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Cellulosic Refiners Hamstrung by Chaos in RFS-Credit Market

Submitted by on May 12, 2015 – 4:56 pmNo Comment

Amanda Peterka  (E&E Publishing)  … Refiners aren’t buying cellulosic fuel credits through the renewable fuel standard program for what the company produces. And so Quad County has received as much as $600,000 less than expected for its wares — a shortfall that’s hurt the company’s bottom line and affected its negotiations with other ethanol companies over licensing the technology.

“We can’t tell people who license the technology if this is worth zero or this is really worth the proper value,” CEO Delayne Johnson said Friday.

The difficulty of selling high-value credits under the renewable fuel standard (RFS) program is emerging as a key issue for the nation’s first producers of cellulosic biofuels, or fuels made of non-food crops.

Cellulosic RINs represent gallons of ethanol that have smaller emissions of heat-trapping greenhouse gases than conventional corn ethanol.

“For existing ethanol dry grain facilities, this is a natural progression,” Johnson said in an interview early this year. “It’s getting more out of the same feedstock that they already have. It makes the operation more efficient. I feel that this technology is easy to adopt relative to starting out with a whole new feedstock.”

Instead of selling cellulosic RINs to refiners, the company has instead been forced to detach the credits from the fuel and sell the cellulosic ethanol along with corn ethanol RINs of lower value. That has meant less money in Quad County’s pocket.

“We need to be able to sell [cellulosic biofuel RINs] for the value that was intended under the market of the renewable fuel standard to continue to incentivize plants like us to be innovative,” Johnson said, “and come up with ways to process cellulosic ethanol and make fuel streams for consumers that are renewable and lower greenhouse gases and so forth — and that really was the intent of the renewable fuel standard to start with.”

The problem, according to Johnson and other advanced-biofuel producers, is how U.S. EPA has issued what are known as cellulosic waiver credits that allow refiners to forgo actually using physical gallons of fuel to meet the RFS’s cellulosic biofuels requirements.

The price of waiver credits is set by EPA. In March, the agency announced that the 2014 price will be 49 cents a gallon, and the 2015 price 64 cents a gallon. To buy a waiver, refiners must also retire a separate advance biofuel credit (E&ENews PM, March 25).

When the RFS was established in 2007, there was no commercial production of cellulosic biofuel. So Congress included the waiver credit in order to fill the gap between the actual production of the fuel and EPA’s annual mandate for the fuel.

But guessing how much cellulosic biofuel will be produced each year has been a daunting task for EPA, and the agency has historically made available enough waiver credits to cover its entire cellulosic requirement. EPA has also previously provided refunds to refiners for purchases of waivers.

The result is that there’s “no incentive to buy the physical fuel that’s being produced,” Johnson said.

“They [refiners] think that they’ve got a way to handle their obligation just by doing the waiver credit, so they have no incentive to buy the physical fuel that’s being produced,” he said. “The legislation always anticipated that there would be a hand-off from the waiver credits to the physical fuel at the moment in time that the new fuel is being produced.”

According to a letter obtained by Greenwire, trade organizations representing advanced biofuel producers pressed EPA in December about the issue.

In the letter, the Advanced Ethanol Council and the Biotechnology Industry Organization wrote that refiners had indicated that they would purchase waivers instead of cellulosic credits regardless of whether cellulosic credits are available at a lower cost.

Waivers, they wrote, were meant to be used only when necessary and not as an alternative means of compliance in the renewable fuel standard program as advanced biofuel plants start coming online.   READ MORE

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