EPA Says Ethanol Bounty May Push Refiners Over Blend Wall

Source: By Mark Drajem - Jun 26, 2013 11:32 AM CT, Bloomberg • Posted: Friday, June 28, 2013

Refiners may be forced to exceed 10 percent ethanol in their fuels next year in order to meet congressionally mandated renewable-fuel standards, according the Environmental Protection Agency.

While oil-industry lobbyists are urging lawmakers to scrap the Renewable Fuel Standard because of problems this year, an EPA official will tell Congress today that issues with the “blend wall” — where the amount of mandated corn-based fuel exceeds levels considered safe for all engines — won’t bite until 2014.

“Given these facts, we will continue to look at the potential impacts of the blend wall over the near and longer term,” Christopher Grundler, director of the office of transportation and air quality at the EPA said in testimony prepared for delivery today to a panel of the House Energy and Commerce committee. “EPA will continue to engage with stakeholders on this issue as we move to propose the RFS volume requirements for 2014.”

The Renewable Fuel Standard, or RFS, dates in its current form to 2007, when concerns about dependence on overseas oil and a desire to curb the use of fossil fuels induced Congress to set quotas for the use of alternatives to gasoline or diesel, such as corn-based ethanol and biodiesel.

Corn Fuel

Under the law, refiners such as Exxon Mobil Corp. (XOM) must blend a certain volume of renewable fuels into their gasoline each year regardless of the total amount of fuel produced. When fuel use falls, it effectively boosts the amount of ethanol in the gasoline and other fuels.

The EPA and renewable-fuel producers say the mandate spurs production of American-made fuels, helps corn farmers and cuts carbon emissions by replacing gasoline.

Lobbyists representing refiners such as Exxon, based in Irving, Texas, say falling U.S. fuel demand means that requirements for ethanol may force its use higher than the 10 percent that the government says is safe for all engines.

U.S. gasoline demand has declined every year since 2007, reaching a 14-year low of 8.518 million barrels a day in 2012, according to the Energy Department in Washington. Last year, average daily gasoline use in the world’s largest economy was 8.3 percent lower than in 2007.

Engine Damage

The EPA has cleared the use of E15, or gasoline with 15 percent ethanol, for most vehicles sold since 2001. The oil industry is fighting that determination, and argues that the higher ethanol content can harm vehicle engines.

In his testimony today, Grundler said that higher blends of ethanol may need to be used to meet the requirements, or “significant additional volumes of non-ethanol biofuels would be needed.”

While the EPA acknowledged the issues of refiners, a Department of Agriculture official shot down concerns from chain restaurants, food charities and chicken producers that the fuel standard is raising the cost of food.

“Any increase in farm prices for corn and soybeans due to increased biofuels production has likely had only a small effect on U.S. retail food prices,” Joseph Glauber, chief economist of USDA, said in his testimony to the panel.