Months behind schedule, the EPA said it would set the biofuels share of the gasoline market well below the level specified by law because the fuel market is saturated with corn-based ethanol and second-generation biofuels are in scant supply. Farm groups and the ethanol industry said the agency was being short-sighted in its decision, and that the move would allow the oil industry to throttle a home-grown competitor. The American Petroleum Institute called for congressional repeal of the 2007 biofuels mandate.
Ethanol was a factor in the U.S. agricultural boom that began a decade ago, when surging demand boosted market prices and gave farmers some of their most profitable years since the 1970s. In farm country, biofuels seem a necessary element of prosperity. Growers expanded production in response to soaring demand for corn to be distilled into ethanol. Some 37 percent, or 5.25 billion bushels, of the 2014 crop will be used to make ethanol. Some of the ethanol co-products are used as livestock feed. Corn, wheat and soybean prices still are historically high, although down sharply from records set in 2012.
EPA said the targets of the 2007 energy law, which called for annual use of 36 billion gallons of biofuels through 2022, “cannot be achieved” at the moment, so it proposed a lower level. “The proposal would boost renewable fuel production and provide for ambitious yet responsible growth over multiple years, supporting future expansion of the industry,” said the EPA.
It proposed biofuel use of at least 16.3 billion gallons this year and 17.4 billion gallons in 2016. By comparison, the 2007 law called for 20.5 billion gallons in 2015 and 22.25 billion gallons in 2016. Corn ethanol would account for 13.4 billion gallons in 2015 and 14 billion gallons in 2016 under the EPA’s proposal, rather than the 15 billion gallons set by law. The agency’s proposed rule also would set the 2014 mandate at 15.9 billion gallons, including 13.2 billion gallons of corn ethanol – below the figure set by law but matching actual use. The EPA has discretion under the 2007 law to adjust the targets.
“The only beneficiary of the EPA’s decision is Big Oil,” said the National Corn Growers. The lower ethanol target over the three years “represents nearly a billion and a half bushels in lost corn demand.” At the USDA’s estimate for season-average prices, 1.5 billion bushels of corn are worth $5.5 billion. The Renewable Fuels Association said the EPA package “represents a step backward” for the biofuel industry, which produced 14.3 billion gallons of ethanol in 2014. By scaling down the mandate, EPA will discourage investments into equipment to boost ethanol sales, such as blender pumps that dispense fuel with a higher mix of ethanol than the standard 10 percent, it said.
Purdue economist Wally Tyner said in a news release, “Biodiesel appears to be a big winner with its mandate steadily growing over time and far exceeding the congressionally mandated level.” The 2007 law called for at least 1 billion gallons of biodiesel annually. The EPA proposed 1.7 billion gallons this year and 1.8 billion gallons in 2016.
The biggest reductions in the EPA proposal fall on next-generation biofuels, such as cellulosic ethanol made from grasses, wood and crop debris. The new biofuels would not compete with food use of crops but they are slow to come into commercial production because of the challenge of reducing production costs. EPA called for a target of 106 million gallons of cellulosic biofuels for this year, compared to the 3 billion gallons expected when the 2007 law was written. The cellulosic target would nearly double in 2016 and would be six times larger than the 33 million gallons produced in 2014.
A trade group, the Advanced Ethanol Coalition, said the EPA targets “are definitely stronger and theoretically create new markets” for new-generation fuels.
“The fact that ethanol supporters had to fight so hard even for this outcome is yet another sign that the corn lobby has lost much of its punch in Washington, as many of its lions in Congress have faded away,” said Politico. “Still, Congress is unlikely to repeal or tinker with the mandate anytime soon, given the regional divides on ethanol and the remaining strength of Corn Belt lawmakers in both parties. That leaves EPA in the driver’s seat.”
The Midwest is the heartland for corn and ethanol production. Biofuels are regarded as a job-creator – the ethanol industry has 213 plants with a capacity of 15 billion gallons annually – and a boost for grain prices. Foodmakers and livestock feeders have attacked biofuels for driving up their costs. “America’s chicken producers are just another drought, freeze or flood away from another crippling year of high feed prices,” said the National Chicken Council.
The EPA said it would accept comment on the proposal until July 27. It plans a public hearing on June 25 in Kansas City. The agency says it will finalize the 2014, 2015 and 2016 mandates by Nov. 30.
For a four-page EPA fact sheet on the biofuels proposal, click here.
The EPA homepage for the Renewable Fuels Standard is available here.
The 121-page proposed rule for the RFS is available here.