API files lawsuit challenging biofuels mandate

The American Petroleum Institute is taking its battle against the federal renewable fuel mandate to court.

The oil and gas industry trade group on Monday filed a lawsuit challenging the U.S. Environmental Protection Agency’s move to mandate refiners blend 1.28 billion gallons of biodiesel into transportation fuels next year.

Bob Greco, API’s group downstream director, called the mandate — which is a 28 percent increase over the 1 billion gallons required this year — “overzealous” and “unworkable.”

The mandate “could raise the costs of making diesel fuel and should be reduced,” Greco said, noting that the problem is compounded by scams tied to so-called “renewable identification numbers” that are assigned to batches of biodiesel and sold to refiners and gasoline importers seeking to comply with the requirement.

The federal government has so far identified more than 140 million invalid RINs believed to be generated by three biodiesel companies, including one in Houston. The EPA ordered Tesoro Corp., and other refiners who bought the fake credits to pay fines and replace the invalid RINs by purchasing new, genuine ones.

“Fraudulent biofuel credits that have plagued the system since last year and have yet to be resolved could inhibit industry’s ability to meet EPA’s higher biodiesel mandate,” Greco said. “The fraudulent RIN problem is having — and will continue to have — significant impacts on the biodiesel marketplace that make it more difficult for companies to comply with EPA’s mandate.”

Currently, credits are tracked in the EPA’s Moderated Transaction System, or EMTS. The EPA currently requires a third-party engineering review of biofuel producers before they can generate RINs, but there is no regulatory system for verifying that the firms are actually turning out the amount of fuel they say they are after that initial assessment.

The Environmental Protection Agency is working on revamping the system for tracking the credits and may give refiners and gasoline importers who buy invalid RINs an affirmative defense against fines so long as they are first validated by a third-party auditor. But refiners had been hoping for a new system to be in place by Jan. 1 — a deadline that seems unlikely to be reached.

The fraudulent RINs already sold — and the threat of more scam artists — is crowding out legitimate biodiesel startups who are struggling to market their product to wary refiners now more comfortable doing business with larger, proven firms. In a letter to the EPA describing API’s challenge, Greco noted that the RIN fraud has “significantly impacted the ability of some biodiesel producers to market their products and, in some cases, to remain in business.” If there is a “shortfall in production” as a result, it could mean far less biofuel is generated than EPA estimated would be available in 2013, hurting “industry’s ability to comply with the standard,” Greco added.

Renewable fuel advocates criticized API’s move.

“Special interests will stop at nothing to discredit the success of renewable fuels created right here at home to ensure their lock on the fuels market goes unchecked,” said Tom Buis, CEO of Growth Energy. “They continue to protect the status quo, ensuring our addiction to foreign oil and preventing consumers a choice at the pump.”

Bob Dinneen, president of the Renewable Fuels Association said API was trying to protect its place in the marketplace.

“API doesn’t like the RFS because it has taken 10 percent of their barrel and reduced consumer costs,” he said. “Americans like and support the RFS for exactly those reasons.”

API’s lawsuit, filed in the U.S. Court of Appeals for the District of Columbia, is the latest bid by critics of biofuels mandates to chip away at the requirements.

Earlier this month, the EPA rejected requests by Texas Gov. Rick Perry and the leaders of several other states to waive the renewable fuel mandate, despite concerns that the mandate was spiking corn demand and prices following a drought in the Midwest.