EPA Sets 2012 Biofuel Requirements

by Brian McGraw on December 28, 2011

in Blog

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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:

Although the EPA set the requirement well below Congress’s goal, its decision still irked refiners. Companies will have to buy credits from the EPA if they can’t find enough cellulosic ethanol to purchase—even though the fuel may not be available. “The [EPA’s] cellulosic number is still conjecture-based fantasy,” said Stephen Brown, vice president for government affairs for refiner Tesoro Corp.

The credits cost about $1.20 per gallon, according to Charles Drevna, president of the National Petrochemicals and Refiners Association. “Once again, refiners are being ordered to use a substance that is not being produced in commercial quantities—cellulosic ethanol—and are being required to pay millions of dollars for failing to use this nonexistent substance. This makes no sense,” he said.

Brooke Coleman, executive director of the Advanced Ethanol Council, which represents advanced-biofuel companies, said Congress built flexibility into the mandate because “there was always a chance” the industry wouldn’t meet the schedule.

“It shouldn’t surprise anyone with the state of the economy, the state of the financial world, the state of the banks…that there are delays in implementation of new technologies,” Mr. Coleman said. He argued that financing for more cellulosic-biofuel capacity would come as long as the renewable-fuels standard remains in place.

There was always a “chance” they’d miss the mark by 99%! And despite the flexibility to lower the “mandate” the EPA does not seem to have the same flexibility (or perhaps, desire) in waiving the requirement that refiners spend millions of dollars to purchase fake cellulosic ethanol credits.

An interesting aspect of 2012 will be the extent to which the lifting of the tariff on ethanol imports will effect the “advanced biofuels” market. 2012 marks the end of the decades long tariff on ethanol imports, opening up the United States to increased imports from Brazil. Brazil is currently importing corn-ethanol from the United States, as well as exporting small amounts of ethanol to the United States.

Though imports to the United States might not increase dramatically in 2012 as Brazil does not appear capable of increasing production in the short term, given current policies Brazilian exports to the United States are likely to increase substantially in the years to come.

For more of CEI’s writing on ethanol, go here.

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