EPA Grapples With Competing Rationales For Setting Renewable Fuel Requirements

Bloomberg BNA

May 26, 2015

By Andrew Childers

The Environmental Protection Agency is grappling with how much ethanol the market can absorb as petroleum refiners and renewable fuels producers offer competing rationales for how renewable fuel blending requirements should be set in an upcoming proposed rule.

The EPA will address the ethanol “blend wall” as part of the proposed rule expected by June 1 that would set renewable fuel blending requirements for 2014, 2015 and 2016.

Previous EPA efforts to address the blend wall issue in 2014 derailed the rule amidst opposition from corn states and renewable fuels producers, resulting in no standards being issued during that year. How the agency addresses that issue will be central to the upcoming rule.

“Obviously, the biggest and single issue is the methodology,” Tom Buis, chief executive officer of Growth Energy, an ethanol trade group, told Bloomberg BNA. “It has been from day one. That’s the critical component.”

For 2014, the EPA had originally proposed to reduce the overall renewable fuel blending requirement for that year in an effort to keep the ethanol content of the gasoline supply from exceeding 10 percent, the maximum amount approved for all vehicles on the road. The move was opposed by renewable fuels producers, who argued that the market was capable of absorbing additional ethanol through E15 (gasoline containing 15 percent ethanol) and E85 (gasoline containing 85 percent ethanol).

The petroleum industry has urged the EPA to cap the amount of ethanol that must be blended into the gasoline supply at 10 percent, arguing that flex-fuel vehicles capable of operating on E85 are not widespread enough to support significant amounts of additional ethanol in the marketplace. Though the EPA has approved use of E15 in model year 2001 and newer passenger vehicles, petroleum refiners caution that many automobile manufacturers have warned that use of E15 could void warranties.

“Because the ethanol blend wall is such a critically important issue to the refining industry, fuel retailers, engine manufacturers and fuel consumers, EPA must acknowledge these realities in the upcoming rulemakings,” the American Petroleum Institute and American Fuel & Petrochemical Manufacturers said in a May 1 letter to the EPA.

Waiver Authority Opposed 

Section 211 of the Clean Air Act allows the EPA to use its waiver authority to reduce the annual renewable fuels blending mandates below the levels set out in the Energy Independence and Security Act (Pub. L. No. 110-140) if implementing them at those volumes would cause economic harm or during instances of inadequate domestic supply. The EPA in 2014 proposed for the first time to use its waiver authority to reduce the overall renewable fuels blending requirements as it sought to address the ethanol blend wall.

Renewable fuels producers argued that they are able to produce more than enough fuels to satisfy the statutory requirements. The prior EPA proposal to reduce the blending requirements was based not on adequacy of fuel supply but rather the inability of the petroleum industry to consume the fuels in the volumes required, they said.

The EPA proposal to waive the 2014 blending requirements over supply issues “ultimately rewards the intransigence of oil refiners to invest in renewable fuels infrastructure, protects their market share, and thus blocks increased volumes of cleaner and more sustainable renewable fuels from entering the marketplace,” the Renewable Fuels Association said in May 20 comments on a proposed consent decree that would set deadlines for the EPA to issue the standards.

“Adopting the same methodology for [renewable volume obligations] in 2015 and beyond would continue to reward oil companies for their stubborn refusal to follow the spirit and intent of the RFS as adopted by Congress,” the Renewable Fuels Association said.

Rule Under Review 

The upcoming proposal is under review by the White House Office of Management and Budget.

The EPA has agreed to propose the rule by June 1, with a final rule by Nov. 30 as part of proposed consent decree reached with petroleum refiners that sued the agency over its delays in issuing the requirements for 2014 and 2015 (Am. Fuel & Petrochemical Mfrs. v. EPA, D. D.C., No. 15-cv-00394, consent decree proposed 4/10/15).

“We want EPA to hit the deadline. EPA assured us they will, and we have every expectation they will at this point,” Bob Greco, director of downstream operations at the American Petroleum Institute, told reporters May 20. “This has gone on long enough, and we need EPA to move forward with this as quickly as they can.”

The EPA has announced it will set the attest deadlines, a step in the compliance process for the 2013 and 2014 renewable fuel standards as part of its upcoming proposal, but it has revealed no further details.

In a memorandum posted May 26, the Office of Enforcement and Compliance Assurance said it will take no action on the attest demonstrations for 2013 and 2014 until the EPA completes its rulemaking.

Advanced Fuel Producers Fear Uncertainty 

Advanced biofuel producers are also closely watching the upcoming proposal. They have argued that the EPA's increasing delays in setting the standards for 2014 have paralyzed the industry's ability to secure financing for new production facilities.

“EPA sets this self-fulfilling prophecy with the numbers,” Paul Winters, a spokesman for the Biotechnology Industry Organization (BIO), told Bloomberg BNA. “[If] they set the numbers low then, the advanced biofuels will be low. If they set them aggressively, then there will be investment then the numbers will beat the projections.”

Cellulosic ethanol exceeded EPA projections for the first time in 2014, largely due to a rule change that reclassified millions of gallons of advanced biofuels being produced from compressed and liquefied natural gas from landfills and wastewater treatment as cellulosic ethanol, but still lagged well behind the amounts required by statute.

But producers of advanced biofuels such as cellulosic ethanol said the uncertainty caused by the EPA's ongoing delays has hampered the ability of the industry to grow. The 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.

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