Fight Over Ethanol Quotas Heats Up as U.S. Nears Final Decision

(Bloomberg) — All sides in the contentious debate over how
much ethanol to blend into the nation’s gasoline are making
their final pitches as the Obama administration nears a Nov. 30
deadline to set three years’ worth of renewable fuel quotas.

Representatives of the oil industry’s biggest trade group,
the American Petroleum Institute, were scheduled to meet with
White House officials Friday to argue that ethanol quotas should
be kept below the current 10 percent threshold acceptable for
use in all cars and trucks. The American Fuel and Petrochemical
Manufacturers delivered a similar message Thursday.

On the other side, the Fuels America coalition of biofuel
boosters and producers, including DuPont Co., Royal DSM NV and
Poet LLC, launched an ad campaign pressing the administration to
boost the proposed quotas in line with higher statutory targets.

“This ad campaign is sort of the last major chance we have
to get the attention of the president to focus on this question,
which EPA has really gone very much backwards on,” said Roger
Johnson, president of the National Farmers Union, a coalition
member. “It’s the last big chance we have to get this right.”

The Environmental Protection Agency in May proposed targets
that fell short of levels mandated in a decade-old law —
raising the ire of renewable fuel advocates. The administration
has a deadline of Nov. 30 to unveil its final targets for 2014,
2015 and 2016.

Ad campaign

Fuels America declined to specify what it’s spending on the
ad campaign, describing it generally as a six-figure ad buy with
digital spots running in Washington along with a full-page ad in
the New York Times on Thursday. The full-page Times ad casts
robust Renewable Fuel Standard mandates as a critical piece of
President Barack Obama’s environmental agenda heading toward an
international climate summit in Paris beginning Nov. 30.

The underlying RFS law, created by Congress in 2005 and
updated two years later, sets steadily escalating requirements
for renewable fuels, including traditional corn-based ethanol as
well as next-generation alternatives made from algae and other
material. The statute requires refiners to use 20.5 billion
gallons of renewable fuels this year and 22.25 billion in 2016.

But those numbers are based on 2007 fuel consumption
forecasts, and in the eight years since, gasoline demand has
grown more slowly than anticipated.

Corn Ethanol

The EPA is expected to at least modestly boost final quotas
based on a recent uptick in gasoline demand. The agency is
obligated to use recent gasoline demand projections from the
government’s Energy Information Administration in setting the
biofuel targets.

The EPA’s initial proposal outlined on May 29, as directed
by a court settlement with the oil industry, would require
refiners to use some 17.4 billion gallons of renewable fuels
next year, with about 14 billion of those coming from
traditional corn ethanol. For 2015, EPA proposed a requirement
for 16.3 billion gallons of total renewable fuels, including
13.4 billion in traditional ethanol derived from corn.

Biofuel producers say they count on the statutory volumes
to entice investors lured by guaranteed demand.

“For 10 years, the industry has operated under the premise
that if the law called for renewable fuel and we could make the
fuel there would be a market for it,” said Adam Monroe,
president of the Americas for Novozymes A/S. The EPA’s proposal
“upends that basic premise” and “sends tremendous uncertainty
signals to our investors.”

Extra Headroom

API is asking the agency to cap the total ethanol mandate
at 9.7 percent of gasoline demand, which would provide a buffer
below the 10 percent blend accepted in all cars and trucks to
accommodate sales of ethanol-free gasoline.

“Americans aren’t consuming as much gasoline as Congress
assumed they would when they wrote the legislation in 2007,”
said Bob Greco, API’s director of downstream and industry
operations. “That means current ethanol mandates push far more
ethanol, far too quickly into gasoline than today’s vehicles can
safely accommodate.”

The group, which is separately pushing Congress to rewrite
the Renewable Fuel Standard, released a poll Thursday
highlighting broad consumer concerns about the mandate.

To contact the reporter on this story:
Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net

To contact the editors responsible for this story:
Jon Morgan at jmorgan97@bloomberg.net
Elizabeth Wasserman

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