(Bloomberg) — The U.S. on Monday ordered a slight increase
in the level of renewable fuels that must be blended with
gasoline. And neither biofuel nor oil producers seem
particularly happy about it.
Fuel suppliers will have to mix 16.93 billion gallons of
corn-based ethanol and other renewable fuels into gasoline this
year and 18.11 billion gallons in 2016, the U.S. Environmental
Protection Agency said Monday.
The mandates are above levels proposed by the agency in May
but are well below statutory targets refiners have called
“With today’s final rule, and as Congress intended, EPA is
establishing volumes that go beyond historic levels and grow the
amount of biofuel in the market over time,” Janet McCabe, the
acting assistant administrator for EPA’s Office of Air and
Radiation, told reporters. She said the final rule will
“provide for ambitious, achievable growth.”
The mandates were authorized by Congress 10 years ago in a
program that requires steadily escalating volumes of biofuels to
be blended into the country’s gasoline and diesel fuels. The
law, designed to shrink the nation’s dependence on foreign crude
and curb greenhouse-gas emissions, has pitted oil companies
including Chevron Corp. and Exxon Mobil Corp., which oppose
using more biofuels, against farmers in the corn-rich Midwest
who’ve argued for higher amounts.
The EPA’s final rule — delivered on the same day President
Barack Obama made an appeal to international climate negotiators
in France — could revive a congressional debate over the
Renewable Fuel Standard and spill over into the presidential
campaign, as candidates stump in Iowa and other corn-belt
U.S. ethanol for January delivery rose for the first time
in three trading days on the announcement, gaining 0.5 percent
to $1.485 a gallon.
Pacific Ethanol Inc., a U.S. West Coast producer, surged 21
percent to $4.99, in its steepest one-day gain since March, in
Nasdaq composite trading. Green Plains Inc., the fourth-biggest
U.S. Ethanol producer, rose $1.13, or 5 percent, to $23.69 on
the Nasdaq, the highest since July 29.
Refiners were down modestly; the industrywide average fell
Last year, the EPA decided to put off setting 2014 quotas,
saying it would issue rules for 2014, 2015 and 2016 this year.
In May, it proposed targets that fell short of levels mandated
in the law — raising the ire of renewable fuel advocates and
setting off a flurry of lobbying in Washington.
The EPA’s total renewable target released Monday for 2014 –
– 18.15 billion gallons — essentially tracked actual gasoline
demand because they were set retroactively.
The announcement represents the first time the EPA has
formally waived the statutory mandates for conventional corn-based ethanol in response to industry concerns that Congress’
targets would push them past a 10 percent blend wall — the
amount acceptable in all cars and trucks. Federal laws allow the
EPA to lower the volume requirements if production falls below
But McCabe stressed that regulators were seeking to balance
Congress’ desire to boost next-generation renewable fuels,
particularly those made from non-edible plant material, while
acknowledging marketplace realities.
The intent of Congress to increase renewable fuels has to
be balanced with “the real-world circumstances that have
affected progress toward those goals,” McCabe said.
Ethanol now accounts for about 10 percent of gasoline
consumption. While fuel suppliers have warned that adding more
into the mix would damage car engines, the EPA has allowed
blends of as much as 15 percent ethanol for cars made after
Oil industry leaders praised the EPA for using its waiver
authority to lower ethanol mandates but said the agency didn’t
go far enough. The final targets for 2015 and 2016 are beyond
the American Petroleum Institute’s request 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.
“EPA’s final rule relies on unrealistic increases in sales
of higher ethanol fuel blends despite the fact that most cars
cannot use them,” said API President Jack Gerard.
The EPA justified its increase partly on robust predictions
that higher ethanol blends such as E15 and E85 would gain
traction and there would be scant demand for ethanol-free
gasoline prized by boaters and some equipment owners.
While the EPA predicted recreational marine engines would
consume 124 million gallons of ethanol-free gasoline next year,
the lead refining industry trade group expects some 7.5 billion
gallons of it to be sold. The discrepancy shows the EPA’s
targets are built on “unrealistic assumptions,” said Chet
Thompson, president of the American Fuel and Petrochemical
Tesoro Corp., an oil refiner, dropped $2.05, or 1.8
percent, to $115.17 on the New York Stock Exchange, the biggest
one-day decline since Nov. 12. Valero Energy Corp., slipped
$1.08, or 1.5 percent, to $71.86, also the steepest decline
since Nov. 12.
The announcement was a blow to corn growers, who count on
robust annual biofuel targets to drive demand for their crops.
Ethanol is projected to consume 38 percent of this year’s corn
Monte Shaw, executive director of the Iowa Renewable Fuels
Association, called the EPA’s announcement “a gut punch for
consumers and farmers.”
Biofuel producers had implored the Obama administration to
keep targets at the congressionally mandated levels, including a
ceiling for conventional corn-based ethanol.
By departing down from those statutory targets, “the oil
industry is being rewarded for its unwillingness to follow the
law and invest in infrastructure to move toward cleaner
renewable fuel, which sets a dangerous precedent for the future
of the program” said Growth Energy, a biofuel producer group,
in a statement.
Under congressional targets, the U.S. was to use 20.5
billion gallons of renewable fuels this year, including 15
billion gallons of ethanol derived from corn. But those numbers
are based on 2007 fuel consumption forecasts, and in the eight
years since, gasoline demand has grown more slowly than
It has surged this year, however, creating the potential
for more biofuels to be added. Drivers burned 9.47 million
barrels a day in August, up 3.8 percent from two years ago.
The EPA’s initial proposal outlined on May 29, as directed
by a court settlement with the oil industry, would have required
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.
The higher final targets could provide inflationary
pressure on the price of renewable identification numbers, the
credits refiners use for compliance, said Timothy Cheung, vice
president of the energy research firm ClearView Energy.
Those RINs can be bought and sold by refiners and banked
for as long as two years.
Renewable Identification Numbers for ethanol rose to 60
cents after EPA’s announcement from 44 cents, earlier Monday,
data from StarFuels Inc., show.
(Updates with comment from American Fuel and Petrochemical
Manufacturers in 18th paragraph. An earlier version of this
story misstated the name of Green Plains Inc.)
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