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EPA Rolls Out New RFS, Trims Ethanol, Bumps Biodiesel

Friday the Environmental Protection Agency finally released its proposed biofuel blending mandates for 2014, 2015 and 2016. 

According to EPA, “These proposed volumes would allow volumes of conventional (non-advanced) renewable fuel of up to 13.25, 13.40, and 14.00 billion gallons to be used to satisfy the total renewable fuel re­quirements for years 2014, 2015, and 2016, respectively.” 

“This proposal marks an important step forward in making sure the Renewable Fuel Standard program delivers on the Congressional intent to increase biofuel use, lower greenhouse gas emissions and improve energy security,” said Janet McCabe, the acting assistant administrator for EPA’s Office of Air. “We believe these proposed volume requirements will provide a strong incentive for continued investment and growth in biofuels.”

The EPA will issue its final rule next November but the proposal is already drawing mixed reactions.

“Promises to get the RFS back on track and USDA funding for flex fuel pumps are appreciated, but EPA is yet again proposing to circumvent the RFS by limiting ethanol use to the amount oil companies are willing to blend with the gasoline they refine and not one gallon more.  It’s like the NFL saying it’s ok for the New England Patriots to deflate footballs while everyone else must play by the rules,” said Brian Jennings, Executive Vice President of the American Coalition for Ethanol (ACE).

 As expected, proposed volumes for the 2014 RFS largely reflect actual use.  The Agency intends for renewable fuel use to increase from 2014 to 2016.  But EPA’s proposed blending targets for 2015 and 2016 fall back on the E10 “blend wall” methodology which has disrupted RFS implementation for more than a year, according to ACE.

 “EPA was forced to withdraw their original 2014 proposal because the law doesn’t allow them to use the blend wall to set levels and doing so undermines the integrity of the program.  The good news is that there is still time to get the RFS back on track,” Jennings said.  “We will provide ACE members and biofuel supporters a platform to once again blitz EPA with comments before the final rules are issued on November 30.”

Friday’s announcement comes more than a year and a half after the EPA issued a proposed rule in November, 2013 and for the first time used the so-called blend wall of 10% of the nation’s gasoline supply to justify limiting growth of blending both ethanol and biodiesel. 

Although EPA’s McCabe described the increases in biofuels use as ambitious, during a press conference Friday she told that by 2016 ethanol from all sources (both corn and cellulosic) would make up between 10.05 and 10.28% of the gasoline market. That's still just barely past the 10% blend wall.

Under the 2007 Energy Independence and Security Act, which ramped up the RFS, the blending mandate was supposed to be 15 billion gallons for conventional renewable fuel, mostly corn ethanol. After that, advanced biofuels such as biodiesel and cellulosic ethanol were supposed to make up an ever larger share until the RFS tops out at 36 billion gallons in 2022.

Already there were hints that the implied mandate, called the renewable volume obligation or RVO, would be less than that.

University of Illinois economist Scott Irwin tracks the trading in the fuels industry of RINs, or Renewable Identification Numbers. In essence, it’s something like a futures market for renewable fuels and in the past the value of RINs has been a good indicator of where EPA biofuels regulations could be headed.

Earlier this week Irwin released his latest analysis on FarmdocDaily, which suggested better news for biodiesel and less encouraging numbers for corn ethanol.

His analysis showed that “ i) the RINs market is expecting relatively large biodiesel mandates for 2014-2016; ii) the RINs market does not expect the ethanol mandates in 2014-2016 to be set at the E10 blend wall (as in the first preliminary proposal of November 2013); and iii) the RINs market does not expect the ethanol mandate to immediately return to statutory levels. It would not be surprising if the EPA proposes biodiesel mandates for 2014-2016 in the range of 1.8-2.3 billion gallons and ethanol mandates for 2014-2016 in the range of 13.8-14.5 billion gallons. 

Earlier this month, the U.S. Energy Information Administration’s Short Term Energy Outlook projected only one-tenth of one percent growth in ethanol production this year over 2014 (from 935,000 barrels a day last year to 936,000 barrels a day in 2015). It sees similar 0.1% ethanol production growth in 2016. EIA expects no growth in biodiesel production this year and a jump of nearly 4% in 2016, to 84,000 barrels a day. 

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