EPA draft proposal hurts investment, advanced producers warn

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, October 30, 2013

A draft proposal that indicates U.S. EPA is considering significantly scaling back next year’s renewable fuel targets is already dampening investors’ moods toward advanced biofuels, according to producers.

The proposal to cut both conventional ethanol and advanced biofuel levels next year has signaled to investors that the Obama administration is not going to let the renewable fuel standard work as intended, said Brooke Coleman, executive director of the Advanced Ethanol Council.

More than 30 advanced biofuel companies, led by the council and the Biotechnology Industry Organization, today urged the administration to reconsider the draft.

“Any perceived unwillingness on the part of RFS administrators to allow the program to work would send a clear signal to the advanced biofuel marketplace that the RFS may not be allowed to change market behavior as promised,” they wrote to Obama. “This mere possibility increases investment risk, which in turn drives capital away from the U.S. market and decreased the effective deployment of advanced biofuels.”

The 2007 renewable fuel standard mandates increasing levels of biofuel consumption each year, but EPA is considering using its authority under the standard’s waiver provisions to roll back the overall renewable fuel target next year from 18.15 billion gallons to 15.21 billion, according to the draft that was circulated earlier this month.

Of that total, EPA would require refiners to blend 13 billion gallons of conventional ethanol and 2.21 billion gallons of advanced biofuels into petroleum-based fuels, according to the draft. The 2007 Energy Independence and Security Act, on the other hand, calls for 14.4 billion gallons of ethanol and 3.75 billion gallons of advanced biofuels to be used next year

EPA’s proposed rule is still at the White House Office of Management and Budget for review. But Coleman said the leaked draft has already signaled to investors that EPA is not willing to let the renewable fuel standard’s credit-trading system, which refiners can use to comply with their obligations, play out.

“The proposal in and of itself is a market signal. I think people who work in policymaking often sort of tend to forget how important their proposed decisions are from a market perspective,” Coleman said. “That leaked document has already changed conversations in our space at the investment level.”

The EPA proposal is similar to one submitted to the agency by the American Petroleum Institute and American Fuel & Petrochemical Manufacturers, though it does not cut as deeply into the targets as the oil industry groups had proposed.

The oil industry argues that high ethanol credit prices this year signal that refiners are hitting the 10 percent limit that is the technically feasible amount of ethanol that can be blended into petroleum-based fuel, and they’ve warned that high costs could force them to raise gas prices.

The biofuels industry, on the other hand, argues that high prices throughout most of this year signal the standard is working, and, instead of rolling back requirements, EPA should require refiners to invest in infrastructure that can handle higher blends of ethanol.

With the draft, “the signal that they’re sending to the oil companies is the less you do to comply with the RFS, the less RFS will be,” Coleman said.

“There seems to be this perception of the highest levels of OMB that doing this, scaling the program back to this degree, is only bad for conventional biofuels,” he added.

In their letter today, the advanced biofuel companies said they expected to meet this year’s advanced requirement of 1.75 billion gallons and that the RFS must maintain pressure on the marketplace in order to work.

Spurred by the incentives tied to the RFS, U.S. companies have spent $14.72 billion over the last six years to develop advanced technologies to make biofuels from feedstocks other than corn, the Advanced Biofuels Association said this summer. Companies are looking at products as varied as cellulosic ethanol, algae-derived oil and biobutanol, and renewable diesel.

Many of the nation’s more than 200 conventional ethanol companies are business partners or potential business partners of the advanced industry.

“In essence, the oil industry wants EPA/OMB to make administrative adjustments to the RFS that will greatly reduce or eliminate the drivers that facilitate more biofuel blending over time,” the companies said, “which will ultimately lead to price competition between the two industries at the fuel pump.”

Advanced biofuel producers met with the Office of Management and Budget last Wednesday to press their case, according to OMB meeting records. Producers were not too hopeful after the meeting.

“The entire meeting left us frustrated,” said Paul Winters, a spokesman for BIO.