EPA Can’t Shake Its Ethanol Headache

After years of delay, the Environmental Protection Agency finally got its ethanol-mandate program back on track.

And right on schedule, the outrage poured in from all sides.

The EPA on Friday proposed to reduce the amount of ethanol blended into gasoline under the Renewable Fuel Standard, while slightly increasing the share of advanced biofuels on the market. In a new proposal that covers the years 2014 through 2016, EPA set an ethanol quota well below what was required under a 2007 law, although the agency says it's an increase over current use.

The EPA cited market forces, specifically lower-than-expected growth of non-ethanol renewables and lower gasoline use than projected, in lowering the ethanol mandates. EPA acting air chief Janet McCabe, however, said the requirements would "provide a strong incentive for continued investment and growth."

The renewable-fuels standard has always been one of the EPA's trickier statutes, in large part because it relies on assumptions made in 2007. Oil groups have long opposed the requirement that they bring in more ethanol, saying that it will raise costs and pose a risk to their product. Biofuel and ethanol groups have long been frustrated at levels proposed by EPA, saying the agency is impeding growth in the industry.

Accordingly, Friday, those groups said the EPA was setting an arbitrary ceiling on their product below what Congress mandated. They're especially upset that the agency acknowledged the so-called E10 "blend wall," limiting ethanol use to 10 percent of blended motor fuel because of limited market penetration for higher blends.

Bob Dinneen, president of the Renewable Fuels Association, accused the EPA of "adopting the oil-company narrative regarding the ability of the market to effectively distribute increasing volumes of renewable fuels," a move that he said "eviscerated the program's ability to incentivize investments in infrastructure that would break through the blend wall and encourage the commercialization of new technologies."

The 2014 levels—which come years too late—will be set based on that year's actual production and will require that 15.93 billion total gallons of renewables be blended into fuels. For 2015, that requirement increases to 16.3 billion gallons, about 4 billion below the statute. For 2016, the requirement would be 17.4 billion gallons, less than the 22.25 billion gallons required under law.

In a move that's been seen as a make-good to the industry, the Agriculture Department announced $100 million for fuel pumps that will allow consumers to blend more ethanol. Infrastructure constraints have curbed the development of the blends higher than E10, so the new pumps will help the market grow.

So if the renewable producers are upset, the oil industry must be pleased, right? Not exactly.

American Petroleum Institute President and CEO Jack Gerard said that the EPA's decision to use its waiver authority and recognize the blend wall is a recognition that the renewable volumes are untenable.

"We're still troubled by the underlying assumptions" of the 2007 renewable law, Gerard said.

Green groups have also expressed concern about requirements for corn-based ethanol, saying that it does little to cut carbon emissions, the presumed goal of the RFS.

One party came away happy with the proposal: Advanced-biofuels groups said that the new volumes represented a step up from current production and would help boost the growth of next-generation renewable fuels.

The volumes for the years 2014, 2015, and 2016 are required under a 2007 law that steadily increases the amount of renewable fuels blended into gasoline. The agency is required to release the volume mandates annually, but did not finalize its 2014 volumes before the end of the year and is well past a deadline for 2015.

The release of all three proposals Friday came ahead of a court-ordered June 1 deadline following a settlement with oil producers and refiners, who were upset because of the frequent missed deadlines. The volumes are required to be finalized by Nov. 30.

Critics have said that the EPA's slow progress on the RFS and concerns about its mandates should mean a congressional review of the original law. In a statement Friday, Senate Environment and Public Works Committee Chairman James Inhofe, a critic of the program, said the new volumes "give a clear case for a mismanaged program in need of rigorous oversight."

The ethanol industry is popular in Iowa—which hosts the nation's first presidential caucus—making the RFS a difficult stance for campaigning politicians. In an op-ed this week, Hillary Clinton proposed changes to the RFS, although she avoided specific details of how she would reform the program.

(Image via smereka/Shutterstock.com)