The U.S. is hitting its ethanol limit. So the EPA may relax its biofuels rules.

August 7, 2013

When it comes to ethanol, the United States appears to have reached its limit — at least for the time being.

(Chuck Olson / Flickr)
Billboards advertising fuel that's 85 percent ethanol (Chuck Olson / Flickr)

Back in 2007, Congress passed a law that would essentially require the nation to use more and more ethanol and other biofuels each year. But for reasons of chemistry and economics, those targets are becoming increasingly difficult to fulfill. That helps explain why, on Tuesday, the Environmental Protection Agency took the rather unusual step of announcing that it would look into ways to adjust those targets in the years ahead.

Here's the back story: In 2007, Congress updated its Renewable Fuel Standard, which set rough targets for the amount of ethanol and other biofuels that had to be blended into the nation's gasoline supply each year. By 2013, that target was supposed to hit 16.55 billion gallons — and it was supposed to keep rising until it hit 36 billion gallons in 2022.

There was just one hitch. When Congress passed the law in 2007, lawmakers figured that Americans would keep using more and more gasoline each year, and all that ethanol would make up a small portion of the total. Instead, the opposite happened. Americans started buying more fuel-efficient cars and driving less. U.S. gasoline use is actually falling right now.

And that's created a hassle. Right now, the nation is at the point where much of its gasoline contains about 10 percent ethanol. That, in itself, isn't a problem. Cars and fuel pumps in the United States can easily handle gasoline with 10 percent ethanol or less, a blend known as "E10." But if we started mixing even more ethanol in that gasoline — say, moving up to 15 percent, or E15 — it gets trickier.

E15 is more corrosive, and it's not deemed suitable for cars built before 2000, heavy-duty vehicles, motorcycles, or non-road engines (like boats or snowmobiles). For cars built after 2001, the government has declared the fuel safe after extensive testing, but even so, many auto manufacturers have said that their warranties won't cover any damage caused by fueling with E15.

For that reason, the 10 percent number is known as the "blend wall," and fuel marketers say we've just about hit it. If the targets for biofuels keep going up and up each year, it's going to be increasingly difficult to mix ethanol into the gasoline. Blenders and refineries say they'll have to keep buying up renewable credits instead to comply with the law — and that will raise their costs.

Can the EPA sort this mess out? So that brings us to the Environmental Protection Agency, which is in charge of running the fuel standard. On Tuesday, the EPA said two big things. First, it would keep the biofuels target in place for 2013 at 16.55 billion gallons. There are enough credits floating around from previous years, the EPA said, that fuel companies should be able to meet this target.

More notably, however, the EPA said that it would reevaluate the biofuels targets for 2014. "We believe that it will be challenging for the market to consume sufficient quantities of ethanol sold in blends greater than E10 and to produce sufficient volumes of non-ethanol biofuels ... to reach the mandated 18.15 bill gal for 2014," the agency said. Regulators didn't say how they might try to make those targets more flexible, just that it was on their radar.

"The EPA sent a strong signal that where this law was headed was not sustainable," said Jason Bordoff, director of Columbia University's Center on Global Energy Policy and a former senior White House energy official.

There are a number of things that the EPA will have to consider. First, there's that pesky blend wall. In theory there are ways the wall could be knocked down. The country could find ways to use more E15. What's more, there are currently about 11 million "flexible-fuel" vehicles in the United States that can technically handle E85, or fuel that's 85 percent ethanol. The problem? There aren't many fueling stations that offer E85 outside of the Midwest, and regulators aren't sure how quickly these stations will pop up.

Oil refiners and blenders say that these stations aren't popping up quickly enough — and won't anytime soon. Renewable fuels advocates, for their part, claim that the biggest obstacle is actually the oil industry itself, which (they say) has hindered the expansion of E15 and E85 fueling infrastructure.

There's also a related question of "advanced" biofuels. When Congress enacted the law in 2007, it declared that a certain portion of biofuels had to come from cellulosic materials or other sources. The idea was to shift the nation's biofuel industry away from crop-based ethanol, so as not to put a strain on the food supply and to address the environmental concerns about corn ethanol. But so far, cellulosic ethanol hasn't really materialized in large volumes. The technology is advancing slowly.

It's too early for the EPA to say how, exactly, they'll juggle all these issues. But there's a lot of pressure on both sides. Oil companies want to relax the rules considerably — and are even asking Congress to repeal the standard altogether. Biofuels producers are pushing back. And the dueling ad campaigns are getting increasingly ferocious.

Further reading:

— This report from the Congressional Research Service on the Renewable Fuels Standard is a nice, thorough primer on the subject.

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Sarah Kliff | August 7, 2013