EPA Relents on Ethanol Mandate With Overdue Renewables Quota

(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


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


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


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


“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

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