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EPA proposes a biofuels compromise — and makes nobody happy


The embattled Environmental Protection Agency on Friday released new proposed rules for the volume of biofuels to be blended into the nation’s fuels through 2016, in an effort to put itself back on schedule after numerous missed deadlines but still failing to please business interests on both sides affected by the rule.

The conflict traces back to the 2005 Renewable Fuel Standard, which (as later updated) required blending of corn-based ethanol and other biofuels into motor fuels in escalating amounts, eventually reaching 36 billion gallons by 2022. The law sought to increase U.S. energy independence and also reduce greenhouse gas emissions. But declining gasoline use has crimped plans greatly, since ethanol volumes beyond 10 percent of gasoline — the so-called “blend wall” — would exceed what many car warranties say vehicles should use.

According to AAA, the large majority of today’s cars are “not approved by manufacturers” to run on fuels containing between 10 and 15 percent ethanol, dubbed E15 — and doing so for a sustained time “could result in significant problems.”

Hence EPA’s conundrum — and its difficult compromise. The proposed policy simultaneously increases conventional biofuel volumes (mostly comprised of corn-based ethanol) for 2016 to up to 14 billion gallons — enough to breach the “blend wall,” industry charges — but also raises them less than the law had initially stipulated (to 15 billion). Total conventional biofuels used in 2014 amounted to about 13.25 billion gallons. The new policy would also steadily increase mandated volumes for so-called “advanced” biofuels, like cellulosic ethanol.

“We recognize at EPA that the delay in issuing the standards … has led to uncertainty in the marketplace,” said Janet McCabe, acting assistant administrator at the agency’s Office of Air and Radiation, on a call with reporters Friday. The new proposed rule, she said, “will help provide the certainty that the marketplace needs to help these [fuels] develop.”

But members of the renewable fuels industry were quick to denounce the EPA’s move. “Today’s proposal by the EPA puts the oil industry’s agenda ahead of farmers and rural America,” said Jeff Lautt, chief executive of leading ethanol producer POET, in a statement. The National Corn Growers Association said that the new rules would mean “nearly a billion and a half bushels in lost corn demand.”

Meanwhile, traditional fuel refiners appeared no happier. “In acknowledging that the proposal seeks to force more ethanol use than the marketplace can handle, EPA is playing Russian Roulette with fuel supply and consumers,” said the American Fuel and Petrochemical Manufacturers’ president Chet Thompson.

“I guess the one liner is that there’s something in here for everybody not to like,” said James Stock, a a Harvard economist and fellow at the Center on Global Energy Policy at Columbia University. “What they’ve decided to do is to make a commitment to moving through the blend wall – get out higher volumes of ethanol through higher blends – but to do so in a measured way.”

Stock, who calculates that the blend wall could be breached by 0.2 percent in 2016 under EPA’s proposal, thinks nonetheless that the compromise is a smart move. He notes in particular that at the same time, the Agriculture Department announced plans to spend $ 100 million to work with states to increase the number of gas station fuel pumps that can carry higher volume ethanol blends, such as so-called E15 and E85.

If more consumers drove flex fuel vehicles that can run on these fuels, then the amount of renewable fuels in the fuel supply could be able to grow further — but with a limited refueling infrastructure, E85 has struggled to take off. “If there’s more places where they can buy it, more of it will be sold,” says Stock.

“Implementation of the RFS program to date has led to ethanol use that is essentially at the E10 blendwall today,” acknowledges the EPA. “Any further growth in ethanol volumes must entail the use of higher-ethanol blends such as E15 and E85.”

But others on the fuel industry side took a dimmer view.

“I think that the 2016 volumes are pure conjecture on EPA’s part, and I think it is a thinly veiled request from the agency to Capitol Hill for legislative intervention,” said Stephen Brown, vice president and council for federal government affairs at Tesoro, a major petroleum refiner. “That’s my read of this thing.”

The EPA rules are not final — they are subject to a public comment period — but the agency pledged to be on track to finalize them by this Nov. 30.

“We’re balancing two dynamics, Congress’s clear intent to increase renewable fuels … and the real world circumstances that have slowed progress towards these goals,” the EPA’s McCabe told journalists Friday.