WASHINGTON -- With its newly proposed renewable fuel volumes for 2017, the Environmental Protection Agency (EPA) is trying to find a middle ground between meeting the goals of the Renewable Fuel Standard (RFS) and recognizing concerns about the blend wall. Based on the initial reaction from oil, ethanol and fueling industry groups, it is not a clear success.
The EPA this week announced its proposed 2017 renewable volume obligations (RVOs) for renewable fuel, and advanced and cellulosic biofuel. The proposal would require refiners to blend a total of 18.8 billion gallons of biofuel in gasoline and diesel in 2017, including 14.8 billion gallons of corn-based ethanol. This would be a small step up from the 18.1 billion gallons of biofuels mandated for 2016—a nod to climbing gasoline demand—but well below the 24-billion-gallon target that the RFS initially required in a 2007 update.
In an interview with Bloomberg, Pavel Molchanov, senior vice president and analyst for Raymond James Financial Inc., described it as “a very cautious proposal.”
“That’s really a reflection, particularly for corn ethanol, that blending is very close to that 10% threshold,” said Molchanov, referring to the “blend wall,” or the total amount of ethanol that refiners can safely blend into gasoline based on current demand.
The oil industry has supported capping ethanol at 9.7% of demand, which would provide some room for ethanol-free gasoline (E0) to grow. In fact, a group of legislators recently proposed a bill that would require the EPA to do just that [link to yesterday's story].
Instead, the EPA’s 2017 proposal sets ethanol at 10.3% to 11.0% of demand. According to figures from the American Petroleum Institute (API), this falls within the same range of the 2016 mandate.
The EPA is attempting “to hit the ball straight down the middle,” while recognizing concerns about the blend wall, said Rob Barnett, a senior energy policy analyst for Bloomberg Intelligence. At the same time, “higher targets will probably put some cost pressure on some refiners. Refiners are going to have to blend more.”
In a statement, Frank Macchiarola, downstream group director for API, reiterated calls for a 9.7% cap.
“Consumers’ interest should come ahead of ethanol interests,” said Macchiarola. “EPA is pushing consumers to use high ethanol blends they don’t want and that are not compatible with most cars on the road today. The administration is potentially putting the safety of American consumers, their vehicles and our economy at risk.”
Emily Skor, CEO of ethanol industry group Growth Energy, gave mixed praise to the 2017 proposal.
“We are encouraged that the EPA proposal takes a step forward, signaling the critical importance of cleaner-burning, less expensive biofuels, like ethanol,” said Skor. “However, it still falls short of the goals of the Renewable Fuel Standard. Ethanol producers, retailers and the current auto fleet are fully capable of providing consumers with a true choice at the pump.” Ethanol proponents believe greater acceptance of higher ethanol blends such as E15, a 15% blend, would make concerns about a blend wall moot.
The 2017 proposal also sets RVOs for advanced biofuels at 4 billion gallons, with 2 billion gallons from biodiesel and 312 million gallons from cellulosic ethanol.
Michael McAdams, president of the Advanced Biofuels Association, said in a statement that the 2017 proposal is “good news for the advanced biofuels industry,” considering the increases to advanced, bio-based diesel and cellulosic fuels. “This shows great progress for the advanced biofuels sector,” said McAdams. “We look forward to commenting on the proposed rule and are particularly encouraged by the growth of available renewable diesel and biodiesel to our country to achieve these targets.”
However, Anne Steckel, vice president of federal affairs for the National Biodiesel Board, told Bloomberg that in setting the biodiesel target, the EPA “significantly understates” potential production.
Many fueling industry groups are still reviewing the proposal. In an alert, SIGMA pointed out that the proposal does not revise regulations that would make blenders “obligated parties” under the RFS. Refiners and importers play this role now, although some refiners have petitioned the EPA to move obligation to blenders.
For retailers such as Murphy USA and Casey’s General Stores that do ethanol blending and generate income from selling renewable identification numbers (RINs) to obligated parties, the proposal is “modestly positive” in the near term, said Ben Bienvenu, an analyst for Stephens Inc. In a research note, Bienvenu said the higher RVOs would support RIN prices.
EPA will hold a public hearing on the 2017 proposal June 9 in Kansas City, Mo., and accept public input and comments until July 11. The agency must finalize the 2017 RVOs by Nov. 30.
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