Federal Court Smacks Down EPA Biofuels Quota

Ken Silverstein | Jan 28, 2013


Part of the Obama administration’s energy agenda has been rejected by a federal court. Appellate judges have tossed aside a quota mandating that oil refiners supplement their product with biofuels made from woody chips, switch grass and municipal waste, called cellulosic ethanol.

The United States Court of Appeals for the District of Columbia said that the requirement to have 20 million gallons of that cellulosic ethanol as of 2012 was an unrealistic goal. It said that the pressure had been on the refiners, not on the producers that have not ramped up production of those fuels.

“The most natural reading of the provision is to call for a projection that aims at accuracy, not at deliberately indulging a greater risk of overshooting than undershooting,” the judges wrote in their opinion.

The Obama administration had placed high hopes on cellulosic ethanol, saying that it would one day supplant corn-based ethanol that is used mostly today. Ethanol derived from corn, however, is controversial because incentives divert it away from being a food crop and instead, into transportation, increasing food prices. Some studies also say that the process of converting corn to ethanol is inefficient and dirtier than just burning petroleum.

The legal action had been brought by the American Petroleum Institute against the Environmental Protection Agency. The trade group says that the Clean Air Act requires EPA to determine the mandated volume of cellulosic biofuels each year at the “projected volume available.” But it says that no commercial supplies even existed in 2012, which would have caused oil refineries to pay untold fines.

The oil group says that it will continue to recommend to EPA that it use the current year's data when it mandates the volume of advanced ethanol for the following year. This is fairer than simply relying on the producers to make those assessments.

“This decision relieves refiners of complying with the unachievable 2012 mandate and forces EPA to adopt a more realistic approach for setting future cellulosic biofuel mandates,” says Bob Greco, with the oil group. “The court has provided yet another confirmation that EPA’s renewable fuels program is unworkable and must be scrapped.”

Unpredictable Quotas

The Renewable Fuels Association that represents ethanol makers weaved its own interpretation. While the judges vacated the 2012 cellulosic ethanol standard, it says, they still affirmed the advanced biofuel standard. The group also says that the  court rejected the petroleum association’s argument that EPA make its projections using data from the U.S. Energy Information Administration. It says that EPA can still consider input gathered from ethanol producers.

Nonetheless, the association says that the court tossed out the cellulosic biofuel standard because it believed that EPA had intended to merely promote the growth of an fledgling industry, rather than to make accurate predictions. Biofuels organizations disagree, saying that EPA sets the volume based on the best available information at the time.

With that, EPA may reinstate a quota -- as long as the agency can substantiate it. “Although we disagree with the court’s decision vacating the 2012 cellulosic volumes, today’s decision once again rejects broad-brushed attempts to effectively roll back the federal Renewable Fuel Standard” that sets the ethanol goals, says the fuels association.

Cellulosic fuel sources, comprised of wood chips and switchgrass, are abundant and could supply billions of gallons of ongoing ethanol. But the conversion process is expensive and undeveloped. To move it along, the U.S. Department of Energy has been investing hundreds of millions into the endeavor. When fully operational, those "bio-refineries" have been predicted to produce more than 130 million gallons of cellulosic ethanol per year, once they would become operational.

Both Republican and Democratic administrations have sought to reduce dependence on foreign oil while also improving air emissions. Critics say, however, that their objective has been to win the farm vote.

“While any standard we set for cellulosic biofuel standard for 2012 will have some uncertainty in terms of actual attainment, our intention is to balance such uncertainty with the objective of promoting growth in the industry,” says EPA, before the federal appeals court.

No matter how it is cast, EPA and the advanced biofuels sector lost this court battle. Cellulosic ethanol holds great promise but it is not yet ready for prime time.

EnergyBiz Insider has been awarded the Gold for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been honored as one of MIN’s Most Intriguing People in Media.

Twitter: @Ken_Silverstein


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The problem is perverse incentives

The basic problem here is one of incentives.  The feasibility of cellulosic biofuel production has been proven in concept.  We are blessed with enough land to enable a very large contribution toward our fuels needs (perhaps as much as 1/3 to 1/2 assuming reasonable efficiency targets and national population levels -- the notion that land use is a constraint is a canard).  Our society would gain immense economic, environmental and national security benefit from the ability to make liquid fuel from woodchips, canes, grasses etc. on low-value land (or from the hundreds of millions of acres of biomass being devastated by climate change-induced pests like the pine bark beetle).  The problem:  the one industry with the ample financial resources and technological capabilities to develop and then scale cellulosic biofuels technology is the petroleum industry itself.  Unfortunately that industry clearly does not have the incentive today to perfect a technology that could dislodge or devalue its primary product, fossil petroleum -- and will not until their volume of reserves falls to a low enough level that they're forced to make the transition.  This is not a problem of technological failure but market failure -- the most consequential instance of market failure in human history, for it could be the undoing of civilization.  This is the basic reason why some form of government involvement is needed.  But what form can gain acceptance in today's toxic political climate?  The mandate failed this court's legal test.  Efforts to price carbon in the US through cap-and-trade or a carbon tax have been fiercely resisted.  Budgets for federal government-sponsored R&D have been pared back.  Once again, America is stumbling in a critical global race to assert technological leadership.  When will we learn?

The Problem

"The problem:  the one industry with the ample financial resources and technological capabilities to develop and then scale cellulosic biofuels technology is the petroleum industry itself."

DOE would have been loathe to fund hundreds of millions of dollars worth of cellulosic biofuels research with the "evil oil industry", so it instead funded the research with companies which lacked "ample financial resources and technological capabilities". Decisions have consequences!

Efforts to price carbon have been fiercely resisted because there is low confidence in the perceived need to do so, as well as in the efficacy of doing so.

Penalty. Penalty. Who Gets the Penalty?

If EPA is going to penalize anyone, it should be the cellulosic ethanol "producers" who took the hundreds of millions of dollars of our tax money and failed to produce the cellulosic ethanol, not the petroleum refiners who failed to blend in the unproduced cellulosic ethanol.

However, that would likely result in three more green energy bankruptcies, which would be a totally unacceptable result in our post-Solyndra world.

Better to stick it to the evil oil companies.