Texas Oil and Gas Attorney Blog
In October 2013, the American Petroleum Institute and the American Fuel & Petrochemical Manufacturers (AFPM) submitted information to the Environmental Protection Agency (EPA) asking the EPA to lower the 2013 cellulosic biofuel quota because oil refiners would be forced to buy millions of dollars in unnecessary “credits” for cellulosic biofuel because the actual biofuel was unavailable.
In a very helpful (and surprising) turn, on January 23, 2014, the EPA announced that it would reconsider the 2013 quote due to this new information. The EPA determined the information was relevant and met statutory requirement for granting a reconsideration.
The government has hoped that cellulosic biofuel would replace ethanol, which has caused complaints over driving up prices of corn and the damage to engines. However, costs in producing cellulosic biofuels have delayed production, and so production hasn’t kept pace with government quotas. AFPM President Charles Drevna pointed out that the 2013 quota for cellulosic biofuels was six million gallons, which is absurd when only one million gallons were produced. Since they obviously cannot buy biofuel that doesn’t exist, EPA requires oil refiners to buy “credits” instead. API estimated that buying these credits would cost oil refiners $2.2 million in 2013. Mr. Drevna explained that in March 2013 the EPA set the 2012 quota at zero. In reality, these credits are a penalty for not complying with a law that is impossible to comply with!
A spokesman for the biofuel industry said: “These blending targets are based on expected output from a very small number of companies. A short delay, not uncommon for any new refinery, can change the landscape with regard to compliance.” Another spokesman for the industry admitted developing cellulosic biofuel has had setbacks and delays but stated the industry would be back on track.
That doesn’t change reality for today, though. Both oil and gas trade organizations received a letter (that you can read here) from EPA Administrator Gina McCarthy. The letter states that the EPA will commence a notice and comment period on the issue of the cellulosic biofuel standards. The letter also stated: “Other objections to the cellulosic biofuel standard noted in your petition may be raised in the context of this future rulemaking if you continue to believe they are relevant. We will respond at a later date to components of your petition for reconsideration of the 2013 RFS rule that are related to matters other than the cellulosic biofuel standard.”
API’s Bob Greco, to whom the letter was addressed, called it “refreshing” that the EPA was willing to reconsider its public policy mandating biofuels that don’t actually exist. He told reporters: “We continue to ask that EPA base its cellulosic mandates on actual production rather than projections that-year after year-have fallen far short of reality. For 4 years running, biofuel producers have promised high cellulosic ethanol production that hasn’t happened.” AFPM President Charles T. Drevn agreed with Mr. Greco and applauded the EPA’s decision: “The agency’s optimism for cellulosic biofuel appears to have been tempered by reality. EPA used common sense when making this decision and we believe common sense should also prevail in resetting the 2013 cellulosic RVO, which would mean that our members will not be required to purchase credits for a fuel that does not exist.” said Mr. Drevna.
The bottom line is that the purchase of unnecessary government mandated “credits” because refiners can’t buy a product that does not exist will result in higher prices for fuel. This impacts consumers directly, at the gas pump, as well as indirectly due to increases in the cost of goods and services. These price increases will disproportionately impact lower and middle class consumers and older persons on social security. This is one more example of how the Obama administration puts its political agenda ahead of the welfare of people.
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