BP defends renewable-fuel rule other oil companies oppose

As Congress considers scaling back or abolishing U.S. rules that mandate the use of renewable fuels, it has the full-throated support of the petroleum industry — with one major exception.

BP Plc (BP/) (BP/), one of the world’s biggest oil companies by revenue, is part of a joint venture with DuPont Co. (DD) that is set to start producing a new alternative fuel by the end of the year. In order to preserve a market for that fuel, its officials are busy in Washington trying to convince lawmakers that the current system doesn’t need an overhaul.

“They don’t need to change the law,” Paul Beckwith, the chief executive of the venture, Butamax Advanced Biofuels LLC (0031863D) of Wilmington, Delaware, said in an interview. The program “as it’s currently configured is working, and there are good opportunities for increasing renewable levels beyond where they are today.”

The Renewable Fuel Standard, or RFS, dates in its current form to 2007, when concerns about dependence on overseas oil and a desire to curb the use of fossil fuels induced Congress to set quotas for the use of alternatives to gasoline or diesel, such as ethanol and biodiesel.

Under the law, refiners such as Exxon Mobil Corp. (XOM) must blend a certain amount of renewable fuels into their gasoline each year, with their contribution determined by their share of the fuel market. The Environmental Protection Agency and renewable-fuel producers say the mandate spurs production of American-made fuels, helps corn farmers and cuts carbon emissions by replacing gasoline.

Lobbying Costs

The efforts of BP and Wilmington, Delaware-based DuPont, which together spent $13.8 million on lobbying in 2012, show the fissures in the business community over the future of the rules, and the difficult path any overhaul must tread. A panel of the House Energy and Commerce Committee is set to hold a hearing on the program next week, as Republicans such as Representative Bob Goodlatte of Virginia push to scrap it.

Critics, ranging from motorcyclists to chicken farmers, focus on two separate issues. Food retailers and food charities complain that use of corn to make ethanol is pushing up the cost of food.

Local chain restaurant owners pestered their advocacy group, the National Council of Chain Restaurants, to find out why their commodity costs were spiking, according to Robert Green, the executive director of the Washington-based group. After hiring an outside research firm to conduct a study, “it was very clear that the RFS was a cause of it,” he said in an interview. The group, whose members include White Castle and Wendy’s Co. (WEN), is today launching a campaign in Washington it calls the Feed Food Fairness to repeal the RFS.

Blendwall Danger

Lobbyists representing refiners such as Exxon, based in Irving, Texas, and Tesoro Corp. (TSO) of Waltham, Massachusetts, raise a different objection to the mandates. They say falling U.S. fuel demand means that requirements for ethanol may force its use higher than the 10 percent that the government says is safe for all engines, exceeding what the industry calls “the blendwall.”

“With each passing day or month we’re going to see more movement” for repeal, Charles Drevna, president of the American Fuel & Petrochemical Manufacturers, which represents refiners such as Exxon and Tesoro, said in an interview.

Now the small collection of renewable-fuel producers are pushing back against those efforts, arguing that they will soon be making the kinds of next-generation fuels necessary to fill the growing government quotas while avoiding the damage to engines that worries the refiners.

Butamax Plant

Butamax plans to convert an existing ethanol plant to make biobutanol, a related fuel also made from corn that has lower greenhouse-gas emissions and doesn’t present the same kind of refining issues as ethanol, according to the company.

“It completely overcomes the issues with the blendwall,” Beckwith said before meeting this month with congressional staff members to discuss the issue.

The London-based BP, which in the U.S. has the capacity to refine 725,000 barrels of crude oil a day, is taking a slightly different position than the industry trade groups in advocating for regulatory mending by EPA, not a legislated end.

“BP supports the goals of the RFS program to stimulate the development and deployment of biofuels technologies, and we believe that technologies like Butamax’s will be an important part of our liquid transportation fuel mix,” Matt Hartwig, a company spokesman, said. Still, “safely moving past the ethanol blendwall will require time and investment.”

Iowa Corn

Butamax is not alone in pushing to preserve the program. Iowa’s corn growers have flooded Washington to make their case, and to take aim at what they say are unfair subsidies that the oil industry gets.

Separately, ethanol producer Poet LLC of Sioux Falls, South Dakota, and Royal DSM NV (DSM), a Heerlen, Netherlands-based biotechnology company, are pushing ahead on a plant that will use crop residue such as corn cobs and husks to produce 20 million gallons of cellulosic biofuel a year. It plans to start full commercial production in early 2014.

The foes “continue to work hard to spread myths and misinformation about the RFS in an effort to return to a gasoline monopoly on transportation fuel, maintain their record profits, and serve their interests here and in the Middle East, Hugh Welsh, DSM’s president for North America, said in an e-mail.

‘‘The RFS is doing great things, and will continue to do so for the next 15 years,’’ he said. ‘‘When presented with the facts and the results, our elected officials recognize this.’’

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