EPA: Bungling biofuels buffoonery

Feds cannot even set mandates that industry pays for missing; time for a re-do!

  • sugarcane

Earlier this month, the Environmental Protection Agency recently announced the biofuels “required volume obligations” for 2013.  This annual announcement establishes the amount of biofuels which must be blended into the nation’s fuel supply for the year.  That’s right — this year’s mandatory volumes were announced in August, eight months into the year they are to be in effect and exactly 249 days after EPA was required by law to take this action.

This delay is symptomatic of federal biofuels policy; it is unwieldy, unpredictable, and unsustainable.

Indeed, under the statute, the Energy Independence and Security Act of 2007, the volume obligations are to be issued by November 30 of the prior year in order to give oil refiners and gasoline blenders time to adjust to the mandate.  To be sure, EPA’s primary role is to confirm what was already laid out by statute in terms of annual volumes of biofuels.  That so called “renewable fuels schedule” established in 2005 and update in 2007 requires an ever increasing amount of biofuel to be blended into the nation’s fuel supply until the total hits 36 billion gallons in 2022.  Those volumes, however, are completely unrealistic – a fact even EPA recognizes.

Consider cellulosic ethanol, made from non-food sources such as switch grass and woody biomass, and believed to be lower in greenhouse gas emissions.  By 2014, according to the original statute, a total of 1.75 billion gallons of cellulosic ethanol was to be used in the fuel market.  Based on a survey of actual production capacity, EPA was forced to scale back the cellulosic ethanol volume to a mere 6 million gallons.  Ironically, though its use has been mandated for several years, cellulosic ethanol still is not commercially produced.

Corn-based ethanol, on the other hand, faces a different sort of problem: corn ethanol can be made available in sufficient volumes, but the mandate is set too high for the market.  That is, the volumes are higher than America’s engines can burn.  EPA recognizes this problem, averring in its announcement that the agency “does not currently foresee a scenario in which the market could consume enough ethanol sold in blends greater than E-10, and/or produce sufficient volumes of non-ethanol biofuels to meet the volumes of total renewable fuel and advanced biofuel as required by statute for 2014.”

This legal and practical limit on the amount of ethanol that the fuel market can accommodate is known as the “blend wall.”  It generally stands at 10% ethanol blended into the gasoline supply (a fuel known as E-10), the level at which auto warranties, small engines, fuel storage and pump infrastructure can sustain.  EPA estimates the blend wall for ethanol is 13.2 billion gallons in 2014; the statute calls for 14.4 billion gallons of corn ethanol alone, plus a residual amount of imported Brazilian sugar ethanol that ranges up to another billion gallons.

When Congress passed the mandate for biofuels in 2007, the underlying assumption was that gasoline demand would increase every year into the future.  Fuel demand, for a variety of reasons ranging from better mileage efficiency in automobiles to fewer drivers driving less miles as baby-boomers retire, has decreased each year since its peak in 2007, and is projected to continue on a downward path for several more years.  Thus the blend wall was met much earlier than ever anticipated – a full nine years before the mandate was to be fully implemented in 2022.

EPA promises it will “propose adjustments to the 2014 volume requirements,” yet no proposals have been forthcoming.  Indeed, under the statute the 2014 volume level for biomass-based diesel – another category of biofuel – should have been finalized by October 31, 2012.  EPA has not issued a proposed level yet.  And the marketplace is still waiting for some clue – any clue – as to what the ethanol requirements will be.

Given the flawed assumptions in the statute EPA’s task of setting what the agency calls “reasonably attainable” volumes for biofuels is indeed difficult.   However, when EPA does not meet its statutory deadlines it is even more difficult for the market to adjust to these unrealistic federal mandates for biofuels – a problem that is especially acute for 2014.  It is now time for Congress to step in and reassess biofuels policy.  A great place to start would be to let the market – not the federal government – to set the volumes of biofuels that motorists use.

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About the Author: Dave Juday

Dave Juday is a commodity market analyst and the principal of The Juday Group; he also serves as a CFACT policy analyst.

  • Yippie21

    Well written rebuke. I hope, like I lived to see the 55 mph speed limit repealed, I will live to see ethanol mandates repealed… and maybe even all the EPA mandates and the agency itself. heh

    • tomandersen

      The graceful way out is a 0.5% drop per year, 10 – 9.5, 9.0, etc down to a 1% mix over 18 years. That allows farmers and ethanol plants to adjust slowly to less demand.