cellulosic ethanol

Post image for EPA Doubles Down on E15 — Literally

The Soviet-style production quota for ethanol, pompously titled the Renewable Fuel Standard (RFS), is in trouble. The RFS requires more ethanol to be sold than can actually be blended into the nation’s motor fuel supply. This “blend wall” problem will get worse as RFS production quota and federal fuel economy standards ratchet up, forcing refiners to blend more and more ethanol into a shrinking motor fuel market.

Here’s the math. Total domestic U.S. motor fuel sales in 2011 stood at 134 billion gallons. Although the U.S. population is increasing, overall motor gasoline consumption is projected to decline by 14% as fuel economy standards tighten between now and 2025. Already, the 2013 blending target for “conventional” (corn-based) biofuel — 13.8 billion gallons — exceeds the 13.4 billion gallons that can be blended as E10 (a fuel mixture containing 10% ethanol).

By 2022, the RFS requires that 36 billion gallons of biofuel be sold in the domestic market, including 21 billion gallons of “advanced” (low-carbon) biofuel, of which 16 billion gallons are to be “cellulosic” (ethanol derived from non-edible plant material such as corn stover, wood chips, and prairie grasses). Because commercial-scale cellulosic plants still do not exist, the EPA repeatedly has had to dumb down the cellulosic blending targets.

Eventually, though, the EPA will have to mandate the sale of at least a few billion gallons of advanced biofuel, just to keep up the pretense that the RFS is something more than corporate welfare for corn farmers. In any event, by 2015, refiners will have to sell 15 billion gallons of corn-ethanol — roughly 1.6 billion gallons more than can be blended as E10.

A side effect of the blend wall is the recent “RINsanity” of skyrocketing biofuel credit prices. The EPA assigns a unique Renewable Identification Number (RIN) to every gallon of ethanol produced and a credit for each gallon sold as motor fuel. Refiners who cannot blend enough ethanol to meet their quota can use surplus credits accumulated during previous years or purchased from other refiners.

Because the blend wall makes the annually increasing quota more and more difficult to meet, RIN credits are suddenly in high demand. Credits that cost only 2-3 cents a gallon last year now sell for about 70 cents. Consumers ultimately pay the cost — an extra 7 cents for each gallon of E10 sold, or an additional $11.7 billion in motor fuel spending in 2013, according to commodity analysts Bill Lapp and Dave Juday. Ouch! Ethanol was supposed to reduce pain at the pump, not increase it.

The ethanol lobby offers two fixes for the blend wall. Neither is workable. The EPA thinks it has another card up its sleeve. [click to continue…]

Post image for EPA Cuts 2012 Cellulosic Blending Target to Zero

“U.S. EPA has altered its cellulosic biofuel requirements for 2012 — from 8.65 million gallons to zero,” today’s Climatewire reports. In January, the D.C. Circuit Court of Appeals vacated EPA’s 2012 cellulosic biofuels standard. “As a result,” Climatewire explains, “obligated parties — oil companies required to show EPA that they blend biofuels in their fuel supply — won’t need to provide information on their compliance. The agency will submit refunds to companies that have submitted payments for 2012 cellulosic waiver credits.”

Who says there’s no justice in this world! For several years the EPA has fined refiners for not purchasing and blending ethanol made from switchgrass, wood chips, and other fibrous, non-edible plants. Refiners protested that there was no commercial cellulosic fuel to buy. The EPA argued that didn’t matter because the Renewable Fuel Standard (RFS) is meant to be “technology forcing.” The agency thus based each year’s cellulosic target on aspirational (rather than realistic) projections of how much cellulosic fuel would be produced. It then cheerfully collected fines for all the gallons of phantom fuel refiners did not blend.

The Court held that punishing refiners for what the ethanol industry failed to do is not “technology forcing”:

EPA applies the pressure to one industry (the refiners) [citation omitted], yet it is another (the producers of cellulosic biofuel) that enjoys the requisite expertise, plant, capital and ultimate opportunity for profit. Apart from their role as captive consumers, the refiners are in no position to ensure, or even contribute to, growth in the cellulosic biofuel industry. “Do a good job, cellulosic fuel producers. If you fail, we’ll fine your customers.” Given this asymmetry in incentives, EPA’s projection is not “technology-forcing” in the same sense as other innovation-minded regulations that we have upheld.

Zeroing out the RFS cellulosic blending targets established by the Energy Independence and Security Act (EISA) is long overdue. [click to continue…]

Yesterday The Hill‘s Energy Blog reported on a brief filed by the EPA in the U.S. Court of Appeals for the District of Columbia:

The documents filed Monday with the U.S. Court of Appeals for the District of Columbia reveal the reasoning behind EPA’s move to shoot down the American Petroleum Institute’s (API) challenge of the renewable fuel standard (RFS). EPA determined that enough advanced biofuels — generally understood to be made from non-food products — existed to meet that portion of the RFS for 2012.

“EPA reasonably considered the production capacity likely to be developed throughout the year, while API would have EPA rely narrowly and solely on proven past cellulosic biofuel production,” EPA said in its brief. “EPA reasoned that lowering the advanced biofuel volume in these circumstances would be inconsistent with EISA’s [the Energy Independence and Security Act of 2007] energy security and greenhouse gas reduction goals, and decided to leave the statutory advanced biofuel volume unchanged.”

The (main) question here is what the 2012 cellulosic biofuel requirements should be set at. The EPA is arguing that they took a reasonable look at capacity production and put out what they thought could be developed, while the American Petroleum Institute is only looking at historic cellulosic biofuel production. So who is being reasonable? [click to continue…]

Post image for Rep. Jeff Flake’s Commonsense Fix for Cellulosic Biofuel Folly

In his 2006 State of the Union message, President G.W. Bush famously (and falsely) declared that America is “addicted to oil.” As a solution, Bush proposed to “fund additional research in cutting-edge methods of producing ethanol, not just from corn but from wood chips and stalks or switch grass.” He set a “goal” to “make this new kind of ethanol [a.k.a. cellulosic] practical and competitive within six years.”

Congress heeded the call, and in late 2007 passed the Energy Independence and Security Act. EISA mandated the sale of 36 gallons of biofuel by 2022, with 21 billion gallons to come from “advanced” (lower-carbon) biofuels, of which 16 billion gallons must be cellulosic.

Well, it’s now six years later, and cellulosic ethanol is still a taxpayer-subsidized science project. EISA (p. 32) required refiners to sell 100 million gallons of cellulosic ethanol in 2010, 250 million gallons in 2011, and 500 million gallons in 2012. Reality repeatedly forced the EPA to dumb down the mandated quantities (to 6.5 million gallons in 2010, 6.0 million in 2011, and 8.65 million in 2012). Even those symbolic targets proved to be too ambitious, because, as a commercial commodity, cellulosic biofuel still does not exist.

Nonetheless, the EPA fines refiners millions of dollars for failure to sell this non-existent fuel. Arizona Rep. Jeff Flake has a commonsense solution, H.R. 6047, the Phantom Fuel Reform Act. [click to continue…]

Post image for EPA Continues the Cellulosic Ethanol Folly

Last week the EPA dismissed a petition by the American Petroleum Institute seeking relief from the cellulosic ethanol mandate, which requires that oil refiners blend 8.65 million gallons of ethanol into the fuel supply by the end of 2012:

“In all cases, the objections raised in the petition either were or could have been raised during the comment period on the proposed rule, or are not of central relevance to the outcome of the rule because they do not provide substantial support for the argument that the Renewable Fuel Standard program should be revised as suggested by petitioners,” EPA told API, American Fuel & Petrochemical Manufacturers, Western States Petroleum Association, and Coffeyville (Kan.) Resources Refining & Marketing on May 22.

“EPA’s mandate is out of touch with reality and forces refiners to pay a penalty for not using imaginary biofuels,” Bob Greco, API’s downstream and industry operations director, said on May 25. “EPA’s unrealistic mandate is effectively an added tax on making gasoline.”

Greco said the Clean Air Act requires EPA to determine the mandated volume of cellulosic biofuels each year at “the projected volume available.” However, in 2011 EPA required refineries to use 6.6 million gal of cellulosic biofuels even though, according to EPA’s own records, none were commercially available, Greco said.

EPA has denied API’s 2011 petition to reconsider the mandate and continues to require these nonexistent biofuels this year, he indicated. Greco called the action “regulatory absurdity and bad public policy.”

As regular readers of this blog will know, the whole problem with the EPA’s non-flexible mandate is that there is no commercially available cellulosic ethanol, thus making it impossible to meet the mandate. The EPA’s justification for this policy is that they need to maintain an incentive for companies to begin producing cellulosic ethanol, despite many past failures. The oil refiners are also required to purchase these cellulosic ethanol waivers, effectively giving the government money instead of purchasing the non-existent fuel. [click to continue…]


by Marlo Lewis on January 17, 2012

in Blog, Features

Post image for Solyndranol?

“Ethanol ventures backed by billionaire entrepreneur Vinod Khosla — including Range Fuels, which built a failed factory in Georgia — were given the green light for an estimated $600 million in federal and state subsidies,” reports The Atlanta Journal- Constitution,

Yet,” the AJC article continues, “none of the dozen or so companies financed or controlled by Khosla over the last decade has produced commercially viable [cellulosic] ethanol. Some failed or, hamstrung by unproven technology and insufficient capital, remain behind schedule.”

The cost to taxpayers? “To date, the companies have tapped about $250 million of the $600 million. Even though they are now unlikely to ever receive the full amounts, tens of millions have been lost.”

[click to continue…]

Post image for NYT Covers Fines for Non-Existent Cellulosic Ethanol

A topic CEI has written about frequently gets covered in The New York Times, the bizarre requirement by the EPA that refiners spend up to $7 million on ghost “credits” from the EPA in lieu of purchasing cellulosic ethanol, which doesn’t exist:

When the companies that supply motor fuel close the books on 2011, they will pay about $6.8 million in penalties to the Treasury because they failed to mix a special type of biofuel into their gasoline and diesel as required by law.

But there was none to be had. Outside a handful of laboratories and workshops, the ingredient, cellulosic biofuel, does not exist.

In 2012, the oil companies expect to pay even higher penalties for failing to blend in the fuel, which is made from wood chips or the inedible parts of plants like corncobs. Refiners were required to blend 6.6 million gallons into gasoline and diesel in 2011 and face a quota of 8.65 million gallons this year.

That’s a good summary. Let’s look at one specific paragraph, where the coverage borders on editorializing in support of an agency under attack by the right:

Penalizing the fuel suppliers demonstrates what happens when the federal government really, really wants something that technology is not ready to provide. In fact, while it may seem harsh that the Environmental Protection Agency is penalizing them for failing to do the impossible, the agency is being lenient by the standards of the law, the 2007 Energy Independence and Security Act.

[click to continue…]

Post image for Ethanol Industry Finds A Subsidy It Still Likes

Just a few days after our previous post outlining the ethanol industry’s brave, unprecedented, legendary, and 100% voluntary decision to give up the ethanol tax credit, we see that there are still other subsidies that they are interested in keeping:

But the head of the Renewable Fuels Association—Bob Dinneen—says the industry will work to ensure that tax credits for cellulosic ethanol will continue past the end of 2012.

“We think that the production tax credit and the depreciation that is now allowed for cellulose needs to continue,” Dinneen says.

Extension of the cellulosic tax credits will send an important signal to the marketplace and encourage investment in the next generation of ethanol technology, Dinneen says.

And to those who consider it just another federal subsidy for ethanol…

“They need only look at the tax incentive for grain-based ethanol that has just expired–that demonstrates you don’t need a tax incentive forever,” Dinneen says.

“You need to encourage investment—convince the marketplace that there is going to be consistent government support that will allow the industry to get on its feet.”

Cellulosic ethanol has not yet been produced commercially, but according to the U.S. Department of Energy web site, several commercial cellulosic plants are under construction.

[click to continue…]

Post image for EPA Sets 2012 Biofuel Requirements

Yesterday the EPA finalized the 2012 mandate for blending biofuels into our nation’s transportation fuel supply:

The U.S. Environmental Protection Agency (EPA) today finalized the 2012 percentage standards for four fuel categories that are part of the agency’s Renewable Fuel Standard program (RFS2). EPA continues to support greater use of renewable fuels within the transportation sector every year through the RFS2 program, which encourages innovation, strengthens American energy security, and decreases greenhouse gas pollution.

The Energy Independence and Security Act of 2007 (EISA) established the RFS2 program and the annual renewable fuel volume targets, which steadily increase to an overall level of 36 billion gallons in 2022. To achieve these volumes, EPA calculates a percentage-based standard for the following year. Based on the standard, each refiner and importer determines the minimum volume of renewable fuel that it must ensure is used in its transportation fuel.

The final 2012 overall volumes and standards are:

Biomass-based diesel (1.0 billion gallons; 0.91 percent)
Advanced biofuels (2.0 billion gallons; 1.21 percent)
Cellulosic biofuels (8.65 million gallons; 0.006 percent)
Total renewable fuels (15.2 billion gallons; 9.23 percent)

In a nod to how hard it is to predict the future, the EPA has lowered the cellulosic biofuel mandate from 500 billion gallons to a less ambitious 8.65 million gallons, which is 1.7% of the original planned requirement. Of course, they have done the same in previous years and as of October no qualifying cellulosic ethanol had been sold to refiners. Naturally, refiners are not pleased that in 2012 they will possibly be spending up to $8 million in credits depending upon actual production levels of cellulosic ethanol:

[click to continue…]

Post image for WSJ Editorializes Against Cellulosic Ethanol

The Wall Street Journal ran an editorial commenting on the cellulosic ethanol mandate, which CEI has written extensively about in the past. They write:

Most important, the Nancy Pelosi Congress passed and Mr. Bush signed a law imposing mandates on oil companies to blend cellulosic fuel into conventional gasoline. This guaranteed producers a market. In 2010 the mandate was 100 million barrels, rising to 250 million in 2011 and 500 million in 2012. By the end of this decade the requirements leap to 10.5 billion gallons a year.

When these mandates were established, no companies produced commercially viable cellulosic fuel. But the dream was: If you mandate and subsidize it, someone will build it.

Guess what? Nobody has. Despite the taxpayer enticements, this year cellulosic fuel production won’t be 250 million or even 25 million gallons. Last year the Environmental Protection Agency, which has the authority to revise the mandates, quietly reduced the 2011 requirement by 243.4 million gallons to a mere 6.6 million. Some critics suggest that even much of that 6.6 million isn’t true cellulosic fuel. [click to continue…]