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EPA Considers U.S. Ethanol Mandate Cut Amid Complaints

Photographer: Daniel Acker/Bloomberg

Pure ethanol drips from a tap. Close

Pure ethanol drips from a tap.

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Photographer: Daniel Acker/Bloomberg

Pure ethanol drips from a tap.

The U.S. Environmental Protection Agency is considering scaling back legal requirements on the use of ethanol next year amid complaints from refiners that statutory mandates would exceed their ability to blend it into fuels without putting engines at risk.

A proposal from the agency would cut the mandate to 15.21 billion gallons for renewable fuels in 2014 instead of the 18.15 billion gallons established by a 2007 law, according to an internal proposal provided to Bloomberg. The agency would call for the use of 13 billion gallons of conventional corn-based ethanol and 2.21 billion gallons of advanced biofuels such as biodiesel, down from 13.8 billion gallons and 2.75 billion gallons respectively this year, it said.

The EPA proposal is “addressing both availability of qualifying renewable fuels and constraints on their consumption,” the agency said in the draft, which is dated Aug. 26, just days before a plan was officially submitted to the White House for review. The EPA document was provided to Bloomberg by an industry representative.

The administration of President Barack Obama, which has the ability under the law to adjust the legal requirements, could revamp the plan before the EPA issues it in the coming weeks. After that, the proposal could be changed before being finalized by the agency. This proposal was previously reported by Greenwire.

Specified Amount

Under the Renewable Fuel Standard, refiners such as Exxon Mobil Corp. (XOM) must use a certain amount of those fuels each year, with their target determined by their share of the fuel market. The EPA and renewable-fuel makers argue it spurs production of domestic fuels and cuts greenhouse-gas emissions by reducing use of gasoline or diesel.

The EPA is also considering dropping the requirement for cellulosic fuels to just 23 million gallons from 1.75 billion gallons as required in the law, as production of fuels made from scrap wood or corn husks has failed to grow as expected, according to the proposal.

The 2007 law mandates the use of 14.4 billion gallons of corn-derived ethanol in 2014 and 15 billion in 2015. Lobbyists for refiners such as Valero Corp. (VLO) say that requirement is too high, and have pressed both Congress to scrap the entire program and EPA to lower the requirements.

‘Blend Wall’

Oil industry proponents have said that the escalating requirements of ethanol to be added would force them to sell fuel blends exceeding 10 percent or export gasoline, a phenomenon known as “hitting the blend wall.”

Blending in ethanol at greater than 10 percent can cause problems with engine materials breaking down and the operation of emission-control systems, according to the American Petroleum Institute. Older vehicles can’t handle blends of 15 percent ethanol, the Washington-based trade group said.

The EPA had already pledged to adjust the quotas for falling demand for gasoline, and this proposal shows how they may be considering doing that. Based on the Energy Information Administration’s estimated 132.9 billion gallons of gasoline demand in 2014, an ethanol requirement of 13 billion gallons would fall below that 10 percent share.

Fuel Standard

Still, supporters of the Renewable Fuel Standard, or RFS, indicated today that they are contemplating legal action if this plan is carried out.

Existing vehicles that can use fuels with 85 percent ethanol and new filling stations using 15 percent ethanol could allow for the sale of 14.4 billion gallons of ethanol in 2014, said Bob Dinneen, president of the Renewable Fuels Association.

“The oil industry has argued that the existing vehicle fleet and current refueling infrastructure are incapable of absorbing significant volumes of ethanol above the E10 ‘blend wall,’” Dinneen, whose group is based in Washington, wrote in a blog post today. “This contention is completely false.”

“We believe it would be unlawful for EPA to waive the RFS based on the ‘blend wall,’ ” he added.

If this is the proposal for biodiesel and advanced biofuels it doesn’t make sense, said Anne Steckel, vice president for federal affairs at the National Biodiesel Board.

“We’re not sure where these numbers are coming from, and it may just be wishful thinking among folks in the oil industry,” she said in a statement.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net; Lucia Kassai in Houston at lkassai@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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