EPA mandate will face legal challenges, industry group warns

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, April 23, 2014

EPA has proposed requiring refiners to use 2.21 billion ethanol-equivalent gallons of advanced biofuels this year in a rule that is scheduled to be finalized in June.The number is below last year’s actual production of 3.23 billion gallons and flies in the face of a court ruling last year that found EPA could not use the annual target-setting exercise to unduly influence the market, Advanced Biofuels Association President Michael McAdams told a crowd of industry supporters yesterday.

“You’re suable if you put any number below 3.23 billion in because the courts have specifically said to you, you can’t put your thumb on the scale to push this industry,” McAdams said. “Well, you can’t put your thumb on our head and push us down, either.”

The U.S. Court of Appeals for the District of Columbia Circuit last year found that EPA’s methodology in calculating how much cellulosic biofuel could be produced in 2012 was not accurate enough. The agency displayed a “special tilt” toward promoting the growth of the industry that was not consistent with statute, the ruling found (Greenwire, Jan. 25, 2013).

EPA’s proposal last November would represent the first rollback of both the conventional ethanol and advanced biofuel mandates written into law by the 2007 Energy Security and Independence Act. The 2007 renewable fuel standard included yearly targets for biofuels but gave EPA some leeway in reducing the targets on an annual basis (E&ENews PM, Nov. 15, 2013).

The proposal to scale back the target for advanced biofuels to a level below last year’s actual production — which was made up of a combination of biodiesel, imported sugar-cane ethanol and other advanced fuels — has stymied investment in new projects and companies, according to industry representatives. They have launched a massive advocacy effort to persuade EPA to raise the target in its final rule.

“We had significant challenges in the logic behind a rule proposed [that] essentially damages investor confidence in our ability to product technologies, to raise capital, and it certainly would deliver a material blow on the advanced side in particular if this rulemaking were to proceed forward,” said Tim Zenk, vice president of corporate affairs at Sapphire Energy Inc., which operates a large-scale algae farm in New Mexico.

In a speech yesterday at the Advanced Biofuels Leadership Conference in National Harbor, Md., McAdams told supporters that he recently met with the White House and EPA to press the case for setting a target of at least 3.23 billion ethanol-equivalent gallons.

“I said to them, if you want to follow the mandate of the 2012 court decision, then your number for advanced biofuels under that decision should be 3.23 billion gallons,” he said. “Why? Because that’s what we as an industry made last year. That’s not fiction. That’s not fairy dust.”

The statute that created the RFS, in comparison, called for 3.75 billion ethanol-equivalent gallons of advanced biofuels in 2014.

EPA Administrator Gina McCarthy has acknowledged in multiple public appearances that the agency may have gotten the targets for both conventional ethanol and advanced biofuel wrong. Last month, Agriculture Secretary Tom Vilsack told reporters he was urging McCarthy to raise the targets to reflect a greater projected consumption of fuel this year.

EPA has maintained that it wants to put the renewable fuel standard on a “manageable trajectory.” But whether the agency follows through with higher targets likely won’t become known until the final rule is released in late spring or early summer.

Brooke Coleman, executive director of the Advanced Ethanol Council, yesterday said he was confident that the industry’s efforts would pay off and the numbers would rise.

The proposal is “turning growth markets into shrink markets. Investors don’t flock to shrink markets. I think the White House and EPA have gotten that point. I think they’re ready to increase the numbers,” Coleman said.

Others were more cautious: “It remains to be seen whether or not the administration is … really thinking through the long-term effects of these policies,” Zenk said.

McAdams delivered a more bleak prognosis.

“I was told no one will like this rule,” he said of his recent meetings with the White House and EPA.

He also charged that EPA’s delays in approving new fuel technologies — which it must do based on life-cycle analyses of greenhouse gas emissions before the fuels are allow to qualify under the renewable fuel standard — were holding up new fuels from entering the market that could be used to boost the volume targets.

Risk to federal investments?

EPA has typically taken years to approve new pathways, and last month, it announced a six-month delay in most applications in order to revamp its approval system to make it more timely (Greenwire, March 19).

The actions by EPA risk undermining the federal government’s $1 billion investment in advanced biofuels over recent years and stands to put $14.7 billion in private investment in jeopardy, McAdams said. Some companies have gone out of business already waiting for EPA to finish pathway reviews, according to the Advanced Biofuels Association, which represents about 35 advanced biofuels companies.

“They’re creating new problems all under the context of trying to save the RFS,” McAdams said, adding that his group would focus its efforts on maintaining support in Congress, where RFS legislation could gain traction next year if the Senate switches from Democratic to Republican control.

Harry Baumes, director of the Agriculture Department’s Office of Energy Policy and New Uses, maintained that his department is still focused on building up next-generation fuels, especially drop-in fuels that can be added into the fuel system without modifying existing infrastructure. His office collaborates with EPA on the fuel reviews.

“My apologies that it’s taking so long,” he said. “Part of these requirements are these life-cycle analyses. Some things you just can’t turn a switch on.”

Despite challenges, some in the industry say they remain confident.

“Reports of our demise have truly been greatly exaggerated,” Jonathan Wolfson, CEO of California-based algae technology company Solazyme Inc., said this morning. “Right at the time when we’re starting to see the first commercial traction, there are people out there talking about the end. This is not the end.”