Massachusetts bans certain biodiesel fuels under its mandate

By Nicholas Zeman | September 18, 2009
In early September, Bay State Biofuels CEO Jesse Reich was waiting for the fire marshal to give final approval to the company's new fuel terminal in Andover, Mass., so the facility could start operating. "Hopefully, we'll be delivering fuel as early as next week," Reich said. The company's start-up is coming on the heels of a controversial announcement from the Massachusetts Department of Energy Resources, about its decisions related to implementation of a state biodiesel mandate. Among other things, the announcement declared that the state will only accept tax benefit applications for biofuels "derived from waste feedstocks, which, as defined and provided in the statute, are exempt from a detailed greenhouse gas reduction analysis," the department stated. It cited both the U.S. EPA and California Air Resources Board methodologies indicating that waste feedstocks can surpass the 50 percent GHG reduction threshold, satisfaction enough they will meet the 50 percent reduction in the Massachusetts law.

This decision, although not final law, has caused extreme unrest among the state's biodiesel industry, especially those companies developing production platforms based on non-waste, second-generation feedstocks such as algae.

"By permitting only biofuels made from waste feedstocks under its mandate, Massachusetts is preventing its own biotech companies from deploying their advanced technology to turn other sources of renewable biomass into advanced biofuels," said Brent Erickson, vice president of the Biotechnology Industry Organization's Industrial and Environmental section. "The decisions released by the Massachusetts Department of Energy Resources will have a detrimental effect on Massachusetts' considerable bioscience industry, which employs millions of Massachusetts workers and attracts a tremendous amount of investment to the state. We're surprised to see the state disadvantage its own companies."

Massachusetts law defines waste feedstocks as previously used or discarded material from industrial, commercial or household food service activities, including animal waste, animal by-products, organic portions of municipal solid waste, grease trap waste, construction and demolition debris.

Bay State Biofuels' distribution platform revolves around recycled wastes so this aspect of its business related to the state energy resource department's recent decision affected it the least, Reich said, but other items were bad news. "What I'm extremely disappointed about is the fact the mandate has been pushed back to 2011," he said. Officially, the department stated that a mandated volume will be waived for the first year, but "early action credit" will be provided for all gallons of qualified advanced biofuels, and they will be applied to second year mandate obligations. "That means that we don't have mandated buyers for the next year," Reich said.

Another discouraging item in the Massachusetts decision is the "averaging basis" that oil companies and other "compliance entities" must use to show that sufficient volume of qualified advanced biofuels was supplied to "meet the required percentage on average" over the full year. "So instead of regular monthly orders, which would be the best for our business, companies can buy all of the biodiesel [required] in one lump sum-essentially in one month-they can basically purchase fuel in very sporadic amounts over the course of the year on an arbitrage basis, which could mean that we don't have any steady production and sales," Reich said.

Reich added that he thought the energy resource department was still supportive of the biodiesel industry, but was as cautious as it could be in every single detail of its recently published decision. This resulted in a relatively weak policy in support of producers and distributors in the state. Massachusetts officials, however, acknowledged that meeting the objectives and concerns of parties on all sides has been a difficult challenge for the design of the mandate, "but we feel that we have reached a solution that will serve the objective of the statute and will place Massachusetts in the forefront of opening new markets," stated the department.

Maintaining market stability, yielding the level of reductions in GHG emissions required by the act, and adapting to the changing scientific and federal landscape were the major factors in determining the state's initial decision, which may be altered yet, according to Reich.
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