The US Environmental Protection Agency faces a dilemma with a final rule it is expected to issue soon on renewable fuel standards (RFS). If it proceeds with policy in place, it essentially imposes a fuel tax. If it adjusts policy, it implicitly condemns a calamitous approach to energy taken by the administration of which it is part.
The rule covers volumes of renewable fuels to be sold next year under mandates set by the Energy Independence and Security Act of 2007 (EISA). In June the agency proposed that the 15.2 billion gal RFS total include 3.45-12.9 million gal of cellulosic biofuel—which would be ethanol—and 1 billion gal of diesel from biomass.
Doubtful supply
Strong reasons exist to doubt the materials will be available in required amounts. According to the Energy Information Administration, US production of biodiesel in the first 6 months this year totaled 298 million gal. Output was recovering from a slump during which biodiesel producers had to go without essential tax incentives, which have been reinstated retroactively with effect through the end of 2011. But annual US biodiesel production so far hasn't exceeded the 678 million bbl total of 2008. With investor confidence in tax support now shaken, capacity expansion required by the 2012 target might not occur.
Larger questions surround cellulosic biofuel, for which official hopes run higher. EISA mandates for the material began last year at 100,000 million gal and rise to 16 billion gal in 2022. The biodiesel peak, by contrast, was supposed to be next year's 1 billion gal; amounts above that, if any materialize, can apply to requirements for unspecified "advanced biofuel."
At present, supply of cellulosic ethanol is negligible. To have met last year's standard would have required maximum output all year by five plants with the capacity threshold that officially defines commercial scale. No such plant is operating. The first commercial-scale cellulosic ethanol plant in the US, a 20 million gal/year facility built by Range Fuels in Soperton, Ga., shut down in January shortly after start-up.
No gush of the mandated substance will occur next year. Among cellulosic ethanol projects in a Department of Energy program supporting biomass-energy projects, only one, by a joint venture of INEOS Bio and New Planet Energy Florida near Vero Beach, Fla., reports a 2012 start-up date. With a capacity of 8 million gal/year, it's not commercial scale. Elsewhere, construction has begun to varying degrees at a 25 million gal/year plant by Abengoa Bioenergy near Hugoton, Kan.; a facility of like size by POET Project Liberty at Emmetsburg, Iowa; and a 19 million gal/year plant by BlueFire Renewables at Fulton, Miss. Only one of those ventures, POET, projects a start-up date: 2013. Site preparation, according to a September press release announcing a $105 million DOE loan guarantee, began "this fall."
Last year, EPA set RFS volumes below EISA mandates because of the difference between congressional wish and obvious reality. It should do so again this year. But its proposals for cellulosic biofuel and biodiesel, especially the former, are still too high. It should require no cellulosic biofuel in 2012 and no more biodiesel than was produced in peak-year 2008. And it should trim the total RFS accordingly.
Paying for mistakes
If EPA doesn't do so, refiners, importers, and blenders of gasoline will have to buy allowances to meet a cellulosic-ethanol requirement in a market offering too little or no cellulosic ethanol. The bill this year—essentially a fuel tax—could reach $6.78 million. It could be higher next year if EPA doesn't accommodate RFS volumes to big supply questions.
The adjustment would acknowledge that lawmakers and regulators create problems when they dictate fuel choices—a concession at odds with the administration's supremely dictatorial energy program. But EPA's alternative, a new element of fuel cost, would be even less welcome in the practical realms where people, many of whom vote, pay for their government's mistakes.
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