Ethanol backers really do mind the gap

Source: By Alex Guillén, Politico • Posted: Friday, May 20, 2016

For ethanol backers, EPA’s proposed 2017 Renewable Fuel Standard mandates are close – but no cigar.

The agency’s decision to propose a corn ethanol mandate just shy of the goal set by Congress has left the ethanol industry scratching its head as to why the agency would get so close to the target, but end up leaving a gap.

“It really is an unforced error, again, on the RFS,” said Brooke Coleman, executive director of the Advanced Biofuels Business Council.

EPA’s proposal for 2017 calls for refiners to use 14.8 billion gallons of convention biofuel, primarily corn ethanol – just 200 million gallons short of the 15 billion gallon goal set by Congress 10 years ago, or a shortfall of 1.3 percent.

“It’s frustrating. It’s also baffling,” said Renewable Fuels Association President and CEO Bob Dinneen. “I don’t understand why EPA is reluctant to allow the RFS to drive changes in the marketplace.”

EPA sets the mandates after weighing a number of factors, including the Energy Information Administration’s projections of gasoline demand, production capabilities (an issue that has impeded cellulosic growth under the RFS) and the availability of biofuel imports.

“We set volumes that are ambitious, yet achievable given the realities of the market,” said EPA spokeswoman Laura Allen.

For RFS opponents in the oil industry, ethanol supporters’ complaints about coming 200 million gallons short are simply making a mountain out of a molehill – and discounting the wishes of consumers.

The public doesn’t actually want or need even more ethanol, American Fuel & Petrochemical Manufacturers President Chet Thompson said in a statement. Already the level proposed by EPA “threatens to force consumers to use more biofuel than vehicles, engines and fueling infrastructure can handle,” he said.

For its part, EPA’s own website notes that conventional biofuels are mandated at “99 percent of the Congressional target.”

Critics of EPA’s proposal in the biofuels sector say the RFS was meant to pressure fuel suppliers to incorporate ever rising quantities of biofuels in the fuel supply. But EPA’s proposal, along with its previous rule that for the first time set corn ethanol mandates below what Congress stipulated in its 2007 law, are basically sticking to biofuel levels the industry would use anyway, they argue.

Jim Stock, a Harvard professor of political economy who served on President Barack Obama’s Council of Economic Advisers in 2013-14, said he was “quite surprised and disappointed” that EPA stopped at 14.8 billion gallons.

“I just don’t see the rationale for not going to 15 billion gallons, which is what the statute requires and is consistent with the mission of the program,” he said.

He cited several “safety valves” in the RFS that are designed to protect the market against inadvertently falling below 15 billion gallons if that were the mandate – including companies’ ability to purchase RINs for compliance.

Ethanol supporters are hopeful that EPA will get their message and return to the full statutory level of 15 billion gallons when it finalizes the rule in November. They had some measure of success last year in EPA’s rule covering 2014 through 2016. EPA originally proposed mandating 14 billion gallons of ethanol for the current year, a full billion below the statutory levels – but in the final rule raised that to 14.5 billion.

EPA is relying on EIA projections that historically underestimate demand for gasoline, biofuels groups argue. Once those figures are adjusted for 2017, even a small increase in projected demand could be enough to allow more ethanol into the market and close the gap.