New Renewable Fuel Standard Sympathetic to Ethanol Makers

During the 2016 presidential campaign, Donald Trump campaigned in Iowa on maintaining the ethanol requirements and the subsidies given to farmers to produce the gas additive. But the Environmental Protection Agency has proposed to reduce the percentages necessary for 2018.

The so-called Renewable Fuel Standard that mandates the levels ethanol relative to gasoline would require refiners to use 19.24 billion gallons of ethanol in 2018. It is only a slight decrease from the current year at 19.28 billion gallons. Still, it is a quarter less than what Congress had prescribed in 2007 when the law passed.

The law was set up so that if market dynamics change, the percentages of ethanol can adapt. The proposal is out for comment and is expected to be finalized in November.

There are two generations of ethanol: the first generation is ethanol produced from corn and the second is cellulosic ethanol, which is derived from things like wheat grass and wood chips. The former uses corn and has thus led to food shortages and rising prices, and is accused by its critics of being an inefficient additive. The latter is considered far more efficient but is still not technically commercial. The reduced targets for 2018 affect mostly the cellulosic ethanol sector.

“Increased fuel security is an important component of the path toward American energy dominance,” said EPA Administrator Scott Pruitt, in a statement. “We are proposing new volumes consistent with market realities focused on actual production and consumer demand while being cognizant of the challenges that exist in bringing advanced biofuels into the marketplace.”

Some key elements of last week’s action, which EPA points to:

  • Non-advanced or “conventional” renewable fuel volumes are maintained at the 15-billion gallon target set by Congress.
  • The biomass-based diesel standard for 2019 would be maintained at the 2018 levels of 2.1 billion gallons.
  • EPA is beginning technical analysis that will inform a future rule to reset the statutory volumes for cellulosic, advanced, and total biofuels. The law requires this reset when certain conditions are met.

It is important to note that Pruit has long been critical of the subsidies given to the ethanol industry — a move that puts him at odds with the president. Just how that turns out in the end is yet to be seen. Still, the biofuels sector was mostly positive, albeit those representing the advanced cellulosic side of the equation were a bit disheartened.

Federal policies have certainly been sympathetic to ethanol makers. The economic argument is that the use of biomass as a fuel supplement lessens the country’s dependence on foreign oil. Meanwhile, supporters the Renewable Fuel Standard also say that ethanol reduces pollution levels. Certain studies have backed up those emissions claims while others have said that it takes more energy to convert plant-based feedstocks to a fuel than it does to just burn refined oil straight up.

“We believe EPA’s proposal continues our nation on the path of further success for the program and ensures the future growth of ethanol, the cleanest, lowest cost and highest source of octane on the planet,” said Bob Dinneen, chief executive of the Renewable Fuels Association.

Politically speaking, ethanol standards let Washington win favor among the strong agricultural businesses in this country. But that position pits Big Ag against Big Oil, which is also using powerful arguments to make its case: For starters, this country is now the world’s biggest oil producer, given the ability to access domestic tight oil deposits using hydraulic fracturing. And secondly, a lot of car engines can’t handle the increased use of ethanol.

Big Oil has been mum on the latest EPA proposal to cut ethanol requirements. Generally, it does not want to cede major parts of the multi-billion dollar annual gasoline market.

“For the sake of consumers, and for the sake of our economy, we call on the administration to keep ethanol mandates well below 10 percent of gasoline demand,” Bob Greco with the American PetroleumInstitute, said earlier. 

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