A federal appeals court on Friday struck down a U.S. Environmental Protection Agency (EPA) mandate requiring millions of gallons of cellulosic ethanol be blended into gasoline by petroleum refineries. The ruling is seen as a partial victory for the American Petroleum Institute (API), which challenged the mandate arguing that EPA was requiring refiners to use a fuel that was not commercially available or face fines. However, the ruling largely left intact the rest of the renewable fuel standard (RFS), which calls for slowly ratcheting up the volume of ethanol and "advanced biofuels" blended into U.S. transportation fuels.
RFS, originally launched in 2005 and expanded in 2007, has a goal of blending 36 billion gallons of renewable fuels into U.S. transportation fuels by 2022. The rule was seen as a way to reduce U.S. reliance on petroleum imports, as well as to reduce emissions of greenhouse gases. On the way toward reaching the RFS goal, EPA has been steadily upping its requirements for different fuels, including cellulosic ethanol, which is made from agricultural waste and other types of woody debris known as "lignocellulosic biomass." But because the cellulosic ethanol remains more expensive than ethanol made from corn or sugar, companies have been slow to build commercial-scale cellulosic ethanol plants needed to sell the advanced biofuel.
Between 2010 and 2012, EPA projected that cellulosic ethanol producers would generate a total of 20 million gallons of cellulosic ethanol. So they required refiners to blend those 20 million gallons into gasoline and diesel. But the projections proved inaccurate and ethanol producers made only negligible amounts of the cellulosic fuel. EPA gave refiners a way out, allowing them to buy credits to offset the cellulosic requirements. API cried foul and argued that this amounted to a tax on refiners.
The United States Court of Appeals for the District of Columbia Circuit agreed. It ruled that EPA can't require refiners to buy credits for fuel that is unavailable commercially. However, they largely left the other RFS rules intact, says Wally Tyner, an agricultural economist at Purdue University in West Lafayette, Indiana, who has reviewed the court's decision. Tyner notes that if large volumes of cellulosic ethanol do come on to the market, EPA will still be able to issue blending mandates. In addition, he says, the court left in place mandates for biodiesel and other "advanced biofuels."
In statements last week, both petroleum producers and biofuel makers welcomed parts of the court's decision. "We are glad the court has put a stop to EPA's pattern of setting impossible mandates for a biofuel that does not even exist," said Bob Greco, API's group downstream director. Meanwhile, a collection of five biofuels organizations hailed the court's decision to leave the RFS intact. "[T]oday's decision once again rejects broad-brushed attempts to effectively roll back the federal Renewable Fuel Standard," said the group, which includes the Biotechnology Industry Organization and the Renewable Fuels Association.
Tyner says the court's decision puts a renewed focus on a volatile landscape for the commercialization of cellulosic ethanol. Several companies have said they plan to open commercial-scale cellulosic ethanol plants in 2013 and 2014. If those plants do get built, they could lead to a drop in cellulosic ethanol prices and help manufacturers learn vital lessons for scaling up the industry. But if those plants falter, it could send an already troubled industry reeling.