Feds slash ethanol mandate for gasoline in nod to oil industry

By Zain Shauk and Collin Eaton

The Environmental Protection Agency on Friday sided with oil companies and said for the first time that less renewable fuel should be blended into the nation’s gasoline supply, adding ammunition to an intensifying debate over biofuels.

The move, a dramatic shift for the agency, is likely to increase calls for wholesale changes to renewable fuel requirements, with some groups calling for the mandates to be eliminated altogether.

The agency’s proposal would require that 15.2 billion gallons of renewable fuels be mixed into gasoline and diesel next year, an 8.1 percent drop from this year’s requirement.

It was the first time the agency has proposed lowering its annual target for renewable fuels since the government began mandating renewable blends in 2009. The action delivered a blow to corn farmers and producers of corn-based ethanol, a pure alcohol that makes up most of the nation’s renewable motor fuel. The agency will release its final mandates next year after a public comment period.

“We’re glad that the EPA has taken a pragmatic approach to fixing the standard, but it’s only temporary,” said Bill Day, a spokesman for San Antonio-based Valero, the nation’s largest independent refiner and an ethanol producer. Day said Valero has not called for repeal of the mandate.

“What’s really needed is for Congress to work on some legislation that would fix the problem of the Renewable Fuel Standard permanently,” Day said.

Ethanol makers were outraged by the proposal.

“It reflects an ‘all of the above, except biofuels’ energy strategy,” said a statement from the Fuels America coalition, playing on the Obama administration’s description of its “all of the above” energy policy that includes fossil and renewable fuels.

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Bob Dinneen, CEO of the Renewable Fuels Association, said oil companies and refiners have attempted to block the expansion of renewable fuel use by preventing stations from dispensing gasoline with higher ethanol blends, a charge the oil industry denies. He said regulators had caved to oil industry pressure in proposing a lower ethanol mandate.

“It turns the nation’s renewable fuel policy over to the oil companies because now they get to decide how much renewable fuel is used based on how much infrastructure they are willing to turn over to renewable fuels,” Dinneen said. “It is a complete reversal of what the (Renewable Fuel Standard) was intended to do.”

Changing landscape

The proposal reflected a changing energy landscape that is far removed from 2007, when Congress finalized the standard and envisioned that fuels produced from corn and other plants would help break the nation’s addiction to foreign oil.

American’s gasoline consumption peaked that year and has been on the decline ever since, largely because of improved vehicle fuel efficiency and the economic downturn that began about a year later.

But the escalating renewable fuel requirement forced refiners to buy more ethanol and blend it into a shrinking pool of gasoline, raising ethanol and corn prices.

Congressman: Repealing ethanol mandate would hike gas prices

When refiners had to pay more for ethanol — or had to buy ethanol credits when they fell short of their mandated volumes — they passed higher costs to consumers, said Patrick DeHaan, senior petroleum analyst for consumer gasoline price website GasBuddy.

Prices of ethanol and ethanol credits drove up the price of gasoline, DeHaan said. Americans shouldn’t have to pay extra, he said, for a standard he doesn’t believe was thought out well.

Environmentalists also have been lukewarm on the benefits of corn-based ethanol, raising questions about its effects on land, food prices and water availability.

Call for repeal

In proposing to lower the 2014 volume requirement, the EPA acknowledged that if it stayed on the track established when the law took effect, refiners would not be able to use all the ethanol it mandated.

Oil companies and automakers say that many vehicles on the road today cannot operate properly using gasoline containing more than 10 percent ethanol — the proportion in nearly all U.S. gasoline. While the government has pushed fuel distributors to sell a 15 percent blend called E15, few stations have it.

As required volumes of ethanol rose while gasoline production fell, refiners approached what has become known as the “blend wall” — the point at which using all the required ethanol would have pushed the mix above 10 percent.

Jack Gerard, CEO of the American Petroleum Institute, said the EPA’s action recognized that “the blend wall is a dangerous reality and that breaching it would bring serious impacts on America’s fuel supply.”

But he said the agency didn’t go far enough.

“Ultimately, Congress must protect consumers by repealing this outdated and unworkable program,” Gerard said in a conference call with reporters Friday.

Despite the expected pressure from the oil industry to change or eliminate the Renewable Fuel Standard, mandates are likely to remain in place, said Ken Medlock, senior director of the Center for Energy Studies at Rice University’s Baker Institute.

“I don’t foresee the whole thing being repealed,” Medlock said. “I actually think it will be something along the lines of sticking with the status quo, recognizing that the blend wall is sort of an upper bound.”

Hitting the blend wall

Here’s what’s building the “E10 blend wall” that led the Environmental Protection Agency to propose reducing the volume of renewables required in U.S. fuel supplies:

  • Most gasoline in the United States contains up to 10 percent ethanol — a pure form of alcohol usually derived from corn. Various interest groups debate whether engines can run properly on higher ethanol blends, and few gasoline stations sell them.
  • The Energy Independence and Security Act of 2007 set a Renewable Fuel Standard requiring refiners to blend a specified volume of renewables in the U.S. fuel supply, starting in 2009 and escalating each year, in order to reduce dependence on fossil fuel.
  • Since 2007, improved fuel efficiency has reduced gasoline demand as the renewable requirement rose, approaching the point where it would exceed 10 percent of the total supply—the E10 wall.

David Hendricks contributed from San Antonio.


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