commercial supply was available for purchase, and producers within the oil industry were unable to comply with the annual renewable fuel targets.

In its decision, the court acknowledged this apparent Catch-22 which penalized oil refiners for a failure to incorporate cellulosic biofuels in its products when, in reality, the required biofuels did not exist. If upheld, the failure to comply with the EPA mandated volume would have required oil refiners pay more than $8 million in credits to the government.

Because the projected amounts of biofuels derived from wood and other non-food plants failed to materialize, the court agreed with challenges set forth by the oil industry that the EPA estimates were too high. Despite overturning the 2012 mandate for cellulosic biofuels, the court upheld the production requirements for the three other types of renewable fuel sources: biomass-based diesel, advanced biofuel and renewable fuels.

About the 2012 Standards

The Energy Independence and Security Act of 2007 established the Renewable Fuel Standards (RFS) to encourage the development of the biofuels industry by requiring the oil industry invest in this emerging market. Under the Standards, the EPA is required to calculate an annual percentage based upon estimates set forth by the Energy Information Administration (EIA). The RFS also requires the EPA reduce the applicable volume refiners, importers and blenders must purchase when projected biofuel production is less than the mandated volume.

For 2012, the EIA estimated a production of 6.9 million gallons of cellulosic biofuel. At 8.65 million gallons, the projections set forth by the EPA went well above those set forth by the EIA. The court ruled the EPA exceeded its authority in establishing unreasonable mandates when it set volumes based on the promotion of growth within the biofuels industry as opposed to a fact-based prediction.

The American Petroleum Institute, which challenged the 2011 and 2012 standards, has lobbied for projections based on the previous year of actual cellulosic biofuel production. In response to the decision of the 2012 standards, API Group Downstream Director Bob Greco commented, “The court has provided yet another confirmation that the EPA’s renewable fuels program is unworkable and must be scrapped.”

It appears the American public does not feel the same. A recent poll commissioned by the Renewable Fuels Association indicated the majority of Americans remain on board with the program. Sixty-four percent of those polled favored the renewable fuels standard as well as government incentives intended to fund the expansion of cellulosic biofuels.

Proposed 2013 Renewable Fuel Standards

Nearly one week after the court’s decision, the EPA announced its proposed 2013 Renewable Fuel Standards on January 31. The EPA determined four domestically-based companies have the potential to produce commercial volumes of cellulosic biofuel in 2013, though just two are projected to produce them.

The EPA proposes to set the cellulosic biofuels target at 14 million gallons in 2013.

Volumes Used to Determine the Proposed 2013 Percentage Standards

 

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Interestingly, the EIA projects that just 9.6 million gallons will be produced in 2013. Still, the EPA maintains the approach used to estimate the 2013 standards for cellulosic biofuel is consistent with the U.S. Court of Appeals ruling.

KiOR is expected to provide eight of the 14 million gallons estimated to become available in 2013. Operations at its Columbus, Mississippi plant designed to process sustainably harvested wood biomass began in November 2012. The facility is expected to process 500 bone dry tons of wood biomass per day, resulting in 40,000 daily gallons of biofuel and 11-13 million gallons on an annual basis.

Fred Cannon, KiOR CEO, reported Catchlight Energy LLC (a joint venture between Chevron Corp. and Weyerhaeuser Co.), Hunt Refining Co. and FedEx Corp. have already purchased all of the fuel the facility is expected to produce. KiOR has plans to open a second facility, this one capable of processing 1,500 bone dry tons of feedstock per day, in Natchez, Mississippi. Facility progress as it relates to construction is yet to be announced.

INEOS Bio is expected to produce the remaining six million gallons of commercially available supply. Its “feedstock flexible” Indian River County BioEnergy Center located near Vero Beach, Florida uses a mixture of residential, commercial, industrial, agricultural and forestry wastes to produce ethanol. No data in regards to the percentage of the different wastes used is available. INEOS Bio reports the facility has an annual production capacity of eight million gallons of biofuels.

The overarching question remains, whether the cellulosic biofuel industry will develop the capacity to meet RFS mandates for 2013 and beyond.

The proposal is open for public comment for 45 days from January 31 through March 17. Additional information is available via the RFS website.