Renewable Fuel Makers Say EPA Waivers Siphon Away Their Buyers

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.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE