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 Instead of an expected pick-up in sales for the biofuel-based
diesel that he makes from recycled cooking oil at a suburban
Harrisburg, Pennsylvania, plant, demand is likely to drop due to a
proposed freeze on U.S. consumption mandates.
"I won't be alive, for sure," said Wootton, who runs the 1.5 million
gallon per year Keystone Biofuels plant.
Wootton and others like him are venting their frustrations at the
U.S. Environmental Protection Agency, which they say is penalizing
makers of so-called advanced biofuels like biodiesel in rules
proposed last month that are primarily directed at curbing
consumption quotas for ethanol in 2014.
The disappointment highlights the difficult task ahead of the EPA — and President Obama — as they try to enforce a troubled 2007 law
aimed at reducing U.S. dependence on foreign oil. Predicting that
gasoline demand would continue to rise, Congress mandated increasing
amounts of ethanol and other biofuels to be blended into U.S. fuel
production. The goal was to cut oil imports and reduce carbon
emissions — all while building a home-grown biofuel industry and
creating jobs.
But with gasoline demand falling, the law's bespoke goals have made
it impossible to please everyone, leaving makers of advanced
biofuels like biodiesel particularly vulnerable.
Advanced biofuels have not been around as long as traditional corn
ethanol and require investment in new plants, technologies and
processes to bring them to market.
With the EPA proposing to cut 2014 advanced biofuel blending
mandates to about 2.2 billion gallons from 2.75 billion this year,
those investments look a lot less certain. One type of advanced
biofuel — biodiesel made by producers like Wootton — would stay
frozen at 1.28 billion gallons through 2015.
So while corn ethanol proponents have lashed out at President Obama
and the EPA for backing down on ambitious 2014 targets, frustrations
may run deepest among those in the advanced sector like Wootton, who
took out loans and burned through savings to invest in the space.
"We're the collateral damage," said Michael McAdams, president of
the Advanced Biofuels Association, which represents 44 companies
active in the sector.
Already, some larger companies are putting the brakes on investment
in the space.
"For Abengoa, any additional investment in the U.S. biofuel space is
on hold until we see where the final EPA rule comes out," said
Javier Garoz, chief executive of Abengoa Bioenergy. The company had
just spent $500 million to develop a new plant in Kansas that would
make advanced ethanol from non-food sources when it learned of the
cut.
MARKETPLACE REALITIES
Advanced biofuel manufacturers feel frustrated as they say the
mandate changes proposed for their sector are harsher than changes
put forward for corn ethanol.
They argue that because advanced biofuels are less carbon intensive
than traditional corn ethanol, they can do more to further the EPA's
goal of reducing emissions from petroleum-based fuels — and
therefore should be mandated at higher levels.
Christopher Grundler, the top EPA official at a hearing on the
proposal last week, told Reuters that the agency has been dealt a
difficult hand in administering the law.
"I think just about everyone will stipulate that what Congress
imagined, and the pace Congress imagined in 2007, is not feasible
today," Grundler said.
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"What we tried to do in the proposal is find the right balance
between the goals of the law to grow these renewable fuels while at
the same time recognizing the realities that we see today in the
marketplace."
Those realities include a 10 percent "saturation point" beyond which
it is hard for the U.S. market to blend more ethanol into gasoline,
Grundler said. Thanks to falling demand, the market reached that
point earlier than expected, he said.
To fix the problem, the EPA came up with a new process for setting
the mandates, which involves scaling them to fit supply and demand
dynamics of the market, starting with ethanol.
That allowed the agency to reduce corn ethanol down to about 13
billion gallons for 2014, just under 10 percent of gasoline supply,
versus 14.4 billion envisioned under the 2007 law.
CAN'T PAY THE BANK
Wootton, the Pennsylvania-based producer, had declared bankruptcy in
March under a $12 million debt load, but recently found an investor
willing to get his business running again. Wootton had just signed
the agreement in early October, when word leaked out that the EPA
was looking to keep biodiesel frozen at 1.28 billion gallons a year.
Now, even he admits he wouldn't invest in the business.
"If this thing holds out and they keep it at 1.28, I wouldn't
invest," Wootton said. At the EPA hearing last week, he waited 14
hours to get his chance to ask the agency to set the mandate higher
when it finalizes the rules next year.
The National Biodiesel Board (NBB), which represents the industry,
forecasts that producers are on pace to make 1.7 billion gallons of
the fuel in 2013 — and that keeping the mandate frozen could in
effect cut demand in half.
The drop in demand could cost some 8,000 jobs, according to an
estimate commissioned by the group.
"We've built our industry on the promise of solid policy that we've
had for five years and we don't know why the Obama administration is
backtracking on it," Anne Steckel, NBB's vice president of federal
affairs, told Reuters last week.
Grundler, the top EPA official at the hearing, said the 1.28 billion
gallon proposal is just a minimum, and actual consumption could be
higher.
But that's little consolation for plant owners like Stu Lamb of
Viesel Fuel, a Florida-based producer that in July had just opened a
new plant that will produce about 5 million gallons of biodiesel a
year.
Lamb took out a $5 million loan to finance the project and hire 45
workers. He said he may now struggle to repay.
"I feel betrayed," he said.
(Reporting by Cezary Podkul; editing by Jonathan Leff)
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