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EPA Appeases Biofuels Sector and Increases Ethanol Requirements

Despite its promises to limit the ethanol requirements, the Environmental Protection Agency said yesterday that oil companies must blend slightly more biofuels into their gasoline, prompting the oil industry to lash out and the biofuel companies to applaud the move.

Oil companies have long said that the ethanol mandates are simply to appeal to the agricultural industry and specifically the corn growers whose crops are used to make ethanol. They say that the process by which that corn is refined and ultimately blended is more pollutive than just burning the gasoline straight up. But the farm lobby counters that it is a cleaner option — an argument, for better or worse, that has long prevailed on Capitol Hill.

The Trump administration had tried to curry favor with the agricultural industry during the presidential race by supporting those mandates. But those promises contradicted his business-friendly posture, which has tried to peel back regulations generally and to let markets decide. As a compromise, the EPA had considered giving some refiners a “waiver” from the current ethanol requirements.

“Maintaining the renewable fuel standard at current levels ensures stability in the marketplace and follows through with my commitment to … upholding the rule of law,” EPA Administrator Scott Pruitt said in a news release.

The Renewable Fuel Standard (RFS) requires that gasoline makers purchase ethanol in ever-increasing amounts. Most gasoline has a 10% blend, although it can be high as 15%. The mandates spur a whole series of questions ranging from whether this is antithetical to free markets to whether it is truly beneficial for the environment.

The 2018 targets require fuel companies to blend 19.29 billion gallons of renewable fuels into the nation’s fuel supply, Reuters reported. That is up slightly from 2017’s 19.28 billion gallons. (It was 6 billion gallons in 2005) The concern: Farmers are replacing other crops with corn, thereby creating shortages of other food products. A transition to cellulosic ethanol would therefore mitigate that scenario.

EPA, however, will still study ways to reduce compliance cost, including how imported and exported ethanol is treated. The smaller-to-mid-sized refiners like Valero Energy Corp., HollyFrontier Corp., PBF Energy Inc. and Monroe Energy have written EPA to say that the cost of purchasing imported renewable fuels has “skyrocketed;” imports are needed to meet the mandates.
“A primary goal of the RFS was to enhance our nation’s energy security by diversifying our sources of energy supply,” add Frank Macchiarola for the American Petroleum Institute.
“That goal has been achieved, but not because of the Renewable Fuels Standards,” he adds. “Our dependence on foreign sources of oil and products has dropped from 58% in 2007, to 24% today, and nearly half of our imports are from Canada. Meanwhile today, the Renewable Fuels Standard is encouraging imports, particularly of biodiesel, to meet the mandated volumes. We support an open and competitive market.”

Even environmentalists worry about things like soil erosion, water quality and food shortages.

Others, though, say that ethanol is a lot cleaner than pure gasoline and that it substantially reduces CO2 levels. Newer generations of ethanol are in the pipeline, which include the transition to non-food based sources — things that the U.S. government has investments in.

To be clear, there are two generations of ethanol: the first is tied to corn while the second is more advanced cellulosic ethanol and associated with things like switchgrass, wood chips and municipal waste. Most of the criticism is tied to corn, which is not only less efficient than cellulosic ethanol but it is also an essential food.

Cellulosic fibers are abundant and could supply 130 million gallons a year of ethanol that would replace gasoline, although it is still pricey when compared to corn-based ethanol and some early trials have ended in disappointment. To commercialize the fuel additive, developers say that they have to increase scale and to bring down the cost to $2 a barrel — a tough proposition in current market conditions.

“It is absurd to suggest that the Renewable Fuels Standard and ethanol are somehow harming the economy when ethanol is priced below gasoline and remains the lowest-cost source of octane available on the market …” the Renewable Fuels Association said in public comments.

US motor gasoline consumption has grown the past four years, says the US Energy Information Administration, and has increased from 8.7 million barrels a day in 2012 to 9.3 million barrels a day in 2016. As a result, ethanol demand has grown 7%, it adds.

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