ETHANOL:

Refiners protest EPA's 'ridiculous' cellulosic targets

Petroleum refiners are taking issue with a proposal released yesterday by U.S. EPA to increase the amount of cellulosic ethanol that they must blend into the nation's fuel supply next year.

The National Petrochemical & Refiners Association (NPRA) argues that a proposed rule setting fuel volume usage requirements, which is open for public comment before being finalized in November, requires its members to purchase a product that does not exist and charges them for not doing so.

The proposal fine-tunes blending mandates for 2012 called for by the federal renewable fuel standard, and EPA said yesterday it expects to require a total use of between 3.45 million and 12.9 million gallons of cellulosic biofuels next year. Officials said the final figure could come out to more or less than the 6.6 million gallons required in 2011.

Charles Drevna, president of NPRA, said given that EPA's own data show the ethanol industry has produced no qualifying fuel in the past year, the requirement for blenders to either use the fuel or pay EPA about $1 per gallon for a credit makes no sense.

"It's a tax. It's a surcharge. It's ridiculous," Drevna said.

Drevna said the refining industry will have spent more than $6 million this year to comply with the 2011 minimum volume requirements for cellulosic ethanol and will almost certainly have to purchase credits from EPA again next year.

Next-generation ethanol advocates say that small-scale commercial production of the fuel is just around the corner. When the EPA proposal was released yesterday, one advocate blamed the oil and gas industry for slow progress.

"America's advanced and cellulosic ethanol industry is rapidly progressing with many technologies proven and biorefinery projects shovel-ready. Yet, advanced biofuel producers continue to sail into a head wind created by tax policy favoring oil and gas," said Brooke Coleman, executive director of the Advanced Ethanol Council, in a statement.

But Drevna said boosters have touted the same six-to-12-month horizon to commercial production for years, but the fuel has yet to materialize.

"Why should anyone be forced to pay for something that they're mandated to use, but it doesn't exist?" he asked. "I just don't understand why EPA should be so off the economic, and off the physical, reality here."

Corn ethanol, advanced diesel problematic, too

Drevna said a proposed requirement to increase the use of corn ethanol from a minimum of 12.6 billion gallons in 2011 to at least 13.2 billion gallons in 2012 is also questionable.

Ethanol use is already close to the "blend wall" whereby the current approved usage of up to 10 percent ethanol in gasoline is maximized and refiners have trouble finding a market for additional volumes, he said.

The ethanol industry has said it is already facing the blend wall, citing fuel exports as evidence that the domestic marketplace is saturated at current blending limits. Drevna noted that ethanol demand next year will depend on whether the economic recovery picks up, bringing fuel demand up with it, but said increasing the requirement will only make it harder to meet.

Drevna also took issue with a proposal to increase the required use of biodiesel from 800 million gallons this year to 1 billion gallons next year.

The National Biodiesel Board has said it anticipates the industry will meet that target. But Drevna said biodiesel's price could be prohibitive, especially if a biodiesel tax credit set to expire at the end of the year is allowed to lapse.

"It's not a question of capacity; there's plenty of capacity out there because they overbuilt expecting all this to come to fruition," he said. "It's a question of economics. ... Will they make something that's actually marketable?"

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