EPA proposes smaller targets for biofuel use

November 15, 2013

The Environmental Protection Agency on Friday proposed lowering requirements for biofuel use in 2014, trimming targets for corn-based ethanol for the first time.

The proposal would set ethanol use at 15.21 billion gallons, just under 10 percent of motor-
fuel consumption and 16 percent lower than targets established by Congress in 2007.

It angered farm groups, corn-ethanol producers and supporters of biodiesel, but it mollified oil companies, which have long argued that if the content of ethanol in motor fuel exceeded 10 percent — known as the blend wall — it might damage cars, motorcycles and lawn mowers. Groups representing ethanol makers say that mixing higher levels of ethanol with gasoline would not harm vehicles.

“Facts are facts,” said Stephen H. Brown, vice president for governmental affairs at the oil refiner Tesoro. “They’re so stubborn even this administration has to accept them.”

“They’re capitulating to the oil companies,” Bob Dinneen, president of the Renewable Fuels Association, said of the administration. He said that the EPA’s proposed targets would hurt farmers and violate the spirit of the renewable fuels standard Congress adopted. “The RFS was about forcing marketplace change,” he said, “and EPA is giving the oil companies a get-out-of-jail-free card.”

The EPA proposal, which includes target ranges for each kind of renewable fuel, will be subject to comment before the agency settles on quotas in the first quarter of 2014.

The EPA quotas for biofuels are part of the renewable-fuel standards established under energy legislation passed by Congress in 2007. Congress, eager to replace a portion of U.S. oil imports with homegrown fuel and to reduce the greenhouse-gas emissions from transportation fuels, set a schedule that would phase in corn-based ethanol and later “cellulosic” ethanol, which is made from things other than corn, such as switchgrass, corn cobs, corn stalks, waste or wood chips.

Congress also gave the EPA authority to alter the production targets if they proved unrealistic.

The American Petroleum Institute has been lobbying to repeal the renewable-fuel standard altogether, and the EPA’s proposed ranges did not entirely placate the group. API President Jack Gerard said that “more must be done” and “ultimately Congress must protect consumers from this outdated and unworkable program.”

But some industry officials said that if the EPA sticks to the blend wall, they will be satisfied. Oil refiners need to mix nearly that much ethanol into motor fuel anyway to meet octane requirements.

The new proposal is in line with numbers included in a leaked version last month. The midpoint of every range is the same as the earlier figures.

The 15.21-billion-gallon ceiling the EPA set Friday for renewable fuels in 2014 falls far below the 18.15-billion-gallon target Congress had originally set and below the 16.55-billion-gallon requirement for this year.

“Advances in vehicle fuel economy and other economic factors have pushed gasoline consumption far lower than what was expected when Congress passed the Renewable Fuel Standard in 2007,” the EPA said in a statement. “As a result, we are now at the ‘E10 blend wall.’ ”

The biggest renewable fuel is corn-based ethanol, which will amount to about 13.8 billion gallons this year and would be limited to 13 billion gallons next year under the proposal. In 2007, Congress set a 15-billion-gallon limit on corn-based ethanol because of concern about using food for fuel. With a record corn crop this year, ethanol is expected to consume about 38 percent of the crop, although distilleries use leftover materials to provide feed to livestock and poultry producers, Dinneen said.

“Farmers planted 93 million acres to get that corn crop, in anticipation of a growing fuel market,” Dinneen said. “EPA just took 500 million bushels of demand away from the farmers. That’s going to have a significant impact on corn prices, and corn prices were already falling.”

Livestock and poultry industry officials, on a conference call organized by the API, said there wasn’t any more need to set ethanol-volume requirements than there was for setting requirements for turkey output.

The EPA also slashed the target production of cellulosic ethanol. The middle of the cellulosic ethanol target range — about 17 million gallons — is high enough to make room for the output of one or two of the handful of commercial-scale distilleries set to start up next year.

Even with those producers, cellulosic-ethanol output will amount to a drop in the bucket of American motor-fuel consumption. The 2007 legislation mandated that the use of cellulosic ethanol grow gradually until it hit 16 billion gallons in 2022.

Gerard called cellulosic ethanol a “phantom fuel,” but Dinneen said companies were “at the cusp” of commercializing cellulosic and that the EPA rules would hurt their ability to get financing.

The administration Friday also set a target range for all advanced biofuels of 2 billion to 2.5 billion gallons. Producers of biodiesel, which falls under that category, say they can provide more. On Thursday, 32 senators sent a letter to EPA Administrator Gina McCarthy, asking her to set a volume target of at least 1.7 billion gallons for biodiesel alone.

“Biodiesel has exceeded RFS targets in each year and is clearly poised to do so again in 2013,” the senators wrote. “The industry has had impressive growth, going far beyond initial expectations just five years ago, and is supporting 62,160 jobs and nearly $17 billion in total economic impact.”

Steven Mufson covers energy and other financial news.
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