Governors' Biofuels Coalition

ENLARGE

Large piles of dried distillers grains used in the production of ethanol are kept in a storage area at the Marysville Ethanol plant in Marysville, Mich., in this October picture. PHOTO: PORT HURON TIMES HERALD/ASSOCIATED PRESS

WASHINGTON—Companies that make alternative fuels, pressured by lower oil prices and regulatory uncertainty, are launching a push for legislation to make it more likely fledgling segments of the biofuels industry can survive.

Biofuels, mostly corn-based ethanol, have been blended into the nation’s gasoline supply since Congress passed a law a decade ago promoting increased use of alternative fuels. The government in recent years has pushed for a more diverse offering of alternative fuels, such as products made from municipal solid waste, plant material and biogas that comes from, among other places, landfills. But it has struggled with how to craft regulations and mandates so they have the intended effect.

The Advanced Biofuels Association, a Washington-based trade group representing about 30 companies developing biofuels from non-corn products, on Wednesday will begin a campaign asking Congress to revamp renewable-fuel-standard policies. The move could trigger disagreement in a biofuels industry dominated by ethanol producers, and represents the latest salvo in an escalating lobbying fight entangling oil refineries, corn farmers and food producers.

“It’s pretty clear uncertainty reigns and it is time to seek legislative relief to strengthen the program for advanced companies,” Michael McAdams, the group’s president, said in an interview. Mr. McAdams said Environmental Protection Agency delays in updating alternative fuels rules and lower oil prices are making it harder for companies to raise funding capital from banks.

The legislative changes Mr. McAdams seeks are relatively minor. They include removing what he describes as a “loophole” that allows refineries to get a waiver from purchasing advanced biofuels and calling for more certainty in the law that blending mandates will continue.

The move is significant because the biofuels industry has been united in opposing legislative changes to fuel mandates, fearing opponents who would like to end the requirements. Oil refineries say they can’t comply with increased blending requirements, the food and livestock industries are worried about higher corn prices and auto makers are concerned more biofuels in gasoline could damage engines.

The EPA enforces the blending standard and is supposed to set biofuels levels annually. It is almost two years behind issuing the requirements for 2014 and almost six months late with the 2015 requirements, in part because refineries have resisted fuel blending requirements higher than the current 10% level. EPA is planning to issue the levels for 2014-2016 in the spring.

Some alternative fuel producers think the move is risky. “I think if you open up the RFS, the whole thing is in jeopardy,” said Tom Buis, CEO of Growth Energy, referring to the fuel standards. Growth Energy is a trade group representing companies that primarily produce corn-based ethanol. “I think it’s short-sighted,” he added.

First established in a 2005 law and expanded in 2007, the standards require refineries to blend an increasingly large amount of biofuels into gasoline to reach 36 billion gallons of renewable fuels by 2022. No more than 15 billion gallons can come from corn, which today is within one billion gallons of that limit.

The additional 21 billion gallons is supposed to come from advanced biofuels. That sector is falling far short of what Congress had envisioned. In 2014, the industry produced fewer than 180 million gallons, compared with the 3.75 billion gallons the 2007 law had initially required.

The standard was created as a way to help reduce carbon emissions and wean the nation off foreign oil when the U.S. was importing two-thirds of its oil. Today, given the domestic oil boom and higher fuel-economy standards, the country imports about a third of its oil and is consuming less gasoline than the 2005 and 2007 laws envisioned.

It isn’t clear Congress currently has the political appetite to act on legislation touching the fuels mandate, given the fight that could ensue, but at least one influential lawmaker is interested in addressing the matter.

“I’ve long said that this law is broken and needs to be fixed, but stakeholders must be willing to come to the table and work with us,” said House Energy and Commerce Chairman Fred Upton (R., Mich.), whose committee held hearings on the issue in the prior Congress. “The fact that we still don’t know what the targets were for 2014, let alone for 2015, underscores the flaws in the system.”