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Rejecting Renewable Cannibalism

At one of the largest gatherings of ethanol producers in years Tuesday, reaction to the EPA’s just-released weak mandate for blending biofuels ranged from anger to disbelief.

“Apparently, this program is supposed to be convenient for the oil companies,” Bob Dinneen, CEO of the Renewable Fuels Association told his audience at the Fuel Ethanol Workshop in Minneapolis, Minnesota.

The so-called Renewable Volume Obligation for oil companies to blend ethanol last year, this year, and in 2016, which the EPA proposed last Friday, is only slightly better than its unpopular proposed rule issued in November 2013. The EPA now will require blending of conventional ethanol made mostly from corn at 13.4 billion gallons this year and 14 billion gallons next year. It retroactively set the mandate for 2014 at 13.25 billion gallons, more than the 13 billion it proposed in 2013, but that number is below the amount actually used last year, according to University of Illinois. 

“What’s really troubling to me is that EPA is clinging to the blend wall as the justification for those numbers,” Dinneen said. 

Dinneen and others in the industry say that the EPA has accepted the oil industry argument that it can’t find a way to sell more ethanol than 10% of the gasoline market, something that Congress never intended when it passed the Energy Independence and Security Act of 2007. That law’s Renewable Fuel Standard (RFS) set goals for blending ethanol, biodiesel, and cellulosic ethanol. Under the law’s RFS, the oil industry was supposed to be blending 15 billion gallons of conventional ethanol this year. By 2022, the law envisioned total renewable fuel usage of 36 billion gallons.

So, at best, the RFS is behind schedule, if EPA sticks to its latest proposal of requiring 14 billion gallons of ethanol blending next year.

“The EPA characterizes that as breaking the blend wall. I view that as scratching the blend wall,” Dinneen said.

Dinneen went through a long list of reasons why the EPA seems to have a bias against ethanol, ranging from the agency’s long delay in issuing new proposed rules, to its “extraordinarily onerous” labeling requirements for pumps dispensing E15, gasoline blends with 15% ethanol that could break the 10% blend wall.

“There isn’t a bureaucrat in EPA that has ever produced a gallon of ethanol, and they’re ignoring the people who do,” Dinneen said.

Theories about the EPA’s apparent hostility to corn ethanol include possible ties among those bureaucrats to the oil industry or their sympathy to the views of environmental groups. Some environmentalists see ethanol made from corn as inefficient and cellulosic ethanol as greener. 

The new EPA proposal would increase its mandate for cellulosic ethanol sharply, from 33 million gallons last year to 206 million gallons next year, still a tiny share of the 14 billion-gallon total for ethanol. Dinneen argues that higher blending obligations under the RFS would create incentives for the oil industry to invest in blender pumps to dispense E15 and other blends with higher levels of ethanol. 

At a press conference, Brooke Coleman, executive director of the Advanced Ethanol Council, which represents the cellulosic ethanol industry, agreed. Blender pumps are crucial to provide a marketplace for those advanced fuels, he said. “If we don’t have more pumps and more marketplace, then the proposition is that we…take the new ethanol and the second-generation ethanol and we displace first-generation ethanol, and that’s a cannibalistic business model that no one’s going to sign up for.”

“If you have to eat your own to innovate, you’re not going to innovate. And one of the things the Obama Administration has clearly been wrong about is hoping that that’s OK — that capping the market at 10% ethanol, and backfilling it with cellulosic is actually a good business proposition for those that are developing cellulosic biofuels and very basically, it’s not.”

Representatives of the fledgling cellulosic ethanol industry’s three largest commercial plants, owned by Abengoa (a Spanish energy company), DuPont, and POET-DSM, all said Tuesday that in spite of some startup issues, they expect to be in full commercial production next year. Two of the plants, those owned by DuPont and POET-DSM, use corn stover for a feedstock and are tied to corn ethanol plants. 

Both Dinneen and Coleman said they hope that the industry won’t have to take EPA to court for what’s viewed as an illegal use of the blend wall to justify lowering the RFS. Instead, they hope to convince EPA to change its proposal before it issues a final rule next November. The agency will hold a public hearing on the RFS in Kansas City, Kansas, on June 25, and comments can be sent to EPA until July 27.

Coleman said that even though Obama isn’t up for election again, he hopes that his concern about his legacy will convince the president to be more supportive of biofuels. 

Coleman admitted that he’s been disappointed by a president who was less supportive of biofuels than his predecessor, George W. Bush.

“What’s interesting about the president’s position is he says, 'All right, Shell go back to the Arctic, that’s cool with me, even though it’s pretty controversial' and simultaneously says 'I’m going to gut the RFS." Then he goes on a road show saying that he’s for innovation and for alternative fuels, which is very, very difficult to take as a voter, especially one, on a personal level, who voted for him twice,” Coleman said. 

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