EPA Put Faith in Fraud, Now Cellulosic Goals Falling Short - Very Short

EPA Put Faith in Fraud, Now Cellulosic Goals Falling Short - Very Short

By John O'Dell July 15, 2009

Here's one for the "every cloud..." file, or perhaps the "caveat emptor " file. Take your pick.

When the EPA recently issued a report anticipating 100 million gallons of cellulosic ethanol production in the U.S. by 2010, it was including 70 million gallons from an Alabama company called Cello Energy.

That's 70 percent of the total U.S. production from one relatively small company, per the EPA.

Bad Move

The government didn't factor in ethanol fraud.

Turns out the Cello was just found guilty in a federal court in Alabama of civil fraud for lying to a major investor about the state of its ability to make ethanol from grass and other woody, non-food materials.

The jury ordered Cello principals to pay $10.4 million in damages after witnesses testified that the "cellulosic" fuel the company was showing to investors was actually fuel derived entirely from petroleum.

Cello apparently has one plant capable of annual production of 20 million gallons of biofuel - if its system really works - and three that it was planning to build and that the EPA credited with 50 million gallons of cellulosic fuel by 2010.

Silver lining:

If the industry can't hit the 100-million-gallon target for 2010, the EPA can issue marketable credits that would pump the value of a gallon of real cellulosic up to $3 - about double the price of ethanol on the futures market today, according to Earth2tech.com, which has been following the Cello case.

That would give a big boost to legitimate cellulosic refiners and could get us to that 100-million-gallon level fairly quickly (although probably not by 2010).

Buyer Beware

There is a wrinkle, though (isn't there always?).  The EPA could opt to delay imposition of the 100-million-gallon rule until sometime after the start of the year to give the industry time to ramp up.

More to come.

Meawhile, if you are thinking of investing in a cellulosic operation, have someone run an analylsis of the fuel it is turning out.

John O'Dell:  is an AutoObserver Senior Editor. Follow @AutoObserver on Twitter.