By Ayesha Rascoe
WASHINGTON (Reuters) - The U.S. Environmental Protection Agency slashed its target for 2013 use of cellulosic biofuel to less than a million gallons on Tuesday after the industry failed to meet goals for production of the fuel last year.
The agency lowered the mandate to 810,185 gallons in a new rule, well below the 6 million gallons it had required in the plan it finalized last August.
Oil groups challenged the previous plan after one of the two companies slated to make cellulosic biofuel in 2013 dramatically reduced its production estimates after the final rule was issued. Cellulosic biofuel is made from grasses, trees and crop waste.
In January, the EPA agreed to reconsider the mandate, which would have required oil refiners to buy millions of dollars worth of credits if cellulosic fuels were not available to be blended into gasoline or diesel.
The agency's newest target will serve as the final rule for 2013 regarding cellulosic fuel, unless the agency receives "relevant" adverse comment.
The American Petroleum Institute, which was one of the groups that challenged the 2013 target, said the EPA must change the way it sets its biofuel requirements.
"EPA should base its cellulosic mandates on actual production rather than projections that - year after year - have fallen far short of reality," API Downstream Group Director Bob Greco said in statement.
The group said the EPA should also reconsider an "unrealistic" draft proposal that would require use of 17 million gallons of cellulosic biofuel for 2014.
The final 2014 volume requirements are due out in June.
When Congress passed the Renewable Fuel Standard in 2005 with the goal of reducing U.S. reliance on oil, it expected cellulosic fuels would make up a significant portion of its mandated use of 36 billion gallons of biofuel by 2022.
But development of the innovative fuel source has lagged and refiners successfully argued in court that they should not be responsible for using fuel that was not commercially available.
Every year refiners have to prove they have used a certain amount of advanced biofuels or have bought credits representing use of the fuel by others in an open market. If they do neither they are subject to fines.
A U.S. federal court ruled in 2013 that the EPA could not inflate the target for cellulosic fuel use to help spur development of the fuel. Instead, the court said the agency should set its target based on realistic production assessments.
(Reporting by Ayesha Rascoe; Editing by Lisa Shumaker; and Peter Galloway)