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Off Target: EPA and Its Inflexible Ethanol Mandates

Mark Green

Mark Green
Posted August 15, 2013

Interesting “Today in Energy” post from the able folks at the U.S. Energy Information Administration, recapping EPA’s final 2013 renewable fuels target volumes that were announced last week. No question, EIA is as intrigued as the rest of us by EPA’s mandates and their effect on fuels markets. EIA’s chart:

rfs-renewables-targets

Noteworthy above is EPA’s past pattern of not deviating from the overall volume requirements set out in the Energy Independence and Security Act of 2007 (EISA). Even though EPA has the authority to adjust levels specified by EISA – ostensibly, to reflect real-world circumstances – it hasn’t used it.

Indeed, despite ample evidence that the ethanol mandate under the Renewable Fuel Standard (RFS) is broken, pushing the country toward the ethanol “blend wall” that could have serious impacts on consumers and the economy, EPA’s final (and tardy) requirement for 2013, 16.55 billion gallons, is the same as was proposed under EISA earlier in the year. 

EPA scaled back the cellulosic biofuels share of the overall total, apparently recognizing that little of the fuel is being commercially produced – (notice: the burnt orange segment in the graph, representing cellulosic biofuels, is missing from the 2013 final rule). But instead of reducing the overall volume requirement, EPA increased mandates for biomass-based diesel and other advanced biofuels to keep the overall renewables mandate at 16.55 billion gallons. EIA’s analysis:

Beyond delays in the ramp-up of cellulosic biofuels production, RFS implementation has recently been challenged by the decline in recent and projected gasoline consumption since enactment of EISA 2007, reflecting higher vehicle fuel economy standards, slower economic growth, higher gasoline prices, and possible changes in consumer behavior. The level of gasoline consumption limits the amount of ethanol that may be used in the gasoline pool at any fixed blending level, such as the 10% ethanol blend (E10) that is predominant in the current U.S. gasoline supply. The anticipated need for adjustments in the 2014 RFS advanced biofuels and total renewable fuels targets reflects a combination of demand and supply issues in the biofuels marketplace …

Yet, if past is prologue, EPA isn’t likely to show much, if any, flexibility in the 2014 mandates – despite promises to do so. Hence, API’s request for EPA to lower the ethanol mandate to below 10 percent of gasoline demand for 2014. Bob Greco, API downstream group director:

“Higher ethanol requirements could lead to a reduction in the domestic fuel supply, increased costs, and severe harm to the U.S. economy. ... While a waiver for 2014 will provide short-term relief from the RFS mandate, the program is outdated and needs to be repealed once and for all. Under the current RFS regime, ethanol requirements will continue to increase while gasoline demand continues to decline. That’s why we need a full repeal by Congress.”

The fact is ethanol mandates under the RFS reflect a profound mismatch between policy and market reality. The RFS is forcing the use of more ethanol than the overall fuel supply can safely absorb – and in the process saddling refiners with using a fuel (cellulosic biofuel) that barely exists commercially. While EPA has pledged to address RFS issues next year, it missed a chance to get started this year, displaying an inflexibility in the presence of compelling market realities that doesn’t bode well for the agency’s future performance.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.