Ag Policy Blog

From the anger sent EPA's direction yesterday from the biofuel and corn lobbies, you would think the petroleum industry would be crowing over its apparent victory at the expense of corn-based ethanol.

Friday's announcement wasn't a resounding victory for the petroleum industry, however. Unless Big Oil can convince Congress to make it otherwise, blenders are still going to have to use 16.3 billion to17.4 billion gallons of renewable fuel in 2015 and 2016, gosh darn it.

The trajectory of the RFS keeps going up, but it's not going up as high and as fast as Congress dictated in the 2007 law. Based on the 2007 Renewable Fuels Standard levels passed by Congress, corn ethanol, or "conventional biofuels" should have hit 15 billion gallons of mandated domestic use for 2015, a cap that would continue on afterward to 2022.

Instead, EPA set the 2014 levels -- last year -- at 13.25 billion gallons for corn ethanol and proposed 2015 levels at 13.4 billion gallons and 2016 at 14 billion gallons. For 2015 and 2016 alone, that translates into 2.6 billion gallons less corn-based ethanol usage under the mandate than established under law.

“Congress was clear in its intent: The United States can and should produce significantly more ethanol for the nation’s cars and trucks than the EPA has proposed," stated American Farm Bureau President Bob Stallman. "The Renewable Fuel Standard has produced jobs, decreased reliance on imported oil and contributed to cleaner air. For those reasons, we need more ethanol, not less, and living up to Congressional mandates is the place to begin. We look forward to commenting on the rule and working with both Congress and the Administration to take full advantage of this renewable fuel resource.”

EPA argues that the infrastructure for higher blend levels isn't there for E15 up to E85 levels. This is where USDA rides in looking somewhat like a white knight offering $100 million to help build more E15 and E85 pumps nationally. Perhaps a push to boost the infrastructure over the next 18 months would raise the levels enough that EPA can ignore the fears of the petroleum industry about the 10% "blend wall."

See EPA's blog: http://blog.epa.gov/…

The infrastructure, and the volume levels under the RFS, would be closer to the mandate if the petroleum industry had actually followed the law and invested in the infrastructure needed to meet it. This is especially true when it comes to building cellulosic facilities. The only commercial cellulosic facilities have been built by ethanol and agricultural businesses while the blenders have largely ignored the industry altogether. The cellulosic industry is supposed to be at 3 billion gallons of blending capacity for 2015, but EPA set the volume blend levels at 106 million gallons, roughly hitting the estimated capacity of commercial plants that have come on-line in the last year.

All told, under the law the RFS should be at 20.5 billion gallons for 2015, but will likely settle in at the EPA proposed level of 16.3 billion gallons. So overall, the biofuel industry didn't lose as much ground as initially expected, but biofuel backers still feel cheated out of the mandate volume levels. The Renewable Identification Numbers (RINs) market -- which I still don’t' pretend to fully don't grasp -- came crashing down Friday as a result of the EPA announcement.

So, effectively, EPA ended up giving the oil industry a pass for being unwilling participants in the expansion of the biofuels industry.

Yet, EPA's announcement on the RFS did little to curb the oil industry's appetite to end the renewable fuels mandate altogether. Jack Gerard, president and CEO of the American Petroleum Institute, said EPA must do more to protect consumers until he and others can adequately convince Congress to get rid of the ethanol mandate.

“Consumers’ interest should come ahead of ethanol interests,” Gerard said. “EPA assumes growing demand for high-ethanol fuel blends that are not compatible with most cars on the road today, potentially putting American consumers, their vehicles and our economy at risk.”

Gerard then went on to cite a study last year by the Environmental Working Group claiming corn is worse for greenhouse-gas emissions than gasoline.

The American Fuel & Petrochemical Manufacturers also argues that EPA overestimated how much ethanol consumers will use. Corn ethanol's gain comes at the expense of consumers and the environment, said Chet Thompson, president of AFPM. He too said Congress must repeal the RFS.

"Although EPA took appropriate actions and recognized the blend wall, it proposed a standard that falls far short of mitigating the potential harm to consumers. The use of ethanol in motor fuels has reached a saturation point and since the agency did not appropriately address the issue, Congress must,” Thompson continued.

It seems somewhat galling for oil-industry association execs to declare ethanol gains at the expense of the consumers and environment when oil trains have a tendency to explode more frequently than in the Mad Max movie and Californians are battling another oil spill. But, in the energy sector, environmental expense is certainly in the eye of the beholder.

Another key player in all of this, Senate Environment and Public Works Committee Chairman James Inhofe, R-Okla., agreed with the petroleum industry's assessment. He cited the 10% blend wall and he also noted the shale boom driving the growth of oil and gas production.

So while the ethanol guys aren't happy over what they see as lost demand, the petroleum guys aren't happy over what they see as continuing lost marketshare to ethanol and biodiesel.

And over at EPA, an agency getting used to taking enfilade from all side, the regulatory powers that be probably got the RFS about as right as they could get it, given the opposition regulators were facing from both agriculture and petroleum.

Chris Clayton can be reached at Chris.Clayton@dtn.com.

Follow me on Twitter @ChrisClaytonDTN.

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