EPA proposes first-ever rollback of renewable fuel targets

Source: Amanda Peterka, E&E reporter • Posted: Saturday, November 16, 2013

U.S. EPA today proposed scaling back renewable fuel targets for the first time since Congress passed the national biofuel mandate in 2007.

The agency proposal would require that refiners blend 15.21 billion gallons of renewable fuels into petroleum-based gasoline and diesel next year. Of that, 13.01 billion gallons is to come from conventional ethanol and 2.2 billion gallons from advanced biofuels that do not use corn starch as an input.

As part of the advanced target, EPA is proposing that at least 1.28 billion gallons be biodiesel — made from soybean oil, animal fats and used cooking grease. Seventeen million gallons must be cellulosic biofuel made from other plant-based materials such as crop residue and municipal solid waste.

EPA is also seeking comment on ranges of targets. For overall renewable fuels, the agency has proposed a range from 15 billion to 15.52 billion gallons. For advanced biofuels, the range stretches between 2 billion and 2.51 billion gallons, and cellulosic biofuel is between 8 million and 30 million gallons.

“Biofuels are a key part of the Obama Administration’s ‘all of the above’ energy strategy, helping to reduce our dependence on foreign oil, cut carbon pollution and create jobs,” EPA Administrator Gina McCarthy said in a statement. “We have made great progress in recent years, and EPA continues to support the RFS goal of increasing biofuel production and use. We look forward to working with all stakeholders to develop a final rule that maintains the strength and promise of the RFS program.”

But the rule drew immediate criticism from both biofuel producers and members of a strange-bedfellow coalition of groups seeking to either reform or repeal the renewable fuel standard.

“The proposed rule released today turns the logic of the RFS on its head and could significantly chill investments in advanced biofuels projects,” said Brent Erickson, executive vice president of the Biotechnology Industry Organization’s industrial and environmental section, a group that advocates on behalf of advanced biofuel producers.

EPA today also said it is taking comment on a petition from oil industry groups to waive the volume requirements down even further.

The 2007 Energy Independence and Security Act, which created the renewable fuel standard, calls for 18.15 billion gallons of renewable fuels to be blended into petroleum-based gasoline and diesel next year. Of that, 14.4 billion gallons was set to be conventional ethanol and 3.75 billion gallons advanced biofuels.

This year’s targets are 13.8 billion gallons for corn ethanol and 2.75 billion gallons for advanced biofuels, for an overall renewable fuels target of 16.55 billion gallons.

With the proposal, EPA officially acknowledged the existence of the “blend wall” — the point at which petroleum manufacturers say they’re required to blend more ethanol into fuel than is feasible. The agency said it would use its authority under the statute’s waiver provisions to roll back the targets.

Under the renewable fuel standard, the agency is given leeway to reduce the cellulosic biofuel target based on assumptions of actual market supply. EPA has used its authority to lower the target each year since the RFS was put in place because of the slower-than-expected ramp-up of the cellulosic industry.

EPA has never, however, used its authority to lower the overall advanced biofuel standard and has instead relied on excess biodiesel production and imported sugar cane ethanol from Brazil to fill the gap left by the lower cellulosic production

Nor has the agency lowered its overall renewable fuel target, which sets the conventional ethanol mandate for the year. In its rule today, the agency cites “inadequate domestic supply,” one of two criteria set out by the 2007 statute, as justification for lowering the target.

“This proposal seeks to put the RFS program on a steady path forward — ensuring continued growth of renewable fuels while recognizing the practical limits on ethanol blending,” EPA said.

The targets proposed today are similar to those EPA included in an initial draft proposal that was circulated last month among stakeholders and was first reported by Greenwire.

Biofuels producers and trade organizations launched a lobbying blitz in response to the draft, warning that the potential rollback would stymie investment in next-generation fuels and could lead to the shuttering of dozens of conventional ethanol plants. According to official meeting records, biofuel and ethanol producers met with EPA and the Office of Management and Budget eight times since the draft was leaked; oil industry groups and companies met with the agencies only three times.

EPA disappoints RFS opponents and supporters

The new proposal is unlikely to make either supporters of the RFS or its opponents happy.

Biofuel producers say that the renewable fuel standard was meant to drive investment in new fuels and that EPA’s action amounts to bowing to oil companies’ demands.

The corn ethanol industry, which says there will be enough production and carryover credits to meet the full 14.4-billion-gallon target next year, has questioned the agency’s legal authority to lower the target based on the domestic supply criterion.

“I think there’s a number of us that can demonstrate those ranges were way too low and don’t line up to the intent of the RFS,” said Tom Buis, CEO of the ethanol trade group Growth Energy.

Biodiesel producers have also criticized the agency for proposing a biodiesel target at the same level as this year’s target rather than one that reflects the growth in the industry; the industry is expected to reach a record 1.7 billion gallons of production this year. Producers will likely be forced to scale back production without a robust number and with the high chance of the biodiesel production tax credit expiring at the end of the year, the National Biodiesel Board says.

“The growth in domestic biodiesel production dovetails exactly with President Obama’s statement in July of this year that ‘biofuels are already reducing our dependence on oil, cutting pollution and creating jobs around the country,'” said Anne Steckel, NBB’s vice president of federal affairs. “This is why EPA’s action today is so surprising and disappointing.”

While oil industry groups have pushed for a reduction in the volume targets, they, too, say they are disappointed with today’s proposal. They are pushing the agency to lower the ethanol portion to no more than 9.7 percent of the nation’s petroleum-based fuel supply, or 12.9 billion gallons.

“For the first time, EPA has acknowledged that the blend wall is a dangerous reality and must be addressed to avoid serious impact on America’s fuel supply and harm to American consumers,” said Jack Gerard, CEO of the American Petroleum Institute. “While the agency took a step in the right direction, more must be done.”

API and American Fuel & Petrochemical Manufacturers have already threatened to sue EPA if it does not finalize the rule by the statutory deadline of Nov. 30.

And livestock producers, which say the increased ethanol production driven by the standard has raised their operating costs, also expressed disappointment and vowed to continue seeking repeal of the standard in Congress.

The proposal is a “good and welcome first step,” said Mike Brown, president of the National Chicken Council, “but ultimately Congress must still act. Congressional action to repeal the RFS remains the most viable pathway to allowing all users of corn to have equal market access.”