Oil group sues over law on scarce biofuel

WASHINGTON Wed Jul 25, 2012 11:38pm BST

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WASHINGTON (Reuters) - For the second time in five months, the U.S. government is being sued to overturn a law that forces oil refiners to use a scarce biofuel.

Under the federal Renewable Fuel Standard, refineries were required by the Environmental Protection Agency to use 6.6 million gallons of cellulosic biofuels - a fuel made from non-grain sources such as wood chips - in 2011.

The U.S. oil industry's leading lobby group, The American Petroleum Institute filed a lawsuit in federal court in Washington saying no commercial quantities of the biofuel were available. The industry is penalized if it does not buy the fuel.

"The mandate is effectively an added tax on gasoline manufacturers that could ultimately burden consumers," said API Director of Downstream and Industry Operations Bob Greco.

The EPA in May denied an API petition seeking a reconsideration of the mandate.

The API lawsuit, filed on Tuesday, is over the 2011 mandate. The trade group filed suit over the mandate for 2012 in March.

In a statement on Wednesday, the EPA said it was reviewing the suit and would respond accordingly. It also pointed out that under a process established by Congress the EPA has the power to respond to market conditions as it enforces the mandate.

"EPA will continue to operate the program transparently, using sound science, and consistent with what the law requires, it said.

Under the renewable fuel mandate signed into law by President George W. Bush in 2006, the government envisioned reducing the country's oil import bill while having vehicles run on clean-burning fuels made from prairie grass or wood chips.

Ethanol made from corn was to eventually give way to cellulosic fuel.

But because of high costs, technical difficulties and the end of federal subsidies, the industry has failed to take off and the EPA has been forced to drastically reduce the cellulosic requirement. In 2012, the EPA said 8.7 million gallons of the advanced fuel must be blended into gasoline, which is down from the original proposal for 2012 of 500 million gallons.

Brooke Coleman, executive director for the Advanced Ethanol Council, said the sector has been hard hit by the recession but the oil industry was targeting the sector just as the first commercial plants were coming on line.

"The reason the oil companies are going after this particular provision ... is because they want to kill the RFS itself and spin the RFS as a failure," Coleman said.

The entire EPA mandate for biofuels is also under attack from the livestock industry and other groups who believe the dependence on corn-based ethanol is exacerbating a looming shortage of the grain as the country suffers its worst drought in more than half a century.

Corn-based ethanol consumes more than 40 percent of the huge U.S. corn crop, although the industry recycles some byproducts of the distillation process into feed for livestock.

(Reporting By Russ Blinch; editing by John Wallace and Carol Bishopric)

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