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BUSINESS GUARDIAN www.guardian.co.tt OCTOBER 2013 • WEEK THREE
NEW YORK - With two words, the US environment regulator
may be handing oil refiners the biggest win of a long battle
to beat back the seemingly inexorable rise of ethanol fuel.
In a leaked proposal that would significantly scale back
biofuel blending requirements next year, the US Environmental
Protection Agency (EPA) says the blend wall - the ten per cent
threshold of ethanol-mixed gasoline that is at the crux of the
lobbying war - is an "important reality".
The agency s rationale for a cut in the volume of ethanol
that must be blended echoes an argument the oil industry
has been making for months: the US fuel chain cannot absorb
Few retailers are able to sell ethanol blends beyond the ten
per cent maximum, or willing to take the legal risk that comes
with it, they argue.
The words will cut deep for proponents of biofuels. They
have argued for years that the blend wall is largely a fiction
constructed by an oil industry that doesn t want to cede any
more share of a shrinking US gasoline market.
If approved, the proposed cut in the biofuel mandate in
2014 to 15.21 billion gallons from 18.15 billion would mark an
historic retreat from the ambitious 2007 Renewable Fuel Stan-
dard (RFS) law that charted a path toward ever-greater use
of clean, home-grown fuel, which the biofuel industry counts
on to underpin bank loans and new factories.
Even though the EPA proposal has not been publicly released
or approved by the White House, both sides are gearing up
to shift the fight over the future of the country s fuel supply
to a new venue: the courts.
Last week two US oil industry groups sued the EPA over
its 2013 biofuel targets. On October 10, their opponents appeared
to signal a likely challenge to the 2014 rule.
"Let me be clear: any plan to roll back the targets ... under
the guise of addressing the blend wall would be patently
unlawful," said Bob Dinneen, president of the Renewable Fuels
Association, an industry group.
The EPA s proposal puts ethanol proponents in a tough spot.
The Renewable Fuels Association has previously argued that
Congress need not amend the 2007 law because the EPA has
enough flexibility under the law to make changes to reflect
market realities. The agency is now exercising some of that
discretion - but certainly not as proponents would like.
The law has run up against an unexpected reversal in US
gasoline use, an emboldened oil industry saddled with soaring
ethanol credit costs, and differences over what kind of fuel
can be safely used in today s cars.
The EPA has ruled that gasoline blended with as much as
15 per cent ethanol (E15) is safe for use in cars made after the
2001 model year.
But most car warranties only cover use of up to ten per
cent ethanol, or E10. And most service stations don t sell any-
thing more than E10 due to a lack of infrastructure to distribute
higher blends or concerns over liability if motorists use the
'Inadequate domestic supply'
The mechanism for the EPA s proposed rollback is an escape
hatch called a "general waiver" that Congress built into the
2007 law. This can be used to reduce the volumes in two
cases: if enforcing the law were to cause economic hardship;
or if it were simply not feasible due to "inadequate domestic
The EPA has set a high bar for the economic hardship sce-
nario. Last year, the worst drought in 50 years prompted a
waiver petition from several state governors and food producers
concerned about the soaring price of corn, the main ingredient
for domestic ethanol production. The EPA denied the request.
This year, with the blend wall concerns forcing a jump of
almost 2,800 per cent in the cost of credits used to enforce
the ethanol mandate, the agency itself is proposing for the
first time to use a waiver, citing a lack of usable fuel.
Ethanol supply is certainly not the problem. Bouncing back
from last year s drought, the corn industry is looking at a
record crop this year. And production of other biofuels, such
as biodiesel - a kind of diesel that can be made from recycled
cooking oil - is continuing at a healthy pace, EPA data shows.
Instead, the agency appears to be viewing the blend wall
as a factor: "We interpret the term inadequate domestic
supply as it is used under the general waiver authority to
include consideration of factors that affect consumption of
renewable fuel," the agency wrote in the proposed rules.
"It s a very loose interpretation of the criteria," said Dave
Juday, a commodity market analyst in Washington DC. "I
would not be surprised if it was challenged."
Regardless, according to an August 26 draft proposal seen
by Reuters, the waiver has enabled the EPA to cut the amount
of corn-based ethanol that would be required in 2014 to 13
That is about six per cent less than this year and well short
of the 14.4 billion gallons required under the 2007 law, but
it is in line with a waiver request from two oil groups to cap
the ethanol volume at 9.7 per cent, about 12.88 billion gal-
An EPA spokeswoman was not able to comment on the
proposal or confirm the authenticity of the document.
The White House Office of Management and Budget (OMB)
must sign off on the EPA s rules before they are released for
public comment. It is expected to do so only after the end
of the partial government shutdown.
Lawmakers coming along
The EPA also said its proposal set out a "durable methodology
that could be used in 2015 and beyond to reduce market uncer-
tainty", by using industry estimates and Monte Carlo options
analysis to estimate usable supply.
That may be an acknowledgement that the original law, as
written, could cause more problems.
The RFS was based on an assumption that gasoline demand
would continue to rise, allowing the volume of biofuel to grow
even if the overall share did not.
Instead, the severe recession and rising vehicle fuel efficiency
led to a sharp drop in gasoline demand: 133 billion gallons are
now projected to be consumed in 2014, according to the Energy
Information Administration (EIA), down from an estimate in
2007 of 154 billion.
The fall in demand means that the larger volumes of ethanol
embedded in the 2007 law are being crammed into a shrinking
gasoline pool, rapidly expanding its share.
Lawmakers are attempting to craft amendments to the law.
The House Energy and Commerce Committee is weighing a
proposal to cap the ethanol requirement at below 10 percent
for two or three years, according to a person close to the com-
The proposal, which is not yet finalized, would give the
industry time to study the use of higher ethanol blends during
that time and then raise the target above 10 percent, according
to this source.
"Things are moving, and they re not moving in the direction
that big corn would like them to be moving," said Stephen
Brown, vice president of federal government affairs for refiner
Tesoro Corp. in Washington D.C.
"So it s really starting to become a question of when the
thing gets changed, not if ," Brown said. (Reuters)
Lawsuits likely as EPA declares
US ethanol blend wall a 'reality'
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