Puzzling over the US mandate for a fuel that doesn’t exist yet

Someone sitting through oral arguments this morning at the DC Circuit without any knowledge of biofuels might come away asking: “So, you’re telling me the Environmental Protection Agency requires refiners to blend a certain type of fuel into gasoline, but that fuel doesn’t exist? And the only time someone made that fuel in the US, they exported it to Brazil?”

Yep and yep.

Senior Judge Stephen Williams seemed particularly perplexed by the second detail, which came out during an aside by the American Petroleum Institute’s lawyer.

At issue in the hearing was the Environmental Protection Agency’s annual requirement for refiners to blend a certain amount of cellulosic-based biofuel into gasoline supplies under the Renewable Fuel Standard. The 2007 policy mandates the blending of other fuels like corn-based ethanol and biodiesel.

But cellulosic fuel holds the special distinction of not existing, at least not in the US at commercial volumes yet.

API, the big oil lobby in Washington, sued EPA over its 2012 cellulosic target requiring refiners to blend 8.65 million gallons. During today’s hearing, API argued that the agency sets unrealistic targets year after year because it takes facility developers at their word without accounting for expected setbacks and delays.

Robert Long, API’s lawyer, mentioned in passing that the US biofuels industry has made only 20,000 gallons of the stuff. And because it was exported to Brazil for a conference, he said, it couldn’t count toward refiners’ blending mandate.

“You said it was exported for a conference,” Judge Williams stopped him. “That seems astonishing.”

Were they examining samples of it? How could that possibly make commercial sense?

Long didn’t have any other details at hand, and the clock was ticking on his 10-minute argument. So he got on with the real issues of the case.

A few biofuel wonks sitting on the courtroom’s wooden benches could have filled the judge in.

The batch of fuel was made from sugarcane waste by Blue Sugars Corp.’s demonstration plant in Wyoming. The company earned the first and so-far only renewable identification numbers (RINs) for cellulosic fuel.

EPA issued 20,069 credits to Blue Sugars in June for 80,000 liters of fuel made in 2011 at the company’s Western Biomass Energy pilot plant. The company sold the entire batch to partner Petrobras America.

Petrobras exported the cellulosic ethanol to Brazil, where it filled the tanks of minivans shuttling diplomats between hotels and the RIO+20 United Nations sustainability conference in June.

Blue Sugars President Peter Gross told me in an interview at the time that the leftover fuel was sold at service stations in Rio de Janeiro.  Gross said the plant would likely produce a similar volume this year, which an undisclosed partner would sell in the US for gasoline blending.

“It’s a commercially, absolutely, irrelevant volume,” he said. “It’s basically going to be, rather, a marketing project. It’s going to end up effectively fueling cars like we did in Brazil, but it’s not really a commercial transaction.”

However, Gross said the venture shows the market: “Here it is, somebody can produce it, it works, it’s spec fuel. In that sense, it’s important.”

The pilot plant in Upton, Wyoming, creates biofuel out of bagasse, the fibrous leftovers that pile up at sugar mills after they crush cane to extract the juice. The capacity represents about one-tenth the size of a commercial unit and it is one of very few demonstration plants in the world, Gross said. Blue Sugars, formerly KL Energy, first tried Ponderosa pinewood as a feedstock, and then shifted to sugarcane bagasse when it partnered with Petrobras in 2010. Petrobras retired the EPA credits, Gross said, meaning they got no commercial value out of them and reported them for compliance as required of exporters.

No market exists for cellulosic RINs until producers start selling them. Gross said Blue Sugars might sell credits from future batches that stay in the US.

“Don’t ask me the value,” he said at the time. “I have no idea.”

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