Hitting the Brake on Ethanol

Source: By TENNILLE TRACY And KEITH JOHNSON CONNECT, Wall Street Journal • Posted: Saturday, November 16, 2013

WASHINGTON—The Environmental Protection Agency on Friday proposed for the first time to ease an annual requirement for ethanol in gasoline, saying that levels mandated in a 2007 law are difficult, if not impossible, to meet.

The move represents one of the biggest setbacks to date for ethanol, long seen as a promising way for the U.S. to reduce dependence on imported oil. Most U.S. ethanol comes from corn, and the move came despite a heavy lobbying push from corn-producing states.

Under a 2007 law, refiners were supposed to blend more than 14 billion gallons of ethanol into the nation’s gasoline supply in 2014, representing more than 10% of the gasoline motorists pump annually.

Refiners and oil companies called the level too high, saying it would require them to produce fuel that could damage engines, and the EPA said it had authority to roll back the congressional mandate.

The proposal released Friday would require between 12.7 billion and 13.2 billion gallons of corn ethanol in the nation’s fuel mix—a level that is not only lower than what was originally intended for 2014, and also lower than the levels of the last two years.

The EPA went further in lowering the mandates for advanced biofuels, a category that includes ethanol made from non-corn sources such as grasses. Congress had envisioned a mandate of 3.75 billion gallons of advanced biofuels in 2014, but the EPA proposed that the level be cut to between two billion and 2.5 billion gallons.

Biofuels defenders blasted the regulators’ plan, saying it could end up strengthening petroleum’s stranglehold on the transportation market.

“The only way to break foreign control on oil prices and the nation is to introduce a competitive alternative,” said Adam Monroe, president of Novozymes America, a unit of Denmark’s Novozymes A/S that makes fuel out of biomass.

The recent surge in domestic oil and gas production, coupled with a decline in the demand for transportation fuel, has lessened the appeal of ethanol. Food producers said the ethanol mandate makes animal feed more expensive by raising corn demand.

Oil companies praised the EPA move and said Congress should follow suit by eliminating the mandates altogether. “The agency’s action is little more than triage applied to a program that requires legislative surgery,” said Charles Drevna of the American Fuel & Petrochemical Manufacturers, a group that includes refiners.

The EPA’s proposal will be open to 60 days of public comment before being made final in the spring of next year. The fight isn’t likely to end then, however, because biofuels producers contend the agency doesn’t have authority to change Congress’s mandated levels. The EPA said it was on solid legal ground. An administration official called the new levels “a sustainable path forward that allows for steady growth.”

The EPA said it was trying to fix a problem known as the “blend wall,” which occurs when the annual requirement mandated by Congress exceeds the amount of ethanol that can be mixed into conventional blends of gasoline. Oil companies and refiners have been warning of the blend wall for several years. If the EPA had stuck to Congress’s original target, refiners said they would have hit the blend wall in 2014 for the first time.

Ethanol makers said the law was meant to incentivize the use of renewable fuels, and they criticized the oil industry for its reluctance to promote gasoline blends with more ethanol

Oil companies and refiners say that gasoline blended with 15% ethanol, known as E15, could damage cars, while ethanol makers say the oil industry is fanning false fears to protect its own product.