IER: Cellulosic Biofuels: Basically Still Nonexistent But Must Be Purchased Anyway

January 14, 2013

Jan. 11, 2013- The U.S. Environmental Protection Agency (EPA) is dictating that refiners must purchase a certain amount of cellulosic biofuels or pay penalties. EPA grossly over-forecast the amount of cellulosic ethanol for the past three years and will almost certainly ignore its past mistakes and once against require millions of gallons of non-existent fuel again this year.  They have taken this position despite a National Research Council study that said oil prices would have to reach $191 per barrel in order for biofuels to be competitive with petroleum.

The problem is that EPA cannot forecast the amount of cellulosic ethanol correctly—or even closely. Further, EPA is likely to order an increased amount be purchased regardless of past failures – King Canute-like — in the hope that their mandated levels will mysteriously appear in the U.S. market

Lest anyone only blame EPA for gross forecasting incompetence, a Democratic Congress led by Speaker Nancy Pelosi and Senate Majority Leader Harry Reid joined forces with Republican President George W. Bush to give EPA the authority to do this in the Energy Independence and Security Act of 2007 that mandated specific levels of biofuels be produced, both from corn and from cellulosic materials such as corn husks and other crop waste, wood chips, switch grass, poplar, and other energy crops.

Through the first 10 months of 2012, EPA reports that 20,069 gallons of cellulosic ethanol were produced[i]. The problem, however, is that EPA forecast 431 times that amount (8.65 million gallons) would be produced. Further, all of the 20,069 gallons was exported.[ii] While EPA has not yet released its 2013 mandated level, the Energy Information Administration (EIA) has provided its input to EPA, suggesting that 9.6 million gallons will be produced in 2013. EIA provides its forecast to EPA each October, as required, and it has always been a lower amount than EPA’s mandate. However, neither agency has yet been able to predict the amount correctly. In fact, the closest EPA has even come to correctly forecasting the amount of cellulosic ethanol produced was in 2010 when zero cellulosic ethanol was produced and EPA estimated that 5 million gallons would be produced.