Oil industry asks EPA to lower next year’s ethanol mandate

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, August 14, 2013

Oil industry trade groups today formally requested that U.S. EPA lower its ethanol targets for next year, citing the cost to refineries of meeting the goals in an age of decreased gasoline demand.

In a waiver request, the American Petroleum Institute and American Fuel & Petrochemical Manufacturers are asking that the agency reduce its 2014 renewable fuels target to below 10 percent of total gasoline supply in the country. Such a level, API said, would provide short-term relief for refiners faced with increased costs under EPA’s credit trading program for ethanol.

“We are calling on the EPA to use its waiver authority to provide a stopgap measure for this unworkable mandate,” said Bob Greco, API’s director of downstream activities. “Higher ethanol requirements could lead to a reduction in the domestic fuel supply, increased costs and severe harm to the U.S. economy.”

By statute, refiners next year are required to blend 14.4 billion gallons of conventional ethanol, or just shy of 11 percent of the projected 132 billion gallons of gasoline demand, into petroleum-based fuel. As is the case this year, the target will require refiners to exceed the 10 percent “blend wall,” or the technically feasible amount of ethanol that can be used in the market today.

Gasoline demand has softened since the renewable fuel standard was last revised by Congress in 2007; because demand has been lower than projected, refiners are anticipating hitting the 10 percent limit more quickly than originally expected. As a result, the price for renewable fuel credits that refiners can use to meet their annual obligations has spiked this year.

In their petition filed this afternoon, the oil groups are asking EPA to scale back the amount of ethanol to be blended into gasoline to 9.7 percent next year by reducing the total renewable fuels required under the standard. Greco said the petition also calls on the agency to adjust down its advanced biofuels and cellulosic biofuels goals.

“We think 9.7 percent is a reasonable number that would allow us to provide the fuel that customers want,” Greco said. “Not only is the ethanol mandate continuing to increase, but demand is continuing to decrease, and that’s just aggravating the problem.”

By law, EPA is required to set the following year’s renewable fuel targets by November of the preceding year and has the authority to lower the targets in the standard on a year-to-year basis. The agency, though, has consistently been delayed in setting the next year’s targets and only last week announced its final numbers for 2013 (Greenwire, Aug. 6).

In that rule, EPA indicated that it will “propose to use flexibilities” in the RFS to reduce the 2014 volume requirements for advanced biofuel and total renewable volumes but did not give specifics or a timeline for the proposal. The waiver request from API and AFPM would compel the agency to respond within 90 days; EPA, though, has taken slightly longer with similar requests in the past.

The petition by the oil trade groups comes a day after API launched the second in a series of ads slamming the renewable fuel standard in several states and Washington, D.C. (Greenwire, Aug. 12). API is still calling on Congress to repeal the standard while seeking administrative actions from EPA, Greco said.

“We’re in this year-by-year rule where we have to get EPA to do a stopgap measure every year just to prevent things from getting worse,” Greco said. “That’s not a sustainable approach to managing this.”

Biofuels producers say the standard has increased the nation’s oil independence and reduced gas prices at the pump and have slammed the oil industry’s efforts to gut the standard as an attempt to keep a monopoly on the fuel market. Oil companies, they say, merely have to invest in higher amounts of ethanol in gasoline, such as 15 percent and 85 percent blends, to meet its requirements.

A study last week by Iowa State University researchers found that E85, a blend used in flex-fuel vehicles, could provide a pathway for addressing the blend wall issues.

“In addition to E15, increased E85 sales offer a clear and sensible pathway to compliance for obligated parties in the next several years,” Renewable Fuels Association President and CEO Bob Dinneen said last week. “Bottom line, the RFS’s success — past, present and future — lies in its inherent flexibility. It is time for Big Oil to comply rather than obstruct.”