WASHINGTON, June 3, 2015 – Biodiesel came off as a big winner in the Obama administration’s proposed biofuel mandates. Corn ethanol, on the other hand, faces constraints through at least 2016 and possibly beyond, analysts say.
The annual volume requirements released by the Environmental Protection Agency would guarantee significant increases in usage of biodiesel through 2017.
“What they did was a political strategy of divide and conquer. Clearly the blessings went to biodiesel and the curses went to ethanol,” said Scott Irwin, an economist at the University of Illinois.
The projected volume requirements for corn ethanol – 13.4 billion gallons for 2015 and 14 billion gallons for 2016 – would mean that ethanol would account for 10.05 percent and 10.3 percent of the fuel supply for those years, respectively. Those numbers aren’t high enough to promote the use of higher ethanol blends, such as E15 and E85, Irwin said.
“The proposal provides zero incentive to push, to force, higher ethanol blends further into the gasoline in the fuel supply. None,” Irwin said.
The levels in the proposed rule represent a cut from the ethanol usage targets set by the 2007 energy law of 15 billion gallons a year. EPA argues it has no choice but to set the usage mandates lower than 15 billion gallons because of the ethanol blend wall, the limit on how much ethanol can actually be sold domestically, given the market constraints.
The proposal could set up more problems in the future for corn ethanol, according to analyst Timothy Cheung of ClearView Energy Partners. Under the 2007 energy law, cuts of the size that EPA is proposing in statutory usage targets will trigger a requirement that EPA consider resetting the goals for 2017 through 2022, Cheung said. Because of the way the Renewable Fuel Standard works, that reset could mean lowering the mandates for corn ethanol as well as other biofuels.
Cheung thinks that ethanol actually came out relatively well in the proposal for 2015 and 2016, given the pressure EPA was getting to set the targets even lower. But Cheung said ethanol faces “uncertainty’’ for 2017 that “could discourage investments” in the industry. That reset requirement, by the way, would almost certainly fall on Obama’s successor, which means that the views of the presidential candidates on biofuel policy will be vital.
Irwin offers little reason to be optimistic for corn ethanol’s prospects. At the pace motorists are using ethanol so far this year, he says, total consumption for 2015 is likely to be about 14 billion gallons, well above EPA’s proposed 13.4 billion-gallon mandate for refiners, so there’s little reason for service stations to install new E15 and E85 pumps, Irwin said.
That’s despite the fact that Agriculture Department announced that it would offer $100 million in grants for installation of pumps that can dispense higher ethanol blends. Irwin said the grant money amounts to little more than a public relations move unless EPA requires higher ethanol use.
The grant program is likely to draw the attention of anti-ethanol forces in Congress. Lawmakers stopped Agriculture Secretary Tom Vilsack from using the Rural Energy for America Program (REAP) to subsidize ethanol pumps, so Vilsack this time has decided to tap the Commodity Credit Corp., which is used to fund economic assistance to farmers.
In a statement to Agri-Pulse, the National Chicken Council made clear that it isn’t happy with Vilsack’s latest plan. “Congress clearly made their will known not to fund this boondoggle when they barred funding from these programs through REAP. Now USDA is looking for a different sock drawer from which to pull money.”
Biodiesel, meanwhile, would benefit from the proposed rule in two ways. The plan sets base usage requirement for biodiesel that starts at 1.7 billion gallons in 2015, up from usage of 1.63 billion gallons last year, rising to 1.9 billion by 2017.
In addition, refiners also could use several hundred million gallons of biodiesel to fill a separate requirement for “advanced” biofuels. Brazilian ethanol also could qualify for use as an advanced biofuel but it faces the same market limit as conventional ethanol.
“There’s a lot more room in that market for growth because they aren’t experiencing the same blend wall problems. That’s probably a more realistic path forward,” said Eric Washburn, an energy lobbyist for Bracewell and Giuliani.
Advanced Ethanol industry also expresses disappointment with RFS
Brooke Coleman, executive director of the Advanced Ethanol Council, said he’s still hopeful the RFS proposal will be changed. President George W. Bush signed the most progressive, advanced biofuel policy in the world, he said, and, at least to this point, President Barack Obama has been “too weak kneed” to implement it. “What is disappointing is that the oil industry has found a friend with the president,” he said. For more, listen here.
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