NCPA - National Center for Policy Analysis

A Fine for Not Using a Biofuel that Doesn't Exist

January 16, 2012

When the companies that supply motor fuel close the books on 2011, they will have to pay substantial penalties to the Treasury because they failed to mix a special type of biofuel into their gasoline and diesel.  While this may seem like a cut-and-dried violation of regulations, the difficulty here is that compliance was literally impossible, as the required biofuels have not been produced in large enough quantities, says the New York Times.

  • The original goal set by the Energy Independence and Security Act for vehicle fuel from cellulose was 250 million gallons for 2011 and 500 million gallons for 2012.
  • These minimum quotas were reduced by the Environmental Protection Agency (EPA) to 6.6 million gallons in 2011 and 8.65 million gallons for 2012 when the agency realized how little biofuel was available to be bought.
  • The standards for cellulosic fuel are part of an overall goal of having 36 billion gallons of biofuels incorporated annually by 2022.
  • Failure to reach the quota in 2011 will end up costing refiners approximately $6.8 million for 2011, and this figure could rise for 2012 as the quota increases.

The federal government's regulations are aimed at reducing the nation's greenhouse gas emissions, its reliance on oil imported from hostile places and the export of dollars to pay for it.  Despite these intentions, however, the creators of the regulations simply failed to account for the fact that the technology does not exist to produce cellulosic ethanol at the required capacity.

Plants are being built that will attempt to produce the fuel in large quantities, including a site in Emmetsburg, Iowa, owned by the company Poet, and a plant in Kinross, Michigan (partly owned by General Motors) that received $80 million from the Energy Department.  However, neither project offers much hope to refiners in the immediate future, as they are both slated to begin producing in 2013.  Until then, refiners will likely be unable to meet their EPA-mandated quotas.

Source: Matthew L. Wald, "A Fine for Not Using a Biofuel That Doesn't Exist," New York Times, January 9, 2012.

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