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Advanced biofuel makers try to exorcise ‘phantom fuel’

28 Nov 2012, 10.13 pm GMT

Houston, 28 November (Argus) — US advanced ethanol producers cannot afford to keep missing federally required production levels that have raised the ire of powerful foes, executives in the sector said today.

Industry leaders today at the National Advanced Biofuels Conference & Expo in Houston, Texas, said the industry must show they are more than a “phantom fuel” in 2013 as another year passes with little to none of the advanced biofuel made commercially available.

“We do need to prove to the world that this is a real industry, that it does work, and that we can stand on our own two feet,” vice-president of bioenergy at DSM, a joint venture partner with US ethanol producer Poet.

Advanced biofuel – made from non-food feedstocks such as cellulose or algae instead of corn – has struggled to achieve large-scale production even as federal regulations require refiners and fuel importers to purchase millions of gallons of the fuel every year.

Obligated buyers pay penalties for failing to satisfy Renewable Fuel Standard (RFS) volume requirements for biofuels – even when the fuel is not available. Refiners and importers were required to purchase waiver credits to satisfy a requirement to use at least 6.6mn USG of cellulosic fuel last year and 8.65mn USG of the fuel this year. The industry has not yet produced a gallon of the fuel refiners can use to satisfy the requirement.

Refiners have chafed at penalties incurred over a fuel that does not exist and pointed to the lack of a production in a broader bid to overhaul RFS. The American Petroleum Institute (API), an oil industry group, yesterday filed suit against the Environmental Protection Agency (EPA) as part of a broader call to repeal and start over federal renewable fuels requirements. API sued in 2011 and 2012 over cellulosic biofuel mandates.

The ongoing criticism and potential tinkering with federal regulations has complicated financing for the industry, executives said.

“The market is very unstable, and has been for some time,” KiOR chief executive Fred Cannon said. “These RFS challenges, whether they're real or not, it creates uncertainty.”

Cannon said cellulosic gallons, as well as associated Renewable Identification Numbers, would begin to flow next year. The EPA has not yet set required volumes for 2013; Advanced Biofuels Association president Michael McAdams said the agency was unlikely to meet a 30 November deadline.

But the advanced biofuels industry needed an achievable volume in 2013, he said — one that wouldn't put the industry in a position of going to court to defend a level they couldn't meet.

“Whatever number you pick, we've got to hit it,” McAdams said he told the administration recently. “We can't miss the cellulosic number every year.”

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