U.S. Sticking to Biofuel 'blend wall'

U.S. authorities are set to shake up the nation's complex and contentious renewable fuels policy in the coming days, issuing requirements expected to affirm that use of ethanol in motor fuels has, for now, hit a saturation point.

The Environmental Protection Agency (EPA) has pledged by June 1 to release proposals for the amount of ethanol, biodiesel and cellulosic fuels - made of plant waste - that must be mixed into motor fuel for the years 2014, 2015 and 2016, targets that are up to a year and a half behind schedule.

At stake, say lobbyists and industry groups, is the future of the Renewable Fuel Standard (RFS), a bedrock of two presidential administrations meant to reduce America's dependence on foreign oil and shift the nation toward cleaner, domestic energy sources.

For the corn lobby, which represents corn-based ethanol producers, the EPA's proposals will signal whether Big Oil is winning a battle over market share or whether the political tide can be turned back in ethanol's favor despite opposition from car manufacturers, among other industries.

Many biofuel advocates are bracing for bad news, according to lobbyists: they say the agency seems prepared to stick to its previous rationale for limiting ethanol use to the current 10 percent of all blended motor fuel, the so-called "blend wall", setting targets that fall short of those set out in the original 2007 law.

"It would be crazy not to acknowledge the blend wall," said Jeremy Martin of the Union of Concerned Scientists, which supported the EPA's cuts in 2013 but is in favor of a policy that encourages development of advanced biofuels.

For U.S. regulators and policymakers, the proposals will  likely seek to walk a middle ground, pleasing few but hopefully keeping the RFS intact and holding off a legislative overhaul that some critics say is overdue.

The EPA's proposals are now under review at the White House's Office of Management and Budget (OMB), which is set to face a wave of last-ditch lobbying that will run through the middle of next week, industry sources said.

The quota sizes and precise timing of an announcement are not known. An EPA spokeswoman said the agency is committed to issuing the proposals by June 1 and finalizing volume standards by the end of this year. The agency will be setting standards for 2017 biodiesel targets on the same timeline.
          
A CAP AT THE PUMP
In late 2013, the EPA set off a furor by proposing that 2014 blending targets should be set lower than the mandates set forth in the law due to constraints with infrastructure in automobiles and at the pump - the first acknowledgement that the "blend wall" placed a practical limit on blending.

Standing by that would be a victory for the oil industry, which has argued that use of ethanol, representing the vast bulk of U.S. biofuels, has reached saturation point. Refiners say they cannot inject more because fuel stations will not sell it and most car warranties will not cover it.

Within the quotas, the EPA will likely set 2014 targets in line with actual consumption levels last year, market participants said.

That would leave 2014's ethanol level at about 13.5 billion gallons, based on estimates of what was blended domestically. The industry is blending at a slightly faster pace so far this year, according to EPA data reviewed by Reuters.

But questions linger over fuel use into 2016.

According to the original law in 2007, 15 billion gallons of corn-based requirement was meant to be used in fuel from 2015 onwards. Few expect that to be enforced with the EPA's plans.

Four industry sources said they expected higher mandates for cellulosic or biodiesel fuels at the expense of corn-based ethanol.

Expectations were mixed on whether the EPA would raise the biomass-based biodiesel target or the overall pool for advanced biofuels, which also includes biofuel made of plant waste and sugarcane ethanol.

The proposals will be followed by a comment period and the EPA has said it will finalize rules by Nov. 30.


By Chris Prentice