EPA retreats on ethanol mandate

The Environmental Protection Agency (EPA) is cutting the amount of ethanol and other biofuels that must be blended into the nation’s fuel supply, a victory for oil companies that call the federal ethanol mandate unworkable.

On Friday, the EPA proposed draft 2014 blending volumes under the federal Renewable Fuel Standard that are lower than the 2013 requirements, and far less than called for in a 2007 law that expanded the mandate.

The EPA is proposing to require 15.21 billion gallons in 2014, down from 16.55 billion gallons in 2013, marking the first time the agency has lowered the target from the prior year.

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A senior administration official said the Obama administration is firmly supportive of biofuels, but said  “market, infrastructure and other constraints” warrant paring back the mandate.

“The realities of the fuel market must be addressed to properly implement the program,” the official said.

U.S. gasoline consumption is lower than anticipated when the program was established.

Getting gasoline with ethanol levels higher than 10 percent — known as E-85 and E-15 to signify their ethanol levels — into the market requires new and retrofitted infrastructure.

Also, commercial development of next-wave biofuels like cellulosic ethanol has not proceeded as quickly as advocates had hoped.

“The proposed adjustments are intended to put the program on a steady path while supporting continued growth in renewable fuels over time,” the official said.

“The amount of ethanol in the system is at the point where the blend wall is being reached,” the official said, referring to the highest amount of ethanol that the market can currently accommodate.

The oil industry is pushing to dismantle the biofuels mandate completely, but cheered the EPA’s proposed action.

“For the first time EPA has acknowledged that the blend wall is a dangerous reality. While the agency took a step in right direction more must be done to ensure more Americans have a choice of fuels they want,” American Petroleum Institute President Jack Gerard said on a call with reporters.

The proposal drew a rebuke from the biofuels industry.

“By re-writing the statute and re-defining the conditions upon which a waiver from the RFS can be granted, EPA is proposing to place the nation’s renewable energy policy in the hands of the oil companies,” said Bob Dinneen, president of the Renewable Fuels Association, a major ethanol industry trade group.

“That would be the death of innovation and evolution in our motor fuel markets, thus increasing consumer costs at the pump and the environmental cost of energy production,” he said in a statement.

Anne Steckel, the National Biodiesel Board’s vice president of federal affairs, called the proposal “surprising and disappointing.”

“This proposal, if it becomes final, would create a shrinking market, eliminate thousands of jobs and likely cause biodiesel plants to close across the country,” she said.

Administration officials who spoke with reporters on a call Friday emphasized that they will take comment from stakeholders on a range of volumes, leaving open the possibility that the numbers could be altered in a final rule next year.

The agency will take comment on a total range between 15 billion and 15.52 billion gallons.

For “advanced” biofuels, the EPA is proposing to require 2.2 billion gallons but taking comment on a range between 2 billion and 2.51 billion, the official said. The 2013 standard for these fuels is 2.75 billion gallons.

The proposal also reduces the amount of traditional corn ethanol that refiners must blend into gasoline, which is set at 13.8 billion gallons in 2013 but would fall to back to 13 billion under the agency plan.

The administration official said the Obama administration remains supportive of biofuels.

“Biofuels are a key part of this administration’s all-of-the-above energy strategy," the official said, calling the renewable fuels a way to displace oil imports, help address climate change and create jobs.

But Friday’s proposal is nonetheless a victory for ethanol’s opponents.

“This administration has accepted the central argument of the refining industry that the blend wall is real and that the statutory volumes no longer have any relevance based on market realities,” said Stephen Brown, vice president for federal government affairs with the oil refiner Tesoro Corp.

Critics of the ethanol mandate, while welcoming EPA’s decision to back off somewhat, reiterated calls for Congress to kill the program outright.

“While we are thankful and support the action EPA is taking today, its timid adjustment reconfirms the program is broken beyond repair. This is a good first step, but ultimately, Congress must act,” said Michael J. Brown, president of the National Chicken Council.

Livestock and poultry groups, restaurants and other interests oppose the biofuels mandate, arguing that it raises feed and food costs. The ethanol industry disputes those claims.

Laura Barron-Lopez contributed