The U.S. may be hitting its ethanol limit. So EPA wants to relax its biofuels goals.

November 15, 2013

When it comes to ethanol, the United States may have reached its limit — at least for now.

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

Back in 2007, Congress passed a law that would 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 Friday, the Environmental Protection Agency took the unusual step of proposing to cut its biofuels targets for next year. The agency will require gasoline refiners to use just 15.2 billion gallons of biofuels in 2014 — down from 16.55 billion gallons this year. The new target is 14 percent lower than the original goal envisioned by Congress.

The EPA's move is a victory for gasoline refineries, which have long argued that the original targets were unworkable. And it's a fairly big setback for the biofuels industry, at least for the time being.

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 rose to 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 has actually fallen in recent years.

And that 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 claim 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.

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.

The EPA decides to step in. So that brings us to the Environmental Protection Agency. On Friday, the EPA proposed to relax the biofuels target for 2014 to 15.21 billion gallons, which amounts to just under 10 percent of the motor fuel expected to be used next year.

That will mainly affect corn-based ethanol, which will go from providing 13.8 billion gallons of fuel this year to just 13 billion gallons next year. Advocates of renewable fuels say this is likely to hurt corn farmers, who made planting decisions this year in anticipation of a rising ethanol supply. (Roughly 38 percent of the U.S. corn crop is used to make ethanol.) Corn prices fell more than 1 percent after the EPA announced its proposal.

The EPA also dealt with the 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. So, on Friday, the EPA lowered its targets for advanced biofuels to around 2.2 billion gallons (down from 2.75 billion gallons this year). What's more, refineries will have to use roughly 17 million gallons of cellulosic ethanol, made form things like switchgrass, corn cobs, and wood chips.

The EPA's proposal will now go through a 50-day comment period. And the debate is likely to be contentious. Oil companies have lobbied to relax the rules considerably — with some groups 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.

— My colleague Steven Mufson recently wrote an excellent in-depth piece on the long, bumpy road to cellulosic ethanol.

— Here's a recent AP investigation on how corn ethanol isn't nearly as environmentally friendly as advertised.

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