The U.S. Court of Appeals for the District of Columbia Circuit’s ruling in American Petroleum Institute v. EPA (issued January 25, 2013) regarding cellulosic biofuel regulation is an interesting example of the interplay between law and economics. The court ruled in favor of the American Petroleum Institute, an oil and natural gas industry trade association, to overturn an EPA mandate meant to increase the U.S.’s use of cellulosic fuels. Cellulosic fuels are made from plant materials such as switchgrass, corn husks, wood chips, and wheat straw. Cellulosic fuels are an attractive renewable energy compared to corn ethanol because they are made from nonfood materials. Increased production of corn ethanol has been critiqued for consuming the corn supply, leading to increased corn product prices, such as livestock feed, and subsequent grocery store price increases. Ideally the production of cellulosic fuels won’t have this price impact, while providing the benefits of renewable energy over petroleum.
The legislative, executive, and judicial branches have each played a part in the issue of cellulosic fuels. Congress aimed to mitigate the country’s energy concerns through the Energy Independence and Security Act (EISA) in 2007, which amended the 2005 Renewable Fuel Standard. The EISA set volume mandates for the U.S. consumption of renewable fuels. Requirements include “15 billion gallons of conventional biofuels, mainly corn-grain ethanol” and “16 billion gallons of cellulosic biofuels produced from wood, grasses, or non-edible plant parts” by 2022 (National Academies). Congress authorized the Environmental Protection Agency (EPA) to set the renewable fuel standards. The 2011 target set by the EPA was to mix 8.7 million gallons of cellulosic ethanol into gasoline, 6.6 million gallons of which was to be done by refineries. Refineries who don’t meet the requirements set must pay a fine, and indeed in 2010 and 2011, American refineries have fallen drastically short. The industry total for corporate fines for 2011 is expected to be $6.8 million, according to the New York Times.
Why are refineries not selling any fuel? Refineries (such as Exxon in its blog “Mandating the Impossible”), supported by research from the National Research Council, make a critical point: there are ‘no commercially viable biorefineries [that] exist for converting cellulosic biomass to fuel.’ In 2011 U.S. producers manufactured only 20,000 gallons of the fuel, which were presumably not used in the U.S. since they were exported to Brazil. The legal effort to boost cellulosic fuels has been effective because there is no economic market to support it. The National Academies of Science points to lacks of technological innovation for why the cellulosic fuel production marketplace has yet to develop. Until technology develops, and at the current market price of crude oil, the production of cellulosic fuels is not profitable compared to petroleum. Refinery giant Exxon urges the government in its blog to “allow consumer choice and the free market to determine the mix of energy sources to best meet our nation’s needs.”
Without having an expert understanding of the situation, it is troubling for the EPA to penalize refineries for not using an amount of cellulosic fuels that is not even closed to being produced by the biofuel industry. The American Petroleum Institute sought judicial help and won its suit against the EPA to overturn the mandate. The court’s opinion said that the EPA standard was unreasonably high. The EPA has not issued its 2013 standard for cellulosic ethanol yet, which will hopefully be more achievable for refineries.