EPA Proposes Reduction in Biofuels Required for Blending in Fuel Supply

Energy and Climate Report provides current, thorough coverage of clean energy, efficiency, and climate change legislation, regulation, policy, legal developments, and trends in the U.S. and...

By Andrew Childers

May 29 — The amount of biofuels petroleum refiners would be required to blend into the fuel supply would be significantly reduced under a proposed rule announced by the Environmental Protection Agency May 29 that would set blending mandates for 2014, 2015 and 2016.

In a victory for the petroleum industry, the EPA proposed rule (RIN 2060-AS2) would reduce the annual renewable fuel blending mandates for those years below the levels required by the Energy Independence and Security Act (Pub. L. No. 110-140), keeping the total supply of renewable fuels at less than 10 percent of national fuels consumption.

(Click image to enlarge.)

ECR graphic 6/1/2015

Despite the proposed reductions from statutory requirements, the EPA said the rule would continue to foster growth in the renewable fuels industry beyond what it has historically produced.

“We’re optimistic about the future of biofuels and think this proposal will put us on a path of steady growth for years to come,” Janet McCabe, the EPA's acting assistant administrator for air and radiation, told reporters May 29.

For 2014, the EPA is proposing that 15.93 billion gallons of renewable fuels be blended into the fuel supply, below the 18.15 billion set out in the statute. However, that is still a slight increase from the 15.21 billion gallons of renewable fuels the EPA had originally proposed for 2014 in a rule that was subsequently withdrawn in the face of industry opposition.

The EPA proposed a similar reduction for 2015 with a blending mandate of 16.3 billion gallons rather than the statutory level of 20.5 billion gallons. In 2016, the EPA is proposing that refiners blend 17.4 billion gallons of renewable fuels into the fuel supply. The law had required 22.25 billion gallons that year.

Rule Called Improvement Over Proposal 

Renewable fuels producers called the proposed rule an improvement over the standards the EPA had originally proposed for 2014 but said the latest rule was still a capitulation to the oil industry, which has been resistant to increasing the ethanol content of gasoline.

“The EPA plan fundamentally places the potential growth in renewable fuels in the hands of the oil companies—empowering the incumbent industry to continue to thwart consumer choice at the pump with no fear of consequence for their bad behavior,” Bob Dinneen, president and chief executive officer of the Renewable Fuels Association, said in a May 29 statement.

The proposed reductions come after the petroleum industry has argued that the market can't bear more than 10 percent ethanol be blended into the gasoline supply, the so-called ethanol blend wall. Ten percent is the maximum amount of ethanol that has been approved for use in all vehicles on the road.

Constraints Seen on Consumption 

McCabe said the EPA acknowledged “constraints” in advancing ethanol consumption beyond 10 percent, including a lack of flex-fuel vehicles on the market capable of operating on higher ethanol blends and a limited number of fueling stations offering E15 (gasoline containing 15 percent ethanol) and E85 (gasoline containing 85 percent ethanol) that led it to propose using its waiver authority to reduce the blending mandates.

Section 211 of the Clean Air Act allows the EPA to reduce the annual renewable fuels blending mandates below the levels set out in the Energy Independence and Security Act if implementing them at those volumes would cause economic harm or during instances of inadequate domestic supply.

Though the EPA predicts that its proposed rule will keep total renewable fuel consumption below 10 percent of total fuels used each year, it acknowledges that its proposal could force refiners to exceed 10 percent ethanol content in gasoline “significantly” unless they make greater use of other non-ethanol renewable fuels to demonstrate compliance.

“The blend wall is going to be busted,” Chet Thompson, president of the American Fuel & Petrochemical Manufacturers, told Bloomberg BNA May 29.

Blend Wall Postponed, Not Addressed 

The EPA's proposal only delays rather than addresses the blend wall issue, opponents of the rule said.

“This proposal today is a stopgap measure,” Marlo Lewis, a senior fellow at the Competitive Enterprise Institute, told reporters May 29. “It will probably leave us within the blend wall for another couple of years, but the blend wall will loom large again in 2017 and 2018, and EPA doesn't have a solution for that. It's just postponed the day of reckoning.”

Despite the EPA's proposal to use its authority to waive down the blending mandates for 2014, 2015 and 2016, the petroleum industry and other opponents of the renewable fuels program called on Congress to repeal or reform the law.

Jack Gerard, president and chief executive officer of the American Petroleum Institute, said the EPA's attempts to breach the ethanol blend wall are hampered by a lack of customer demand for higher ethanol blends. Flex-fuel vehicles comprise only 6 percent of the vehicles on the road, and demand for E85 represents only 0.15 percent of all gasoline consumption.

Urges Against Forcing Use 

“The administration should not try to force the use of fuels like E85 and E15 for which there is no actual consumer demand,” Gerard told reporters May 29.

However, renewable fuels producers said the law was intended to drive greater volumes of renewable fuels into the marketplace.

“Everyone in Congress, as well as all parties in the renewables and oil industry, knew when this legislation was debated and passed into law that the only way the RFS goals could be met was by introducing higher blends into the market moving forward,” Tom Buis, chief executive officer of Growth Energy, said in a May 29 statement.

EPA Touts Advanced Biofuels 

Though the EPA has reduced its blending requirements below statutory requirements, McCabe said the proposal provides the certainty necessary to expand the advanced biofuels industry, particularly among cellulosic ethanol producers.

“Most of the growth in the Clean Air Act’s biofuel targets in 2015 and beyond comes from these advanced biofuels,” McCabe said.

The proposed rule would require 2.68 billion gallons of advanced biofuels, including 33 million gallons of cellulosic ethanol and 1.63 billion gallons of biodiesel, in 2014. That's down from the 3.75 billion gallons required by statute, but it represents an increase over the 2.2 billion gallons the EPA had originally proposed for that year.

For 2015, the latest proposal would require 2.9 billion gallons of advanced biofuels, including 106 million gallons of cellulosic ethanol and 1.7 billion gallons of biodiesel, down from 5.5 billion gallons stipulated in the Energy Independence and Security Act.

2016 Requirements 

In 2016, the EPA is proposing that 3.4 billion gallons of advanced biofuels be blended into the fuel supply, less than half of the 7.25 billion gallons Congress required that year.

The 2016 standard would include 206 million gallons of cellulosic ethanol and 1.8 billion gallons of biodiesel. The EPA also proposed 1.9 billion gallons of biodiesel be blended into the fuel supply in 2017. The EPA hasn't yet proposed other renewable fuel standards for that year.

Despite the EPA's optimism, advanced biofuels producers said the EPA's ongoing delays in issuing the overdue rule and its proposal to reduce the blending mandates have hindered investment and stifled industry growth.

“Today’s overdue re-proposal doesn’t do enough to get the RFS program back on track,” Brent Erickson, executive vice president of the Biotechnology Industry Association’s (BIO) Industrial & Environmental Section, said in a statement. “The RFS was designed to provide a market floor for biofuels. Instead, EPA has once again proposed to help the oil industry build a regulatory wall to keep advanced biofuels out of the U.S. market.”

EPA Impeding Investment Needed 

The EPA's delays have caused a $13.7 billion shortfall in the investment necessary to meet the renewable fuel program's advanced biofuel requirements, BIO said in a May 4 white paper.

The National Biodiesel Board praised the EPA's attempt to bring the lagging renewable fuel standard program back to its statutory deadlines, but the group said the agency could do more to foster renewable fuel growth.

Proposing renewable fuel volumes for 2014, 2015 and 2016 as well as biomass-based diesel requirements for 2017 is an attempt to get the EPA's program back on its statutory deadlines. The agency failed to finalize any standards in 2014 after its first proposal to reduce the overall blending mandate that year was met with staunch opposition from renewable fuels producers and corn states. The EPA is also six months overdue to issue standards for 2015.

EPA to Issue Final Rule by Nov. 30 

The EPA has agreed to issue its final rule by Nov. 30 as part of a proposed consent decree reached with petroleum refiners that sued the agency over its delays in issuing the requirements for 2014 and 2015. The EPA has said it will issue the 2016 standards as well as the biomass-based diesel requirements for 2017 on the same schedule.

The Justice Department on behalf of the EPA asked the U.S. District Court for the District of Columbia to approve the proposed consent decree in a motion filed May 28 (Am. Fuel & Petrochemical Mfrs. v. EPA,, D. D.C., No. 15-cv-00394, motion to approve consent decree, 5/28/15).

The EPA will accept comments on the proposed rule until July 27. Comment can be made at http://www.regulations.gov and should reference Docket ID No. EPA - HQ - OAR - 2015 - 0111.

The EPA will hold a public hearing on its proposal June 25 in Kansas City, Kan.

To contact the reporter on this story: Andrew Childers in Washington at achilders@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com