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For EPA Fuel Standard, the Song Remains the Same

The Environmental Protection Agency sought to find a middle ground on May 29 with a package of renewable fuel mandates through 2016, but the agency did little to pacify the two sides that think it is doing too little, or too much to support renewable fuels.

The EPA proposed, in part to salvage its beleaguered policy, requirements that 16.3 billion gallons of renewable fuel be used in commercial fuel in 2015 and 17.4 billion gallons be used in 2017. Both proposals are below the 20.5 billion gallons in 2015 and the 22.25 billion gallons in 2016 spelled out in a 2007 law (PL 110-140) on the Renewable Fuel Standard.

The EPA’s proposals would increase use of corn ethanol, the major type of biofuel in the mandates, to 13.4 billion gallons in 2015 and 14 billion gallons in 2016.

“The proposal announced today is still lower than the levels mandated by Congress. It is disappointing that the EPA has sided with Big Oil at the expense of rural families across the nation,” Rep. Dave Loebsack, D-Iowa, said.

The May 29 proposal included mandates that were retroactive to 2014: 13.25 billion gallons of ethanol and 15.93 billion gallons of renewable fuels. Refiners and others obligated to blend fuels can use fuel credits to adjust if they missed the obligation for that year.

The same market participants can use the proposals for 2015 and 2016 to see how close they are to compliance.

The agency will finalize the standards by Nov. 30. By then, the 2014 proposal will be two years delayed and the 2015 proposal will be a year behind.

The EPA relies on four types of renewable fuels: conventional ethanol, primarily from corn; cellulosic biofuel; biomass-based diesel and advanced biofuel. Its proposal would mandate the amounts of each type through 2016 and the biomass-based diesel through 2017.

The agency agreed to propose mandates by June 1 for 2014 and 2015 under an April consent decree with the American Petroleum Institute and American Fuel and Petrochemical Manufacturers. The EPA is including the additional years to provide the renewable fuel industry, refiners and fuel importers a window into the agency’s views on the future of renewable-fuel policy.

“It’s bizarre that we’re actually trying to set standards for what fuel people should have sold last year,” said Howard Feldman, regulatory and scientific affairs senior director for the American Petroleum Institute. “It all the more points to our position that the Renewable Fuel Standard that we have is unworkable and needs to be changed legislatively.”

The mandates for 2016 and the separate 2017 biodiesel proposal offer the best sense of where the EPA is headed. By including the 2017 biodiesel proposal of 1.9 billion gallons, the agency is also trying to meet a statutory requirement that the mandate for the fuel must be set 14 months before it takes effect.

The renewable-fuel industry is pressuring the EPA to set mandates spelled out in the 2007 law to aid the growth of a domestic alternative-fuel industry. Growth Energy, the Renewable Fuels Association and the National Biodiesel Board, influential industry groups, accused the Obama administration of turning its back on rural America and giving in to oil industry demands when the EPA issued a draft 2014 Renewable Fuel Standard that reduced the overall mandate for renewable fuel use.

The agency also is under pressure from a coalition of the oil industry, food and livestock industry, small engine manufacturers, environmentalists and international development groups to scale back the mandates, particularly for conventional ethanol.

Lawmakers representing both sides have joined the chorus of criticism of the EPA. The May 29 proposals did nothing to change the minds of critics of the mandates.

“The EPA’s Renewable Fuel Standards may force Americans to consume gasoline blended with corn-based ethanol that can damage engines,” said House Science Committee Chairman Rep. Lamar Smith, R-Texas, in a statement. “The RFS is bad policy. Americans should not have to worry about what blend of gasoline is the right choice for their vehicle.”

The food and livestock industries argue that mandates have helped increase the cost of animal feed by creating a government-driven competition for corn, a key ingredient in feed. Small engine manufacturers say their products will not perform well with higher ethanol blends.

Congressional opponents of the RFS have introduced bills to scale back the mandates or repeal the 2007 law.

To meet the statutory target of ethanol used in commercial fuel in 2016, the EPA would have to increase the ethanol to 15 percent of the blend from 10 percent, according to the oil industry.

The EPA took a middle ground on May 29, charting a gradual increase in the corn ethanol mandate to 14 billion gallons in 2016.

Even that raises potential problems. The American Petroleum Institute said the only way to achieve the increase, given consumer demand, would be through more production of E15 or 15 percent ethanol-gasoline blends.

The EPA has said a 15 percent ethanol blend is safe for model years 2001 or newer. There are also flex-fuel vehicles designed to run on an 85-percent ethanol/15 percent gasoline blend. But few gas pumps at service stations can handle such blends and auto makers do not provide warranties for higher blends for about half of vehicles on U.S. roads.

Tom Buis, Growth Energy CEO, said the blend wall issue should not have surprised the EPA or anyone else who follows renewable fuels.

“When the RFS was passed in 2007, even though they had more robust projections for annual gasoline consumption, everyone knew that this day would come. The obligated parties would have to allow higher blends into the market place to make the RFS work,” Buis said recently.

The day arrived sooner than expected, he said.

“The blend wall is only an obstacle if you let it be. This is basically a fight over market share,” Buis added, noting that if more ethanol is allowed into the fuel market there will be less gasoline used.

The EPA, which is charged with setting the annual mandates for commercial use of conventional ethanol, cellulosic ethanol, biomass biodiesel and advanced fuels, has been struggling to reconcile the opposing demands and critics of the 2007 energy law who say it is out of date.

When Congress expanded the Renewable Fuel Standard in 2007, experts predicted escalating demand for transportation fuel, increasing dependence on sometimes hostile foreign nations for energy and tight oil supplies. The law laid out a map for increasing commercial production and use of renewable fuels to 36 billion gallons a year by 2022.

But rapid changes in the national energy landscape in the intervening years have changed views. U.S. domestic daily oil production has doubled since 2011 but consumer demand is relatively flat because of fuel-efficient vehicles and the lingering effects of the recession. The memory of nearly $4 per gallon fuel may also be encouraging people to be cautious about their use.

Under the law, corn ethanol production has grown as has biodiesel production. However, the production of cellulosic ethanol, largely from non-food plants, woody biomass, and other advanced biofuels, has lagged because of technical challenges and weak interest from investors. Under the law, advanced fuels are supposed to account for 21 billion gallons a year by 2022.

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