Prospect of ethanol hitting ‘blend wall’ could shake up EPA’s RFS in 2014

Source: Tiffany Stecker, E&E reporter • Posted: Thursday, August 8, 2013

U.S. EPA lowered the required gallons for cellulosic biofuels for this year yesterday, but it also gave clues on how the agency might use its flexibility to conform with changing realities since the federal renewable fuel standard was approved by Congress six years ago.

Yesterday, EPA cut the volume for cellulosic biofuels — fuels made from grasses, wood, corncobs, trash and other low-impact sources — from 14 million gallons of ethanol-equivalent fuel in the proposed rule to 6 million gallons in the final rule. The 6 million gallons is a tiny fraction of a percent of the 1 billion gallons EPA envisioned for 2013 when the RFS was first written.

The agency also suggested that the bigger pools, which include traditional corn ethanol and sugar-cane ethanol from Brazil, could see a reduction in the future, as too much ethanol is produced for the current gasoline supply.

“In the rule issued today, EPA is announcing that it will propose to use flexibilities in the RFS statute to reduce both the advanced biofuel and total renewable volumes in the forthcoming 2014 RFS volume requirement proposal,” wrote the agency in its announcement.

Although the agency has been tweaking the cellulosic goals for the past three years, a change in the 2014 mandates for advanced biofuels and the overall renewable fuels — 3.75 billion and 18.15 billion gallons, respectively — would mark the first time EPA has adjusted targets in the two big primary pools. The RFS calls for an overall goal of 36 billion gallons of renewable fuels by 2022.

These revisions next year will serve to manage the excess of ethanol the country is producing and importing. Most of the ethanol in the United States is blended at a 10 percent rate. The U.S. Energy Information Administration expects that vehicles will consume 133 billion gallons of gasoline this year. With an approximate annual rate of 13.1 billion gallons of ethanol in the market this year, that 10 percent rate is going to hit a “blend wall,” or a maximum limit, very soon.

No room for growth

This leaves no room for growth for ethanol — either from corn, cellulose or imported Brazilian sugar cane, which is considered a low-carbon advanced fuel because it can be made more efficiently.

So far, the blend wall has remained an issue for the conventional corn ethanol industry, but not the cellulosic sphere, because there was not enough production to push against the wall. As cellulosic production ramps up, however, that may change, said Brooke Coleman, executive director of the Advanced Ethanol Council, a subset of the corn ethanol-backed Renewable Fuels Association.

“That’s true if it’s from wood or corn or sugar, the blend wall is as much as an issue,” said Coleman. By next year, five big cellulosic ethanol plants are expected to operate at commercial capacity, bringing about 93 million gallons of cellulosic ethanol to America’s gas tanks.

Realistically, this is still six-hundredths of a percent of the 2013 gasoline market, and cellulosic ethanol won’t push the blend wall any higher in the short run. But Coleman believes cellulosic will grow much more in the short run than “drop-in” fuels that mimic gasoline and don’t need to be blended.

“Ethanol is the most cost-effective next-generation biofuel out there,” said Coleman. While drop-in fuels may avoid the blend wall problem, they require more processing and can be more expensive to produce.

To deal with the blend wall while keeping the RFS intact, the United States’ cars need to consume ethanol at higher blends, said Coleman. But consumers have been reluctant to pump a higher blend of 15 percent ethanol, as fears of engine damage have plagued E15’s reputation. Flex-fuel vehicles can take up to 85 percent ethanol blends, but the number of flex-fuel vehicles on the road — 8 million — is relatively small and many flex fuel car owners don’t know their vehicles can run on E85.

“E15 buys some time, but we have to push past that if we look to the mandate levels,” said Nicholas Paulson, an assistant professor in the Department of Agricultural and Consumer Economics at the University of Illinois, Urbana-Champaign. “To meet those, it’s going to have to be higher blend rates.”

Some support for a flexible mandate

Growth Energy, an ethanol trade group, said it is unconcerned that EPA might cut the conventional ethanol pool.

If consumers don’t go for 85 percent blends of ethanol, EPA will have no choice but to reduce the mandates elsewhere. Because the agency has a responsibility to tackle climate change through the promotion of low-carbon fuels like cellulosic biofuel, it’s likely to modify the numbers in the conventional pool to deal with the blend wall.

“From Abengoa or Poet’s perspective, they’re going to have a guaranteed mandate,” said Paulson, referring to two big cellulosic ethanol companies that are expected to begin production next year. “There’s no getting around not having to use cellulosic at whatever level [EPA will] enforce.”

The Union of Concerned Scientists, a scientific advocacy group that has called on the RFS to promote low-carbon fuels, has asked EPA to scale down the advanced biofuel mandate — which is currently 2.75 billion gallons — to avoid depending on food-based fuels like sugar-cane ethanol, soybean biodiesel, and palm oil biodiesel that promotes deforestation in the tropics. To be an “advanced” biofuel, a fuel must achieve at least 50 percent less greenhouse gas emissions than fossil fuels.

“The actual consequences of trying to make up for the missing cellulosic biofuels with biodiesel or sugarcane ethanol will lead to unintended counterproductive outcomes,” wrote UCS in a statement. The National Biodiesel Board has said the industry is diversifying its feedstocks, and a growing percentage of biodiesel comes from recycled cooking oil and waste animal fats.

The blend wall is one of many reasons petroleum trade groups, which represent the refiners that are obligated to blend biofuels in the country’s fuel supply, have called for a repeal of the RFS. The flexibility to change the numbers year by year is not enough, they say.

“While the administration acknowledges that higher ethanol mandates are unworkable by suggesting a new approach for the 2014 standards, EPA missed an opportunity to fix the problem this year,” said Jack Gerard, president and CEO of the American Petroleum Institute. “Now it’s up to Congress to exercise leadership and move quickly to end this dangerous mandate before it hurts consumers, damages vehicles and harms our economy.”

But the majority of players in the biofuels business supported EPA’s use of a flexible mandate.

“EPA has consistently reached out to our industry,” said Michael McAdams, president of the Advanced Biofuels Association. “I remain confident that as EPA moves forward to match these things up, biofuels will continue to have a long-standing and bright future.”