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February 07, 2014
EPA will reconsider cellulosic standard

The struggling cellulosic biofuel industry received more dark news when the EPA agreed to reconsider its 2013 renewable fuel standard (RFS) for the alternative fuel.  The Agency’s decision was announced in brief letters from EPA administrator Gina McCarthy to the American Fuel & Petrochemical Manufacturers (AFPM) and the American Petroleum Institute (API).  In October 2013 these organizations asked the Agency to reconsider its methodology for setting the RFS for cellulosic biofuel. 

KiOR’s Mississippi facility

The EPA published the 2013 RFS in an August 2013 final rule, setting the cellulosic standard at 6 million ethanol-equivalent gallons (gal).  Almost all of that production was based on projections by KiOR, Inc., a renewable fuels company that started production in 2012 at what it describes as “the first commercial-scale cellulosic fuel facility” in Columbus, Mississippi. 

In setting the cellulosic standard, the EPA noted that KiOR planned “to achieve steady state production and achieve production rates at or near their nameplate capacities by the end of 2013.”  For example, in May 2013, KiOR’s CEO announced that the company expected its total fuel production during the second quarter to range between 300,000 and 500,000 gal, “keeping us on track to fall within our projected production range of 3 million to 5 million gallons for 2013.”

In the rule, the EPA also cited data from the Energy Information Administration, which forecast that KiOR would produce    9 million ethanol-equivalent gal of cellulosic biofuel in 2013. 

Actual production

However, the API petition compares KiOR’s estimates to actual production based on EPA’s Moderated Transaction System (EMTS), which the Agency uses to manage the renewable identification number (RIN) transactions under the RFS. The API stated:

“EMTS shows an additional 68,000 physical gallons were produced in June, far short of KiOR’s projected 300,000 to 500,000 gallons second quarter production.  KiOR’s inability to ramp up to meet its production goal for the  2nd quarter of 2013, combined with the miniscule 1st quarter 2013 volume, raises serious doubt that the company will meet its earlier projection of production for the entire 2013 calendar year.” 

The API also said that the EPA did not monitor subsequent statements KiOR made about reduced production.  For example, in an August 8, 2012, announcement, KiOR said that during the first quarter of 2013, KiOR shipped only 75,000 gal of cellulosic fuel from the Columbus facility.

“The news indicates that EPA either did not continue to track KiOR’s progress, or that EPA did continue to monitor progress but intended to set aspirational standards,” said the API.

Diminished expectations

On January 8, 2014, KiOR announced that the Columbus facility will produce approximately 410,000 gal of fuel during the fourth quarter of 2013, bringing the full-year production total from the facility to approximately 920,000 gal.  The company noted that EPA’s diminished renewable fuel expectations as expressed in its 2014 RFS proposal “will continue to make our expansion financing efforts more challenging.”  Shortly after that announcement, several rating companies downgraded KiOR’s stock value.

McCarthy’s letter is one of the Agency’s first public acknowledgements that its cellulosic biofuel RFS may in fact have been “aspirational.” 

“We believe that KiOR’s August 8, 2013, announcement of reduced anticipated production in 2013, which your petition noted, justified reconsideration of the 2013 cellulosic biofuel standard,” wrote McCarthy, who added that notice-and-comment rulemaking based on the results of the reconsideration will follow.

“The Agency’s optimism for cellulosic biofuel appears to have been tempered by reality,” the AFPM responded in a news release.

McCarthy's letter

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