Higher prices at the pump? Blame the government!

According to a recent NY Times article, gasoline refineries will pay a $6.8 million penalty for failing to meet the fuel blending requirements under the 2007 Energy Independence and Security Act. There is only one problem: the quantity of commercial biofuel needed to meet the blending requirements does not exist.

In a press release issued by the National Petrochemical & Refiners Association on this issue, Association President Charles T. Drevna stated: “Once again, [the Environmental Protection Agency] has acted unwisely to make a bad law worse with regulations not based on reality and science. Once again, refiners are being ordered to use a substance that no one is producing in commercial quantities – cellulosic ethanol – and are being required to pay millions of dollars for failing to use this non-existent substance. This makes no sense."

The quota established under the law was 250 million gallons by 2011; however, the law also allowed the EPA Administrator to reduce the quota if insufficient amounts of cellulosic biofuel were produced. (Pg. 35). According to a presentation on biofuels by Mark Riedy of Mintz Levin Cohn Ferris Glovsky and Popeo P.C., economic turmoil in Europe is just one of the factors impacting the advancement of production.

This sentiment is echoed by Craig Stuart-Paul, CEO of Fiberight, LLC, a biofuel producer. He states that securing funding "has resulted in project delays.” () In 2010, Fiberight has successfully produced several tankers full of biofuel from municipal solid waste. Funding issues in 2011 stopped production, but the plant is expected to turn out 3 million gallons for 2012, according to EPA projections.

The EPA also expects Fulcrum Bioenergy to produce 500,000 gallons of cellucosic ethanol in 2012. According to the Fulcrum Website, they secured financing for their plant in November of 2011.

According to Kris Bevill of Ethanol Producer Magazine, the U.S. Energy Information Administration (EIA) issued 2012 predictions that, while affirming the increased output of biofuels for this year, also state the challenges. Bevill writes that the EIA’s “predictions, which are based on publicly available information and on discussions with potential producers, indicate that actual production will likely be closer to the low end of the EPA’s proposed spectrum. The EIA has also determined that several companies named by the EPA in its proposed rule will not be mechanically able to produce fuel for sale next year.”

Should those predictions come true, it will mean another year of gasoline producers being unable to meet the blending requirements and another hefty fine. Those costs will be passed on to the consumer in the form of higher prices at the pump.