(Bloomberg) — The Obama administration proposed cutting
quotas for the use of renewable fuels, lowering the mandate for
corn ethanol set by law.
The plan by the U.S. Environmental Protection Agency is a
retreat from aggressive goals set by Congress almost a decade
ago to promote American-grown alternatives to fossil fuels from
hostile nations. The program is backed by corn growers who sell
almost a third of their crop to fuel producers, and opposed by
the oil industry, anti-hunger groups and small-engine users.
Ethanol and oil-industry advocates have battled over
whether targets in the 2007 law are obsolete because gasoline
demand has grown more slowly than forecast and the U.S. has had
a boom in domestic oil production.
“We believe these proposed volume requirements will
provide a strong incentive for continued investment and growth
in biofuels,” said Janet McCabe, the EPA official in charge of
the program. “But we must recognize real-world impediments to
the growth of biofuels in the marketplace.”
In its proposal Friday, the EPA said corn-ethanol levels
should be 13.4 billion gallons this year and 14 billion for
2016. The law set 15 billion gallons for both years. The quota
for biodiesel would increase to 1.7 billion gallons this year
and 1.8 billion next. The agency also set levels for 2014 at the
level produced by the industry.
Timely Quotas
After delaying the decision by more than a year, the EPA
pledged to issue the annual quotas on time in the future. It
said predictability and the forecast for growth from this year
to next should help the biofuel industry grow. Even with the
cuts, the requirements would require record use of renewable
fuels.
And in a bid to help farmers, the administration of
President Barack Obama also pledged Friday $100 million to help
install ethanol blending pumps at service stations. Those would
allow drivers to choose to use higher blends of ethanol than the
standard 10 percent.
The ethanol mandate announcement cut the value of
certificates known as Renewable Identification Numbers, or RINs,
issued by the EPA to track compliance. RINs sank 24 percent to
45 cents, according to StarFuels Inc., a Jupiter, Florida-based
broker.
The RINs are attached to each gallon of biofuel and
refiners can trade them to other parties once they’ve consumed
renewable fuel. RINs for biodiesel jumped 10 cents to 97 cents.
Fuel Demand
But even as it cut the fuel demand from the levels set out
in the statute, EPA is pushing refiners to use more ethanol, a
turnabout from an abandoned 2014 proposal. EPA is relying to a
great extent on increases in production of biodiesel, which
doesn’t have the same blending constraints as ethanol. Also,
lower oil prices mean greater gasoline use, and with it more
ethanol demand.
The new 2016 quotas “represents a pretty substantial jump
from where EPA was in the 2014 proposal,” said Tim Cheung, an
analyst at ClearView Energy in Washington. “And a lot of things
could change between proposal and final.”
The agency said it would issue the final standard by Nov.
30 after receiving public comment and holding a hearing June 25
in Kansas City, Kansas.
Corn Suit
Ethanol producers criticized the EPA’s decision and corn
growers said they may sue.
Chip Bowling, a Maryland corn-producer and president of the
National Corn Growers Association, said the EPA has “chosen to
ignore the law.”
“We are evaluating our legal options for defending the law
and protecting the rights of farmers and consumers,” he said in
a statement. “We will fight to protect and build profitable
demand for corn.”
Jeff Lautt, chief executive officer of Poet LLC, the
second-largest U.S. ethanol producer, said the EPA decision
“puts the oil industry’s agenda ahead of farmers and rural
America.”
Archer-Daniels-Midland Co., the largest U.S. ethanol
producer, rose 8 cents to $52.74 in New York trading. The stock
fell 50 cents from an intraday high as the plan was released.
‘At least there is some optimism for the future,’’ said
Jerrod Kitt, an analyst at Linn Group in Chicago.
‘Blend Wall’
The oil industry praised the EPA for spelling out limits in
the use of ethanol, which it labels as the “blend wall.”
“That’s an important consideration on their part,” Jack Gerard, president of the American Petroleum Institute, told
reporters. “But, unfortunately, part of what is happening here
is that some of their rosy scenarios” are envisaging long-term
growth of that fuel, he said.
The market is showing low demand for high-ethanol blends,
and growing demand of ethanol-free fuel, he said.
The legislation required refiners to use 20.5 billion
gallons of renewable fuels this year and 22.25 billion in 2016,
based on 2007 fuel consumption forecasts. EPA has the legal
authority to adjust those totals, and set the overall levels for
renewable fuels at 16.3 billion gallons and 17.4 billion gallons
respectively.
“If the goal of the administration was to set the stage
for protracted and complex litigation over the rule when
finalized later this year, today’s proposal is a giant step
toward that objective,” said Stephen Brown, a Washington
representative for refiner Tesoro Corp.
The U.S. Department of Agriculture’s pledge of $100 million
in matching funds to states to expand the use of special fuel
pumps is intended to allow drivers to blend more ethanol into
their gasoline.
The agency has long championed these so-called blender
pumps, and the announcement on the same day as the renewable
fuel proposal lets the Obama administration to demonstrate that
it still supports the fuel.
“They are committed to the industry,” Agriculture
Secretary Tom Vilsack said of the EPA. “They also have to work
in the real world, relative to how much gas is being consumed.”
To contact the reporters on this story:
Mark Drajem in Washington at
Mario Parker in Chicago at
To contact the editors responsible for this story:
Jon Morgan at
Steve Geimann