EPA Releases Proposed 2017 Renewable Fuel Volumes Amid Blend Wall Angst

Source: By Jessie, Stolark, EESI • Posted: Monday, May 23, 2016

On May 18, the U.S. EPA released proposed volumes for renewable fuels for 2017 under the Renewable Fuel Standard (RFS), and proposed volumes for biodiesel for 2018.  The total proposed volumes for all fuel categories in 2017 are 18.8 billion gallons, a modest increase over 18.11 billion gallons for 2016.  Total biofuel (as opposed to biodiesel) volumes are proposed at 10.44 percent of the gasoline supply, as opposed to 10.10 percent in 2015, a critical threshold in moving beyond the current E10 ‘blend wall’. Still, the proposal has drawn tepid praise from the biofuels industry and its supporters, who maintain they can make a greater contribution to decarbonizing the transportation sector.

Actual & Proposed Volume Requirements, 2016 & 2017

Fuel category GHG Lifecycle Emissions Reduction (%)* 2016 2017 2017 Congressionally mandated volumes 2018

Cellulosic biofuels

(sourced from cellulose)

60 230 mgal 312 mgal 5.5 bgal n/a
Biomass-based diesel 50 1.9 bgal 2.0 bgal ≥ 1 bgal 2.1 bgal
Total Advanced biofuels 50 3.61 bgal 4.0 bgal 9.0 bgal n/a
Conventional biofuel (corn ethanol) 20 14.5 bgal 14.8 bgal 15 bgal n/a

*Relative to gasoline.

Blend Wall Issues Continue to Haunt RFS

As written by Congress, the RFS caps corn ethanol at 15 billion gallons beginning in 2015, and an increasing share of biofuels would be sourced from cellulosic sources, such as crop and food wastes, grasses and other non-cornstarch based sources.  Despite recent growth in cellulosic fuel volumes, creating these lower-carbon fuels has proven more difficult than expected for numerous reasons.  Therefore, each year EPA has had to use its authority to lower cellulosic fuels volumes to match production volumes; the majority of renewable fuel volumes continue to be sourced from corn ethanol.  Beginning in 2013, EPA also began lowering corn ethanol volumes, despite the industry’s ability to produce at the levels outlined in the RFS.

The reason for this reduction in corn ethanol is the U.S. has reached the E10 so-called ‘blend wall,’ a point at which modest changes to vehicles and gas station equipment is needed to utilize higher renewable fuel blends, but has so far not materialized in any large-scale manner.  Today, the U.S. fuel supply currently hovers at about 10 percent ethanol. The only way to increase the volume of biofuels in the fuel supply is through increasing the use of higher blends of ethanol, such as E15 (15 percent ethanol, 85 percent gasoline) or higher blends.  Currently, three quarters of new vehicles are certified to use up to E15, according to the Renewable Fuels Alliance.  Additionally, EPA and DOE have certified the use of E15 in 2001 and newer make and model year cars.

While there are 17.4 million FlexFuel Vehicles (capable of using blends up to E85) on the road today, few are filling up with blends higher than 10 percent ethanol, due to both a lack of a significant number of gasoline stations selling E85 and poor consumer education.  Other potential pathways exist for increasing biofuels use, including renewable jet fuel and renewable natural gas for hybrid and electric vehicles, but they are currently not playing a significant role in the RFS.  As a result, setting renewable fuel volumes has centered on how much renewable fuel the gasoline pool can easily absorb each year.

The fight over EPA’s interpretation of the RFS, and whether it has the authority to lower fuel volumes due to what it sees as “constraints on the ability of the market to supply renewable fuels to the vehicles and engines that can use them” has moved to the courts, with several biofuels groups suing the agency over their interpretation of “adequate domestic supply.”  They argue that the oil industry has deliberately hampered the installation and deployment of renewable fuels infrastructure. No decision is expected from that suit until 2018, at the earliest.

Mixed Reaction from Renewable Fuels Industry

Industry reaction to the proposed volumes was somewhat positive, with groups thanking the agency for an expedient release of the 2017 rules, and for an increase in the volumes.  At the same time, they claim they can do more, and the numbers don’t reflect the production capacity of the industry, but instead, the intransigence of the petroleum industry.

According to the National Biodiesel Board, the biodiesel industry is capable of producing 2.5 billion gallons of biomass-based diesel in 2018 (biodiesel numbers are set 2 years in advance), 400 million gallons above the proposed volumes.  According to the corn ethanol industry – the 2016 numbers are already below 2015 production, and setting 2017 numbers marginally higher doesn’t match reality.  Others said the progress was good, but sending mixed signals, with biofuels enzyme producer Novozymes stating that the “decision is a confusing signal from an Administration that pushed the world so hard to come together and fight climate change at COP21 in Paris last year.”

At this point, the only sector with ample room to grow under the RFS is the advanced and cellulosic industry, with Mike McAdams, President of the Advanced Biofuels Association, commenting that the proposal was “good news for the advanced biofuels industry.”  While there has been growth in cellulosics, amid low oil prices and stagnating investment in cellulosic fuels, many companies using feedstocks such as algae have turned away from renewable fuels and instead are focusing their businesses on higher-value products, such as biobased chemicals, food additives and animal feed.  Currently, the majority of cellulosic fuels are being sourced from corn stover (the cobs, stalks and leaves of corn), and liquid renewable natural gas.

On the other side, the oil industry and oil refiners stated that moving renewable fuel volumes past 10 percent of the fuel supply, however marginally, will increase their operating costs.  The oil industry has mostly chosen to comply with the RFS through the purchase of credits, versus investment in the biofuels industry.  The American Petroleum Industry would like EPA to fully repeal the law.

Despite Slow Progress on RFS, Biofuels Still Critical to Meeting Climate Targets

Transportation emissions currently account for 27 percent of total U.S. greenhouse gas (GHG) emissions; cutting transportation emissions is essential to meeting the ambitious 2 degrees Celsius (3.8 degrees Fahrenheit) warming targets agreed to in Paris. While the oil industry would like to preserve their current dominance of the transportation sector, to work past the current RFS logjam requires transitioning the total gasoline pool from 10 percent ethanol to a higher blend, such as E15, therefore creating a market pull for new gallons of ethanol.  Current joint federal and private initiatives, such as the Biofuels Infrastructure Partnership, are assisting states and retailers to install gas station pumps that can dispense higher blends of fuel.  Car manufacturers are also turning towards higher octane fuels, such as E15 and E25, as a way to increase engine efficiency and meet stricter miles per gallon (MPG) ratings.  Overall, these increases are still a drop in the bucket of total U.S. fuel consumption.

Going forward, electrification of the transportation sector represents the best overall long-term strategy to decarbonizing transportation and getting off petroleum, but biofuels will still play an essential role. Currently, biofuels represent the best near-term solution to decreasing transportation emissions, reducing toxic tailpipe emissions and reducing our dependence on petroleum.  In the future, they will still likely be utilized in heavy duty applications such as trucking, aviation, and marine vessels, as well as serve as the building blocks for renewable chemicals and products.

EPA will be holding public hearings on the proposed standards on June 9 in Kansas City, MO and a public comment period through July 11.  The volumes are expected to be finalized by November 30.

For more information see:

Renewable Fuel Standard Program: Standards for 2017 and Biomass-Based Diesel Volume for 2018, EPA

Almost all U.S. gasoline is blended with 10% ethanol, EIA

EPA’s call for small ethanol increase angers producers, The Des Moines Register

EPA proposes 18.8 billion gallons for US biofuels for 2017, Biofuels Digest