EPA’s proposal for lowering ethanol mandate isn’t low enough — API

Source: Amanda Peterka, E&E reporter • Posted: Friday, October 3, 2014

The American Petroleum Institute urged U.S. EPA today to lower this year’s mandate for ethanol below both the agency’s proposed target and the levels that API itself requested last year.

API today said it wants the agency to set this year’s long-delayed ethanol mandate at 9.5 percent of the total current gasoline market, or 12.84 billion gallons, based on consumer demand for gasoline containing no ethanol. The target is lower than the 9.7 percent mandate the oil and gas trade group has been advocating for over the past year.

“I think it’s a very realistic ask,” said Bob Greco, API’s director of downstream activities, in a conference call today with reporters.

EPA is in the final stages of the long process of setting this year’s requirements under the renewable fuel standard, a 2007 policy that called for increasing the amount of biofuels in petroleum gasoline and diesel. Last November, in an unprecedented move, the agency proposed lowering the mandates for both corn ethanol and advanced biofuels.

EPA proposed to set the ethanol portion of the renewable fuel standard for 2014 at 13.01 billion gallons, lower than the 14.4-billion-gallon target called for by the 2007 RFS. The agency based the lower target on the limit to the amount of ethanol that can be used in gasoline — which is known as the 10 percent “blend wall” — but is widely expected to raise it due to increasing gasoline demand since the November proposal.

EPA could issue its final rule setting the mandates any day now, but it’s possible the agency might also wait until after the midterm elections.

API has long called for the agency to lower the mandates even more, alleging that too much ethanol hurts car engines, raises food prices and harms the environment. It wanted EPA to give the oil industry a cushion below the 10 percent saturation of ethanol in the gasoline market.

But until at least this past June, API had been pressing the 9.7 percent target that it first called for in August 2013 in a formal petition to EPA. When it filed the petition with American Fuel & Petrochemical Manufacturers, that level represented 12.9 billion gallons of ethanol.

“We think 9.7 percent is a reasonable number that would allow us to provide the fuel that customers want,” Greco said last August.

API continued to press for the 9.7 percent target in public statements, meetings with the White House Office of Management and Budget and letters to EPA Administrator Gina McCarthy as late as this June, calling it an “adequate buffer” (Greenwire, June 18).

In explaining the lower request, Greco said today that 9.5 percent reflects growing demand for gasoline that contains no ethanol.

The vast majority of gasoline sold in the United States contains 10 percent ethanol, but demand for “E0” gasoline has increased from 3.4 percent of total gasoline in 2012 to 5.4 percent in 2013, according to handouts API provided to the Office of Management and Budget in a meeting last month. Through June 2014, demand was 7.5 percent.

The oil and gas trade group urged White House officials to accept the 9.5 percent number in the Sept. 15 meeting, according to handouts from the meeting.

“We have been advocating that they should set the mandate at no higher at 10 percent minus the demand for E0, in effect, to allow for E0. That demand has grown for about 3 percent to 5 percent,” Greco said today. “This is something the consumers are choosing, to use this fuel, and we think that consumer choice ought to be accomplished.”

Ethanol groups and lawmakers in the Midwest, on the other hand, have been pressing EPA to set their mandate at the full 14.4 billion gallons called for by the 2007 renewable fuel standard. That level would represent 10.65 percent of total current gasoline demand.

Ethanol producers argue that the RFS helps increase energy independence, boosts rural economies and reduces emissions of greenhouse gases, and they say EPA should use the RFS to expand the domestic biofuels market.

“The continued expansion of the biofuels industry is essential for our nation’s energy and economic future,” Illinois Gov. Pat Quinn (D) and Iowa Gov. Terry Branstad (R) wrote in a letter yesterday to OMB Director Shaun Donovan.

Advanced biofuels producers have also been urging EPA to ignore calls by the oil industry to lower the mandates to below the blend wall. Brooke Coleman, executive director of the Advanced Ethanol Council, said today that refiners are worried that if the ethanol target approaches the blend wall, prices for the ethanol credits known as RINs will increase like they did in 2013, forcing the market to start accepting higher levels of ethanol.

He said a mandate as low as 9.5 percent would “deflate” the whole renewable fuel standard program.

“It’s the whole fight. If the RFS stops at the blend wall, then there’s no impetus for the market to invest in the infrastructure to make the renewable fuel industry grow, which is what the oil industry wants,” Coleman said. “And built into their sort of hidden, inside of their position, is the critical piece of this whole discussion, which is they don’t want the volumes to get close to 10 percent because when they do, it actually energizes RIN markets.”