Fight Over Ethanol Quotas Heats Up as U.S. Nears Final Decision

Source: By Jennifer Dlouhy, Bloomberg News • Posted: Monday, November 23, 2015

All sides in the contentious debate over how much ethanol to blend into the nation’s gasoline are making their final pitches as the Obama administration nears a Nov. 30 deadline to set three years’ worth of renewable fuel quotas.

Representatives of the oil industry’s biggest trade group, the American Petroleum Institute, were scheduled to meet with White House officials Friday to argue that ethanol quotas should be kept below the current 10 percent threshold acceptable for use in all cars and trucks. The American Fuel and Petrochemical Manufacturers delivered a similar message Thursday.

On the other side, the Fuels America coalition of biofuel boosters and producers, including DuPont Co., Royal DSM NV and Poet LLC, launched an ad campaign pressing the administration to boost the proposed quotas in line with higher statutory targets.

“This ad campaign is sort of the last major chance we have to get the attention of the president to focus on this question, which EPA has really gone very much backwards on,” said Roger Johnson, president of the National Farmers Union, a coalition member. “It’s the last big chance we have to get this right.”

The Environmental Protection Agency in May proposed targets that fell short of levels mandated in a decade-old law — raising the ire of renewable fuel advocates. The administration has a deadline of Nov. 30 to unveil its final targets for 2014, 2015 and 2016.

Ad campaign

Fuels America declined to specify what it’s spending on the ad campaign, describing it generally as a six-figure ad buy with digital spots running in Washington along with a full-page ad in the New York Times on Thursday. The full-page Times ad casts robust Renewable Fuel Standard mandates as a critical piece of President Barack Obama’s environmental agenda heading toward an international climate summit in Paris beginning Nov. 30.

The underlying RFS law, created by Congress in 2005 and updated two years later, sets steadily escalating requirements for renewable fuels, including traditional corn-based ethanol as well as next-generation alternatives made from algae and other material. The statute requires refiners to use 20.5 billion gallons of renewable fuels this year and 22.25 billion in 2016.

But those numbers are based on 2007 fuel consumption forecasts, and in the eight years since, gasoline demand has grown more slowly than anticipated.

Corn Ethanol

The EPA is expected to at least modestly boost final quotas based on a recent uptick in gasoline demand. The agency is obligated to use recent gasoline demand projections from the government’s Energy Information Administration in setting the biofuel targets.

The EPA’s initial proposal outlined on May 29, as directed by a court settlement with the oil industry, would require refiners to use some 17.4 billion gallons of renewable fuels next year, with about 14 billion of those coming from traditional corn ethanol. For 2015, EPA proposed a requirement for 16.3 billion gallons of total renewable fuels, including 13.4 billion in traditional ethanol derived from corn.

Biofuel producers say they count on the statutory volumes to entice investors lured by guaranteed demand.

“For 10 years, the industry has operated under the premise that if the law called for renewable fuel and we could make the fuel there would be a market for it,” said Adam Monroe, president of the Americas for Novozymes A/S. The EPA’s proposal “upends that basic premise” and “sends tremendous uncertainty signals to our investors.”

Extra Headroom

API is asking the agency to cap the total ethanol mandate at 9.7 percent of gasoline demand, which would provide a buffer below the 10 percent blend accepted in all cars and trucks to accommodate sales of ethanol-free gasoline.

“Americans aren’t consuming as much gasoline as Congress assumed they would when they wrote the legislation in 2007,” said Bob Greco, API’s director of downstream and industry operations. “That means current ethanol mandates push far more ethanol, far too quickly into gasoline than today’s vehicles can safely accommodate.”

The group, which is separately pushing Congress to rewrite the Renewable Fuel Standard, released a poll Thursday highlighting broad consumer concerns about the mandate.