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Defusing the Cellulosic Bomb inside the Renewable Fuel Standard

Submitted by on May 27, 2014 – 5:41 pmNo Comment

by Jim Lane (Biofuel Digest)  Thought the 2014 volume debate over the Renewable Fuel Standard was tough enough?What about the ticking bomb inside the RFS — that could completely flat-line the value of cellulosic RINs and make it near impossible to build cellulosic biofuels capacity for the US market, ever? Good news, though. This UXB, though deadly, may be easy to defuse. …

In Washington this week, the final 2014 Renewable Volume Obligation proposal is expected to pass from the EPA to the Office of Management and Budget for review.

Cellulosic biofuel producers should be just as concerned about the future of D3 RIN prices as the actual volumes, producers and stakeholders are telling the Digest.

Here’s the problem, we’re told: in 2014 and for future RVOs, EPA could underestimate production volumes for cellulosic biofuels. An underestimate by EPA could cause market demand for cellulosic biofuel RINs to fall well short of actual production, and lead to a collapse of D3 RIN premiums. Leading to a reduced level of investment and interest in cellulosic biofuels.

How could this happen?

Consider this possibility: EPA has proposed to re-designate landfill biogas now used in CNG applications to “cellulosic biofuel.” This approval is imminent. 30 million gallons of fuel will enter the market, a volume that could tip the scales in the direction of an underestimate of cellulosic biofuel production — if any combination of cellulosic CNG, gasoline or ethanol capacity comes to market faster than expected.

What (Iogen CEO Brian) Foody is pointing towards is RIN surplus risk. If cellulosic biofuels production soars during the year relative to the proposed target, then the market could be swamped with D3 RINs, and the D3 RIN value would crash — accordingly, obligated parties might reasonably delay acquiring RINs early in the year so that they don’t pay high values for RINs that aren’t worth anything by year end.

The arrival of landfill-based CNG is one factor that could tip the scale. Or, early arrival or faster commissioning time than expected for several commercial-scale cellulosic ethanol plants expected to debut this year.

So, this is a proposed system that allows EPA to project a cellulosic biofuels RVO target, but go back and correct the target to reflect actual production?

“That’s right,” Foody confirmed.

Does EPA have the power to make this change through rule-making, rather than amending the RFS legislation? Foody tells us they do.  READ MORE

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