U.S. EPA’s handling of the ethanol "blend wall" in its proposed renewable fuel targets nods to both the ethanol and oil industries but does little to please either.
"It reads a little bit like ‘Dr. Jekyll and Mr. Hyde,’" said Geoff Cooper, senior vice president for the Renewable Fuels Association.
Just as Henry Jekyll bounces between civilized doctor and monster in the Robert Louis Stevenson classic tale, says Cooper and others in the biofuel fight, EPA’s proposal careens from one extreme to another on the blend wall — the outer limit of ethanol that can be blended into the nation’s motor fuels — in the proposed multi-year targets for the renewable fuel standard (RFS).
"I’m struck with the back and forth," said Stephen Brown, vice president for federal government affairs at Tesoro Corp. "They give on one hand to us in the first two years and take it back with a vengeance in 2016."
Most gasoline sold in the United States contains about 10 percent ethanol. The blend wall encompasses the infrastructure and market constraints that could prohibit more ethanol from being added to the fuel system above that level.
The blend wall has become an issue in recent years because the RFS passed by Congress in 2007 has called for higher amounts of ethanol as gasoline demand has fallen from what was envisioned in the law.
Bottom line: Volumes of ethanol Congress wrote into the standard for the past few years has exceeded the 10 percent limit.
In its proposal released Friday, EPA acknowledged that there was a blend wall preventing the uptake of more ethanol in the fueling system. So it proposed to limit ethanol levels in 2014 and 2015 to below 10 percent of the gasoline pool.
But for 2016, EPA proposed targets that — while still below congressionally mandated levels — would require refiners to break through the blend wall.
For corn ethanol, EPA has proposed a level that equals about 10.2 percent of the expected 137-billion-gallon gasoline pool. The target would require refiners to use more than 800 million gallons of ethanol above the blend wall to meet the requirements next year.
The blend wall is "an issue, but you’ll see that we lay out a variety of scenarios for the various fuels that make up biofuels to be able to meet the volumes that we’re proposing," EPA acting air chief Janet McCabe said Friday.
EPA noted in its proposal that the bulk of the extra needed gallons could be added through the expansion of E85 — a type of fuel for flex-fuel vehicles that contains up to 85 percent ethanol. Separate from EPA’s proposal, the Department of Agriculture on Friday announced that it would provide up to $100 million to gas stations who want to install pumps capable of handling higher ethanol blends.
Refiners who view the blend wall as their top concern with the renewable fuel standard say they’re disappointed with the RFS proposal.
Charles Drevna, a fellow at the Institute for Energy Research who recently retired as president of American Fuel & Petrochemical Manufacturers (AFPM), slapped on EPA the "Dr. Jekyll and Mr. Hyde" title for acknowledging that the blend wall was an issue but for proposing an ethanol target for 2016 that requires the refiners to go beyond the wall.
"What makes EPA think we’re going to have some technological breakthrough in 2016 that we don’t have in 2014?" Drevna said.
Refiners also don’t think there’s enough consumer demand for E85 to rely on the fuel to add more ethanol to the market in the next few years. EPA is expecting to see more than a six-fold increase compared to the current amount of the fuel used in the market.
"We think they are overestimating the amount of E85 that could be sold," said Geoff Moody, senior director of government affairs for AFPM.
Ethanol groups, on the other hand, have heavily criticized the proposal for falling short of the full levels that Congress wrote into the statute. They say that the blend wall is of refiners’ own making and that they could have avoided it by investing in infrastructure to add more ethanol to gasoline.
They’ve also called EPA inconsistent in its approach.
Cooper of the Renewable Fuels Association pointed to the agency’s treatment of fuel credits known as renewable identification numbers, or RINs, which are the mechanism by which refiners show compliance with the federal mandates.
EPA wrote that RIN prices would likely rise higher than historical levels and help drive refiners to use more ethanol — a win for ethanol producers who have long argued that RIN prices are a key part of forcing new technologies to handle higher ethanol blends.
But the agency also said it wouldn’t consider the bank of RINs that are already available in the marketplace from previous years when determining the mandates for the coming years — a blow for ethanol producers who want to see EPA raise the annual mandates as high as possible.
"There’s a pretty nice analysis of RIN prices and how the RIN market can really drive investments," Cooper said. "So they seem to get it in theory, but then the Mr. Hyde part comes in when a couple of pages later they say, ‘We don’t think we should consider RIN stocks in our calculation of available supplies.’"
‘Kicking the can down the road’?
Ethanol producers also say EPA is lowballing the amount of ethanol that could be used in the next couple of years in the form of E15, or gasoline containing 15 percent ethanol that has been approved for use in cars that are model years 2001 or newer.
On the other hand, refiners say EPA has underestimated the amount of ethanol-free gasoline that will be in demand in the next few years by boaters and owners of small-engine equipment.
EPA left both E15 and ethanol-free gasoline out of its calculations of how the nation could overcome the blend wall, arguing that the use of both would remain "limited."
For its part, EPA says both oil refiners and ethanol producers could have done more to avoid the current issues with the blend wall.
"We agree that obligated parties [refiners] have had years to plan for the E10 blend wall and that there clearly are steps that obligated parties could take to increase investments needed to increase renewable fuel use above current actions," the agency said in a statement.
"We also note, however, that biofuels producers could also have taken appropriate measures, and that nothing precludes biofuel producers from independently marketing E85 or increasing the production of non-ethanol renewable fuels," EPA said.
Cooper of the Renewable Fuels Association said that the statement amounted to a slap in the face for his industry.
"We found that to be a little irritating" he said, "because I think we feel like, as an industry, we really stepped to the plate, particularly over the last 18 months or two years, to do everything in our power to expand infrastructure."
EPA’s McCabe stressed the agency was "not blaming anyone in the rule" for there being a blend wall.
"We’re reflecting what we’re seeing in terms of actual data and reflecting what we read to be Congress’ intent to move these fuels forward," she said.
EPA is accepting public comments on the proposal through July 27, and the initial reactions from groups will likely be shaped into exhaustive formal statements and submitted to the agency. Under a tentative settlement agreement with oil groups, EPA is aiming to finalize the proposal by Nov. 30.
Some ethanol critics, including refiners and free-market advocates, have called the proposal a stopgap measure on the blend wall.
Drevna found similarities between the proposal and another literary figure, Scarlett O’Hara, the central character in "Gone with the Wind" who tries to keep up a way of the Southern planation lifestyle as it disintegrated in the Civil War and Reconstruction era.
"I’ve equated it to EPA’s taking over, or at least promoting, the Scarlett O’Hara view of things," he said. "While the system is collapsing around them, they’re going tweedle dee, tweedle dum, tomorrow will be another day. They’ve kicking the can down the road."
