EPA proposes cut in ethanol mandate, handing victory to oil

Source: By ERICA MARTINSON | 11/15/13 2:22 PM EST, Politico • Posted: Saturday, November 16, 2013

The Environmental Protection Agency on Friday proposed the first cut in the amount of ethanol that must be blended into the nation’s gasoline supply — a shift that marks a huge blow to corn growers and puts President Barack Obama uncharacteristically on the side of the oil industry.

EPA’s action was widely expected, and came after a flurry of White House lobbying in the past two months by both the ethanol industry and opponents of the agency’s biofuels mandate, including oil companies, food and soft drink manufacturers, Delta Air Lines and AAA.

The agency said it was reacting to market conditions that include an unexpected slowdown in consumers’ demand for gasoline, which means the ethanol supply could soon outpace the amount motorists could actually use. The oil industry has warned that the result could be a spike in gasoline prices unless the government scales back the ethanol requirement — a phenomenon that mandate opponents call the “blend wall.”

EPA made some last-minute changes aimed at softening the blow to ethanol producers, especially the non-corn portion of the market known as “advanced” biofuels. But bitterly disappointed ethanol supporters said the administration was succumbing to a fear campaign organized by Big Oil.

“EPA is proposing to place the nation’s renewable energy policy in the hands of the oil companies,” said Bob Dinneen, CEO of the Renewable Fuels Association, a major ethanol industry group. “That would be the death of innovation and evolution in our motor fuel markets, thus increasing consumer costs at the pump and the environmental cost of energy production. This proposal cannot stand.”

“While only a proposed rule at this point, this is the first time that the Obama administration has shown any sign of wavering when it comes to implementing the RFS,” said Brooke Coleman, executive director of the Advanced Ethanol Council.

But opponents of the mandate said they still want Congress to scrap the mandate entirely, and the oil industry is threatening to sue EPA if the final 2014 requirements include too many gallons for certain types of ethanol.

“For the first time EPA has acknowledged that the blend wall is a dangerous reality and must be addressed to avoid serious impacts on America’s fuel supply and harm to America’s consumers,” American Petroleum Institute CEO Jack Gerard told reporters during a conference call that included other mandate critics, such as the National Turkey Federation and the Chicken Council. But API and others are “continuing our call for Congress to act now” to repeal the mandate, he said.

Leaders of the turkey and chicken groups said they were focusing on repealing the mandate rather than litigation.

Friday’s proposal concerns a program, known as the renewable fuels standard, that Congress created in 2005 and expanded in 2007. Until now, the mandate has required gasoline and diesel refiners to blend ever-increasing amounts of ethanol into their fuel, an amount that hit 16.55 billion gallons this year and had been scheduled to reach 18.15 billion gallons next year.

Instead, EPA is proposing to set next year’s requirement at 15 billion to 15.52 billion gallons. The midpoint of the range is 15.2 billion gallons, equal to what the mandate was in 2012.

It would be the first year-to-year drop in the mandate since Congress created the program in its current form. It could also tamp down efforts by some lawmakers to repeal the program entirely, since EPA is showing willingness to adjust the numbers on its own.

Within the overall ethanol mandate, the agency also wants to set separate ranges for individual segments of the industry. For example, refiners would have to use 2 billion to 2.51 billion gallons of advanced biofuels — a drop from this year’s mandate of 2.75 billion gallons for that segment, and an even sharper drop from the 3.75 billion gallons that Congress originally envisioned for next year.

For one type of advanced biofuel, cellulosic ethanol made from plants like switchgrass and cornstalks, the mandate would be 8 million to 30 million gallons, and the mandate for biomass-based diesel would be 1.28 billion. The rest of the amount for advanced biodiesel could come from Brazilian ethanol made from sugarcane.

EPA expects to make a final decision by this spring.

Agency leaders said they’re still committed to efforts to give ethanol a greater share of the market, such as by encouraging the sale of gasoline containing higher blends of ethanol than the now-common 10 percent. But they were short on specifics of how exactly that would work, even though EPA has taken steps to allow the sale of 15 percent ethanol blends, which it considers safe for newer cars.

Congress’s intent in 2007 was to wedge biofuels into the nation’s fuel mix for reasons that included cutting reliance on foreign oil imports, as well as cutting greenhouse gas emissions from cars. But since then the energy market has taken some unexpected turns: Oil imports are falling sharply, domestic drilling is up and gasoline demand is flat as the economy remains slow and cars have become more fuel-efficient.

At the same time, producers of advanced biofuels have failed to ramp up their production to commercial scale, with cellulosic ethanol in particular still struggling to get to its feet.

Corn ethanol, on the other hand, has thrived and production has surged. But gasoline with higher blends of ethanol — such as 15 or 85 percent — have not taken hold in the market