EPA Should Deny Petition to Waive Renewable Fuel Standard Obligations

The Honorable Lisa P. Jackson
Administrator
Environmental Protection Agency
Ariel Rios Building
1200 Pennsylvania Avenue, N.W.
Washington, DC 20460
Dear Administrator Jackson,

On behalf of our advanced and cellulosic biofuel member companies, we are writing to urge you to deny the joint petition filed by the National Petrochemical & Refiners Association, American Petroleum Institute and Western States Petroleum Association (the petitioners) requesting that the Environmental Protection Agency (EPA) waive the 2011 cellulosic biofuel Renewable Volume Obligation (RVO) under the federal Renewable Fuel Standard (the joint petition).

The Biotechnology Industry Organization (BIO) is the world’s largest biotechnology organization, with more than 1,100 member companies worldwide. BIO’s Industrial and Environmental Section represents over 85 leading companies in the production of conventional, advanced and cellulosic biofuels and other sustainable solutions to energy and climate change. BIO also represents the leaders in developing new crop technologies for food, feed, fiber, and fuel.

The federal Renewable Fuel Standard (RFS) established in the Energy Policy Act of 2005, and enhanced in the Energy Independence and Security Act of 2007 (EISA), was designed to promote the development, commercialization and use of alternative fuels, including especially advanced and cellulosic biofuels. A bipartisan majority in Congress and the then Republican President of the United States, President George Bush, recognized the potential of these nascent industries to increase U.S. energy independence and security by reducing our dependence on foreign sources of oil, and wrote EISA in a way that would maximize further development and commercialization of advanced and cellulosic biofuels in this country. In a speech he gave at the U.S. Department of Energy when he signed EISA into law, President Bush stated: “the bill I sign today takes a significant step because it will require fuel producers to use at least 36 billion gallons of biofuel in 2022…It will help us diversify our energy supplies and reduce our dependence on oil. It’s an important part of this legislation and I thank the Members of Congress for [their] wisdom.”

In fact, as it was designed, the RFS and EPA’s consistent implementation of the law is the fundamental policy driver for the continued development of U.S. biofuels, particularly advanced and cellulosic biofuels. It provides industry and investors with the confidence of knowing that if they can produce advanced and cellulosic biofuels, the RFS will ensure market access for those types of fuels. The technology for cellulosic biofuels is ready, but commercialization has been slowed by the economic downturn and the accompanying lack of financing. Stability of policy, therefore, is crucial for the industry’s pathway to commercialization.

The RFS law passed by Congress anticipated the uncertainty in the commercialization timeline of cellulosic biofuels and accordingly set up an appropriate waiver system in the event an economic downturn or some other factor delayed development. The cellulosic waiver credit (CWC) provides obligated parties extraordinary flexibility to comply with their annual cellulosic biofuel volume obligations. As mandated under the RFS statute, the EPA announces by each November 30 the waived cellulosic volume obligations based on the maximum projected cellulosic volumes and the CWC price for the following compliance year, both of which in turn provide market certainty.

As explained in detail below, it would significantly undermine this intended and necessary market certainty and potentially strand investments in the industry if EPA granted the joint petition. This is especially true since EPA announced in November of 2010 the 2011 required cellulosic biofuel volume obligations, and obligated parties have had several calculable ways to meet those obligations. Also, granting the joint petition would create a dangerous precedent that would threaten the policy and market stability (1) established by the announcement each November by the EPA of the following year’s cellulosic RVOs based on maximum achievable production volumes and, (2) depended upon by the cellulosic industry as it works towards broad commercialization to meet the goals of the RFS.

In the joint petition, the petitioners assert that obligated parties should not have required cellulosic RVO for 2011 "due to an inadequate supply of such fuel." Cellulosic biofuels exist at the R&D level and are expected to be available in commercial quantities with associated Renewable Identification Number (RIN) values (D code 3) in 2012. Further, volumes of cellulosic biomass ethanol and associated RINs (D code 1) generated in the first six months of 2010 exist and can be used to satisfy up to 20 percent of the cellulosic RVO for 2011.

The petitioners have asserted in public statements that they are being told by EPA to pay $6.78 million because cellulosic gallons and associated RINs (D code 3) do not exist. For compliance year 2011, obligated parties have many opportunities available to them to meet their individual cellulosic volume obligations and should be expected to choose the lowest cost option for their individual business. In fact, obligated parties have three distinct compliance options. They can: (1) retire or purchase remaining RFS1 C-RINs (D code 1) to meet up to 20 percent of their obligation; (2) purchase a CWC and retire an advanced RIN (D code 4,5,7); or, (3) defer their obligation for one year. According to OPIS, 2010 vintage D1 RINS have held a steady price between $0.60 and $0.70 from March 2011 through February 2012, indicating a relatively steady supply and demand. Since this is a lower cost option than waiver credits for the first 20 percent of the RVO, it is not likely that all obligated parties will choose to purchase waiver credits to satisfy the entire 6.6 million gallon cellulosic RVO as the petitioners have calculated. Deferral of the obligation may also be calculated as a lower cost option by many of the individual obligated parties. Given the variety of compliance options, there is no reason to grant the joint petition for erasing the 2011 cellulosic RVO.

Because obligated parties have the option of deferring their RVO to the following year, and because RINs have a lifespan of two years, granting a complete dismissal of the 2011 RVO could undercut the market for cellulosic biofuels in 2012 and 2013 and strand investments. The petitioners’ request appears calculated to cause uncertainty in the market for cellulosic producers attempting to reach commercial status.

The additional compliance mechanism afforded to obligated parties in the transition from RFS1 to RFS2 has already created uncertainty and has delayed commercialization efforts for at least one cellulosic biofuel producer. In the 2012 Standards for Renewable Fuel Standard Program (RFS2): Final Rulemaking, EPA notes that "Fiberight had planned to begin production of cellulosic biofuel from this facility in late 2010 but poor economic conditions, due in part to low cellulosic RIN values in 2010, caused them to postpone fuel production." Further uncertainty in the application of the rules could result in further delays of cellulosic biofuel producers’ commercialization efforts.

As explained above, the stability of the RFS policy and its implementation has been and remains crucial for the cellulosic industry’s pathway to commercialization. The EPA should deny the joint petition to maintain this essential stable market signal driving investment in commercialization of cellulosic biofuels, as intended under the RFS.

Thank you for considering this important request.

Sincerely,
James C. Greenwood
President & CEO
Biotechnology Industry Organization