Renewable Fuel Makers Say EPA Waivers Siphon Away Their Buyers

(Bloomberg) — Companies that make fuel from corn stalks or
landfill gas say a federal program designed to help them has a
loophole that is discouraging buyers.

The fuels aren’t selling this year, producers say, as
refiners wait for the Obama administration to issue delayed
Renewable Fuel Standard mandates. The administration is poised
to set levels as soon as Friday for the amount of renewables
that must be added to gasoline this year and next.

In addition, producers have been pushing the Environmental
Protection Agency to close a loophole in the program when it
sets the new levels. The provision, which has set off a new
skirmish over the controversial program, lets refiners buy
waivers instead of the low-carbon fuel.

“What we’re finding is that the obligated parties aren’t
interested in buying our cellulosic ethanol,” said Delayne
Johnson, chief executive of of Quad County Corn Processors, a
farmer-owned corn-ethanol plant in Galva, Iowa, that added a
cellulosic plant last year. “They can substitute with the
waiver credit.”

Making fuel from switchgrass, corn stover, algae or waste
wood has been a goal of Congress and federal officials since the
Renewable Fuel Standard passed in 2007. That law requires a
steady rise in production and sale of the alternative fuels,
until cellulosic versions reach 21 billion gallons by 2022.

Production is falling short of the annual targets. Each
year the EPA has needed to waive almost all the requirements,
citing a lack of commercial volumes.

EPA Action

Liz Purchia, a spokeswoman for EPA, declined to comment.
The EPA has said it will issue by June 1 the RFS levels
retroactive for 2014, and set totals for 2015 and 2016.

The fuels at issue are separate from corn ethanol,
Brazilian sugarcane ethanol or biodiesel made from soybeans,
which dominate the U.S. market.

In Iowa, Quad County is holding more than $800,000 of
cellulosic credits tied to the more than 1 million gallons it
has made, in the hope refiners will eventually need them and buy
them. They won’t get a buyer unless the EPA clears up the issue,
he said.

“It’s not like it’s pocket change, or anything,” said
Johnson, who along with industry lobbyists met with EPA
officials to discuss the issue last week.

Refiners obligated to use renewable fuels, or buy credits
equal to their targets, say the shortfall in production
underscores the need for waivers.

‘Doesn’t Exist’

“The biggest problem with cellulosic ethanol is that it
doesn’t exist,” said Brendan Williams, executive vice president
of the American Fuel & Petrochemical Manufacturers association,
which represents companies including Exxon Mobil Corp. and
Chevron Corp. “That’s why the waiver is a critical consumer
protection.”

After the EPA cleared the way for fuel made from landfill
biogas to qualify under the program, production of the low-carbon fuels is starting to take off. Companies such as Abengoa
SA
, Royal DSM NV and Poet LLC have started or plan to start
operations this year.

The waivers were added in 2007 to cap the price producers
could charge. They now are threatening sales of the fuel and
scaring off investors, advocates say.

Separate lobbying groups for those producers have opposite
approaches on a solution. The Advanced Ethanol Council, which
represents Quad County, said the EPA has the authority to limit
the use of the waivers and opposes any efforts by Congress to
rejigger the program.

“You don’t go after a administrative problem with a
legislative solution, especially with a hostile Congress,” said
Brooke Coleman, that group’s executive director.

The Advanced Biofuels Association argues that Congress
needs to rewrite the entire program, and this is one of the
flaws that needs fixing.

“They only way this program will work is if they have to
buy these gallons,” said Michael McAdams, president of the
group. “I want to make absolutely certain these guys are
absolutely required to buy these gallons.”

To contact the reporter on this story:
Mark Drajem in Washington at
mdrajem@bloomberg.net

To contact the editors responsible for this story:
Jon Morgan at
jmorgan97@bloomberg.net
Steve Geimann

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