EPA Weighs Quadrupling Phantom Fuel Mandate

A leaked draft of the Environmental Protection Agency’s (EPA) 2014 volume requirements under the Renewable Fuel Standard (RFS) reveal that the agency may decrease the total biofuel mandate but nearly quadruple the amount of cellulosic biofuel that refiners must blend into gasoline.

The draft proposal calls for decreasing the total amount of biofuel to 15.21 billion gallons in 2014, down from 16.55 billion gallons this year and slightly above the 15.2 billion gallons in 2012. It would also require 2.21 billion gallons of so-called “advanced” biofuel (ie. sugar cane ethanol), including 23 million gallons of cellulosic biofuel, a dramatic increase from the 20,000 gallons of cellulosic ethanol produced last year. That leaves an implied corn-ethanol mandate of 13 billion gallons, a reduction from 13.8 billion gallons in 2013.

EPA Administrator Gina McCarthy would neither confirm nor deny the accuracy of the leaked draft. If true, the proposal continues EPA’s tradition of issuing biofuel mandates with no basis in reality. As the following chart shows, EPA consistently overestimates cellulosic biofuel production, forcing refiners to purchase and blend fuels that essentially do not exist. Moreover, EPA forced refiners in 2011 to pay $6.8 million in penalties even though not a drop of cellulosic biofuel was produced for commercial purposes.

EPA’s unrealistic projections finally caught up with them. Earlier this year, the D.C. Circuit Court chastised EPA for failing to develop its cellulosic mandate in an objective, scientific manner. The Court described EPA’s actions as a case of “let[ting] its aspirations for a self-fulfilling prophecy divert it from a neutral methodology.”

Although EPA reduced the 2013 cellulosic volumes to 6 million gallons, the mandate still does not comport with reality. By EPA’s own admission, there have been just 129,731 cellulosic ethanol credits generated so far this year. This prompted the American Fuel & Petrochemical Manufacturers (AFPM) and the American Petroleum Institute (API) to file lawsuits challenging EPA’s unrealistic cellulosic mandate, as IER explains here.

Even after being reprimanded by the courts, it appears EPA is poised to once again mandate unrealistic cellulosic biofuel volumes. Under federal law, EPA must adjust required cellulosic volumes “based on” the Energy Information Administration’s (EIA) annual estimate of cellulosic biofuel production for the next year.

EIA, however, has not released their projected cellulosic volume for 2014. That means EPA’s leaked draft proposes almost quadrupling the cellulosic mandate next year apparently without considering EIA’s 2014 volume projection that the EPA’s cellulosic projection is supposed to be “based on.”

It is important to reiterate that the leaked draft does not represent an official proposal, which means EPA may change its mind. Nevertheless, as the D.C. Circuit ruled, EPA must to use a “neutral methodology” instead of “its aspirations.” Arguing that cellulosic biofuel producers would produce 23 million gallons in 2014, given the cellulosic producers’ track record, is unrealistic to say the least. It is clearly an example EPA’s aspirations for what they will produce instead of a real “projection of what will actually happen” as the court explained is required by law.

It is one thing for EPA to hope the cellulosic industry will produce more ethanol, but quite another to punish oil refiners and the rest of us at the pump for the failures of cellulosic producers.

IER Policy Associate Alex Fitzsimmons authored this post.