Reuters: COLUMN-U.S. agency overestimates output of advanced biofuels

April 11, 2013

Gerard Wynn, April 9- The U.S. Environmental Protection Agency has consistently over-estimated the prospects for production of advanced biofuels from non-food crops, adding to the impression of a biofuel policy that is out of step with reality.

The U.S. renewable fuel standard requires fuel producers to blend a certain portion of biofuels with gasoline; the standard originated under the Clean Air Act and was expanded under the Energy Independence and Security Act (EISA) of 2007.

The law divides biofuels into advanced and non-advanced, the latter comprising mass-produced U.S. corn ethanol.

Refiners have the choice either to blend the mandated quantity of each type of biofuel, or else buy compliance credits called Renewable Identification Numbers (RINs) which biofuel producers earn per gallon of manufactured fuel.

The trouble with cellulosic biofuel, made from woody fibre and classed as advanced biofuel, is that production is still in a test phase with negligible commercial sales.

EPA can downgrade the cellulosic biofuel target where output is expected to fall short, but it has still, perplexingly, consistently over-estimated volumes.

It seems plausible that EPA wants to provide an extra support for cellulosic ethanol producers by driving demand for cellulosic biofuel RINs from refiners.

The over-estimate only inflicts a small penalty on the U.S. refining industry (less than $5 million in 2011), but more importantly it adds to the impression of a policy lagging reality, where the separate corn ethanol mandate is on the cusp of exceeding distribution capacity at filling stations.

That so-called blend wall has been blamed for driving up gasoline prices.