Industry warns of gasoline spike in formal plea against ethanol mandate

The oil industry on Tuesday pleaded with the Obama administration to lower the amount of corn-based ethanol and other renewable fuels that are required to be blended into gasoline next year.

Failing to drop quotas under the renewable fuel standard could cause gasoline prices to spike and result in “severe economic harm” for the United States, said the American Petroleum Institute and the American Fuel and Petrochemical Manufacturers, in their first-ever formal request for a waiver of the eight-year-old mandate.

The Environmental Protection Agency has twice rejected similar appeals by Texas Gov. Rick Perry, other state leaders, livestock producers and other groups, saying they failed to show severe economic damage from leaving the renewable fuel mandate in place.

But the EPA last week acknowledged concerns that refiners are hitting a “blend wall,” a point when they can no longer mix in enough ethanol to meet the mandate’s volumetric targets without exceeding the 10 percent threshold acceptable for use in all cars and trucks. Even before the oil and refiner groups filed their waiver request, the agency signaled it would use its flexibility under existing law to lower renewable fuel targets in 2014 to “reasonably attainable” levels.

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In the request filed with the EPA, the oil and refining trade groups are essentially asking the agency to set the 2014 targets at about 10 percent of the anticipated total fuel supply. Specifically, the groups are asking EPA to waive 3.35 billion gallons from the 18.15 billion that would otherwise be mandated under the renewable fuel standard next year.

“The negative impacts of the RFS will be extreme and will undoubtedly hurt consumers,” said Charles Drevna, the head of the American Fuel and Petrochemical Manufacturers group. “If EPA does not act, the inability to blend the statutory-mandated amount of ethanol could lead to domestic fuel supply shortages and ultimately cause severe economic harm to consumers and the economy.”

In their partial waiver request, the refining and oil industry trade groups rely heavily on a study by NERA Economic Consulting that concluded that without changes, the renewable fuel standard could deal a $770 billion hit to the U.S. gross domestic product. That report, commissioned by API and released in March, also predicted that diesel costs could spike 300 percent, gasoline prices could climb 30 percent and American workers could see a $580 billion drop in take-home pay.

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“The RFS mandates are unworkable,” said Bob Greco, API’s downstream group director. “As a result of hitting the blend wall, the RFS would lead to severe economic harm to consumers and the economy.”

The EPA, which is still drafting proposed renewable fuel quotas for 2014, has 90 days to respond to the 129-page waiver request. The agency said it would review the request.

Biofuels boosters said the oil industry was just trying to protect its turf.

“Renewable fuel provides American consumers savings at the pump, increases national security, and provides environmental benefits — but, for Big Oil, it means cutting into their recording-setting profits,” said the advocacy group Fuels America. “Instead of using this time to invest in the inexpensive infrastructure needed to allow our nation to overcome a surmountable blendwall, Big Oil has chosen to double down on lobbying and PR stunts, prioritizing its market share over the American consumer.”

Created by Congress in 2005 and updated by lawmakers two years later, the renewable fuel standard requires refiners to incorporate steadily increasing amounts of renewable fuels (typically corn-based ethanol) and advanced biofuels, including cellulosic ethanol made from non-edible plant parts and non-corn-based ethanol.

The statute would require 36 billion gallons of renewable fuel in 2022, with less than half of that — 15 billion gallons — coming in the form of corn-based ethanol.

The renewable fuel standard was envisioned as a way to help wean the U.S. off foreign oil and encourage the development of cleaner-burning biofuels as American gasoline demand climbed. But eight years later, more fuel-efficient cars are on American roads, keeping U.S. gasoline demand flat, even as the law’s renewable fuel requirements rise annually.

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Oil industry leaders contend the market for ethanol is limited, whether it is derived from corn, sugarcane or other materials. Some automakers warn that using a 15 percent ethanol blend known as E15 will void vehicle warranties, even for cars and trucks made since 2001, where the EPA has approved the product’s use. And relatively few filling stations offer E15 to motorists.

Meanwhile, an 85 percent blend known as E85 is generally only available for specialized flex-fuel vehicles.

“We know that if EPA does not grant the waiver – and we are very confident they will – we have enough data and studies that show refiners have limited choices in how they are going to comply, and that includes exporting more and cutting runs or both,” Drevna said. “All of those, individually or in the aggregate, are not going to be good for the consumer.”

Meanwhile, the groups haven’t given up their fight against the newly finalized 2013 quotas, which they cast as unrealistic. The EPA lowered the cellulosic biofuel target to 6 million gallons, down from 14 million gallons proposed earlier this year, but it is unclear whether even that much will be produced this year from new factories just now coming online.

Greco said the groups are weighing their options, which could include challenging the 2013 targets in court.

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