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IER respond to EPA ethanol levels

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Hydrocarbon Engineering,

According to the Institute for Energy Research (IER), on 30 November, the Environmental Protection Agency (EPA) announced the final biofuel levels for 2014, 2015, and 2016. EPA is tasked to do this each November to set the levels for the next year’s mandated biofuels volumes, but has been behind the past several years. For 2014, EPA announced the mandated levels after the fact, i.e. after the biofuels have been blended with petroleum products and been consumed, and only after a lawsuit forced EPA to finalise the volumes. EPA’s required volumes for 2016 exceed the 10% blend wall, which could drive up fuel prices for American motorists.

In May, EPA provided preliminary numbers for the three years, making sure that the proposed ethanol levels did not hit the blend wall where the ethanol requirement would be over 10% of motor gasoline consumption. However, in its final determination, EPA raised the biofuel requirement for 2016, ignoring the blend wall issue. The blend wall is important since many auto manufacturers will not warranty cars that consume gasoline with more than a 10% ethanol component because levels higher than 10% could result in significant problems such as accelerated engine wear and failure, fuel system damage and false check engine lights. Further, small motors such as those in boats and lawn mowers have difficulty using even a 10% ethanol blend in gasoline.

EPA’s final mandate levels are 16.28 billion gal. for 2014, 16.93 billion gal. for 2015 and18.11 billion gal. for 2016. Of that, conventional corn ethanol will make up 14.05 billion gal. in 2015 and 14.5 billion gal. in 2016, the bulk of the biofuel blended in the US gasoline supply. While the 2015 mandate for total biofuels is below the 10% blend wall, the 2016 mandate will raise the total volume of biofuels to 10.1%. The 18.11 billion gal. for 2016 is higher than the 17.4 billion gal. EPA proposed in May, and lower than the 22.25 billion gal. in the statue.

Keep in mind that when Congress passed the mandated biofuel levels in the Renewable Fuel Standard of the Energy Independence and Security Act of 2007, it used levels of gasoline demand projected to occur in the future. However, those projections are not reality and the forecasters did not foresee the global recession that brought transportation consumption of petroleum products down significantly. In fact, motor gasoline consumption has still not returned to 2007 levels.

Besides the total renewable volume, EPA also stipulated the volumes of advanced biofuels for each of the three years. While Congress anticipated that a growing volume of cellulosic ethanol made from corn stover, wood chips and other biomass sources would become economic and eventually exceed corn-based ethanol, cellulosic ethanol remains a commercially uneconomic technology despite millions of federal dollars spent on grants and loans to get the technology off the ground. EPA, however, is requiring that cellulosic biofuels almost double in 2016 to 230 million gal. The EPA also finalised the 2017 mandate for biodiesel fuel at 2 billion gal.

The results of mandates in the Renewable Fuel Standard are significant. Ethanol production in the US has more than doubled between 2007 and 2014—from 6.5 billion gal. in 2007 to 14.3 billion gal. in 2014 and biodiesel production has also more than doubled–from 0.5 billion gal. to1.28 billion gal. during the same time period. While refiners would have used ethanol as an oxygenate and octane booster in the absence of the RFS, the current production volumes are likely considerably higher than what would have been demanded without the RFS due to its corrosive properties that require separate handling and transporting.

Congress wrote into the RFS program a provision that requires EPA to reset the statutory volumes of renewable fuels starting in 2016 if the agency reduced any of the mandates by at least 20% for two consecutive years or by at least 50% for a single year. If this occurs, EPA is required to promulgate a rule within one year after issuing the waiver to essentially reset the overall Renewable Volume Obligation schedule through 2022 to make the volumes realistic.

Because EPA reduced the advanced biofuel mandate to 2.88 billion gal. for 2015 and 3.61 billion gal. for 2016 — below the statutory levels of 5.5 billion gal. in 2015 and 7.25 billion gal. in 2016, respectively, the agency must reset the statutory volumes for advanced biofuels. Advanced biofuels are fuels that reduce greenhouse gases 60% or more compared with gasoline or diesel. They include Brazilian sugar cane ethanol, biodiesel, and fuels from feedstocks such as algae, grasses or municipal waste. Avoiding the reset provision, meant EPA would have had to require4.4 billion gal. or more of advanced fuels in 2015 and 5.8 billion gal. in 2016.

EPA must issue a reset rule within one year that modifies the applicable statutory volumes based upon the following six factors: (1) environmental impact; (2) energy security; (3) annual production rate of renewable fuels; (4) impact on infrastructure, including the sufficiency of infrastructure to deliver and use renewable fuel; (5) cost to consumers; and (6) other factors such as job creation, price and supply of agricultural commodities, rural development and food prices. EPA must also coordinate with the Secretaries of Energy and Agriculture.

EPA has finally provided the requirements for biofuels for 2014, 2015, and 2016, though the 2014 and 2015 requirements are years late. While EPA can fine companies for not complying with its regulations, EPA is not affected by missing its deadlines set by Congress. As its normal process, EPA made the RFS requirements more stringent in its final pronouncement than in its proposed levels provided in May. In fact, the 2016 levels are above the 10% blend wall, which may have detrimental effects on automobiles and small motors as well as the cost of fuel. Further, now that the reset provision has been triggered, EPA needs to set the volumes through 2022 at realistically achievable levels. The government is now firmly in control of the gasoline everyone buys and it is not working out well.

Adapted from press release byFrancesca Brindle

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