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EPA Proposes Slashing Ethanol Blend Mandate

ethanol plantThe EPA is considering slashing the amount of ethanol that must be blended into US gasoline next year, marking a victory for refiners that say they cannot meet the statutory mandate.

The proposal, if approved, would reduce the mandate to 15.21 billion gallons for renewable fuels in 2014 instead of the 18.15 billion gallons established by a 2007 law, according to an agency document viewed by Reuters.

That would cut the volume of corn-based ethanol to about 800 million gallons less than this year’s limit of 13.8 billion gallons. The law had required 14.4 billion gallons of corn-based ethanol in 2014.

The EPA document lays out three possible approaches, one calling for a larger volume of corn-based ethanol and one calling for less. The agency supports the middle choice of 13 billion, Reuters reports.

The biofuels industry has failed to produce anywhere near the amounts of cellulosic ethanol required by the renewable fuel standard. And corn-based ethanol is stretched to the limit as refineries this year began hitting the “blend wall,” the point at which the mandated amount of ethanol approaches the amount that would cause mechanical problems for drivers and gas stations.

Earlier this month, the American Petroleum Institute sued the EPA in the US Court of Appeals over the agency’s 2013 Renewable Fuel Standard, saying the rule mandates significantly more cellulosic ethanol than is available in the marketplace. The court in January ruled on the API’s lawsuit over the 2012 RFS, finding that the EPA standard was too “aspirational.”

The credit system used by refiners under the RFS has been controversial as well. Refiners use credits, which they either earn by mixing ethanol into gasoline, or buy from other companies that do so, to comply with the RFS.

Compliance has become expensive for refiners. The cost per credit rose from 7 cents in January to $1.43 in July, before falling to a current 60 cents. Refiners Valero and PBF Energy have said credits might cost them $800 million and $200 million, respectively.

Some industry experts, traders and analysts say Wall Street is exploiting the market through practices such as stockpiling credits.

For example, last December the CBC reported that Canadian rail company CN shipped the same load of biodiesel back and forth over the US-Canada border 12 times, at a cost of $2.6 million, to rack up renewable identification numbers (RINs) – the US government’s tool for tracking ethanol credits.

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