Cellulosic producers fume at ‘phantom fuel’ label as EPA kills production target

Source: Amanda Peterka, E&E reporter • Posted: Friday, March 1, 2013

Second-generation biofuel producers are pushing back against the moniker “phantom fuels,” a term that opponents of the renewable fuel standard (RFS) have tagged them with, even as U.S. EPA cancels its cellulosic biofuel requirements

Major ethanol companies Poet LLC and Abengoa Bioenergy, along with the Biotechnology Industry Organization (BIO), yesterday took to Capitol Hill to tout the progress they have made on producing biofuels from plant-based materials like switch grass, agricultural residues and municipal solid waste.

Cellulosic biofuel has so far attracted more than $1 billion in private investment, and companies are working on projects in more than 20 states, they told staffers from several congressional offices. Poet, with its partner Royal DSM, is building a cellulosic plant in Emmetsburg, Iowa, while Abengoa is scaling up its technology at a facility in Hugoton, Kan.

For the first time ever, producers last year generated 21,000 gallons of cellulosic biofuel, according to EPA’s electronic data system for the renewable fuel standard.

“Cellulosic gallons are real,” Matt Carr, managing director at BIO, said yesterday.

But the briefing on the Hill came just hours before EPA announced that it has vacated its 2012 target for cellulosic biofuel production. A federal court earlier this year found that the number, which far overshot the amount that was actually available in the market last year, wasn’t accurate enough.

The agency said in a statement yesterday that refiners would not have to purchase 78-cent credits for the 8.65-million-gallon requirement, the paperwork for which was due today. EPA is planning to provide refunds to any refiners that complied with the 2012 requirement ahead of today’s deadline.

EPA did not respond to questions on the matter, but the agency is also likely to zero out the 2011 cellulosic biofuel requirement of 6.6 million gallons. Oil industry groups have challenged that number in court and also are likely to bring a lawsuit against EPA’s 2013 requirement.

The 2007 Energy Independence and Security Act, which revised the renewable fuel standard to its current levels, envisioned 1 billion gallons of production last year but gives EPA flexibility in setting the cellulosic target. Under the RFS, refiners are required to purchase waiver credits to make up the full cellulosic biofuel requirement.

The small production numbers up until now have given fodder to opponents of the renewable fuel standard, who label them “phantom fuels” and charge that EPA is making refiners pay for not using fuels that are essentially nonexistent in the market.

Lawmakers have picked up on the opposition; earlier this year, bills targeting “phantom fuels” were introduced in both the House and the Senate. The legislation would compel EPA to base its cellulosic number on actual production data from the previous year (E&ENews PM, Feb. 7)

“Mandating the production of cellulosic biofuel has netted millions for the federal government for a product that barely exists, but it has placed a heavy financial burden on energy producers who simply pass along that cost to consumers,” said Sen. Jeff Flake (R-Ariz.), one of the bill’s sponsors. “This regulation must be reformed to reflect reality.

But the cellulosic producers yesterday shot back against the criticism, touting what they said were big achievements in scaling up production

Brent Erickson, executive vice president in charge of the industrial and environmental section at BIO, said the growth of the industry has been remarkable, given that it was trying to compress what is essentially 100 years of expansion into a two-decade time frame

About five companies, including Poet and Abengoa, are expected to begin production this year at facilities; last year, INEOS Bio and KiOR Inc. finished construction on the first cellulosic plants in the country.

Opponents of the RFS are trying to “strangle the baby while it’s still in the cradle,” said Christopher Standlee, executive vice president at Abengoa.

Earlier this week, the Energy Information Administration estimated that the cellulosic biofuel industry would produce 5 million gallons by the end of the year. By 2015, the industry will have a capacity of around 250 million gallons, EIA said.

The agency noted, though, that “although cellulosic biofuels volumes are expected to grow significantly relative to current levels, they will likely remain well below the targets envisioned” in the 2007 statute.