The EPA’s Alt-Fuels Tax

• March 13, 2012 4:14 pm


An oil and gas trade group filed a lawsuit Monday challenging the Environmental Protection Agency’s renewable fuel regulations, saying the rules are unachievable and amount to a stealth tax on the industry.

The American Petroleum Institute has requested that the D.C. Circuit Court review the EPA’s rules for cellulosic biofuel, a renewable fuel source made out of plant material such as switch grass and woodchips.

In a statement, API Director of Downstream and Industry Operations Bob Greco said the EPA’s mandate was "divorced from reality" and "forces refiners to purchase credits for cellulosic fuels that do not exist."

The EPA’s renewable fuel standards were first passed in 2007 and require refiners to blend certain amounts of renewable fuel annually, including cellulosic biofuel. In 2010 the mandate for cellulosic fuel was 100 million gallons, rising to 250 million in 2011 and 500 million in 2012.

However, there is no commercially available cellulosic fuel available in the United States. Rather than waive the mandate, which it has the power to do, the EPA lowered the target to 6.6 million gallons for 2011 and 8.65 million gallons for this year.

Refiners must buy a 78-cent waiver credit for every gallon under the target, amounting to approximately $6.8 million in penalties paid to the Treasury. And that’s not counting the other costs of the mandate.

"We have a team of dozens of people—approaching 100—trying to understand how we will comply with these regulations," said one oil industry executive. "The internal hidden costs of the regulation are staggering and far exceed the tax costs."

The American Petroleum Institute requested the EPA waive the cellulosic mandate for the last two years, but it denied the request both times. The EPA has argued setting quotas keeps demand from slipping.

Several cellulosic biofuel plants are expected to be operational by 2012 and 2013. EPA spokeswoman Cathy Milbourn told the New York Times the agency believes the 2012 quota will be "reasonably attainable."

However, the long-term success of the program remains in question. A congressionally requested report from the National Research Council concluded the U.S. is unlikely to reach cellulosic ethanol production mandates by 2022 unless "innovative technologies are developed or policies change."

It also noted that reductions in greenhouse gas emissions because of the mandates were uncertain.

The case is American Petroleum Institute v. U.S. Environmental Protection Agency, 12-1139, U.S. Circuit Court for the District of Columbia Circuit.

In an email, the EPA said it "will review and respond to the suit appropriately."