A LEAKED draft document indicates that the Environmental Protection Agency is looking to cut the renewable fuel standard's (RFS) mandate for 2014 and 2015 by 6% from current levels, which would indicate a significant reduction in the ethanol industry's corn demand.
As hinted in a rule-making earlier this fall, EPA said it would be using its authority to make adjustments to the mandate. The law mandates 18.15 billion gal. of total renewable fuel use, but the leaked document indicated that the agency would be dialing that back to just 15.21 billion gal.
This would reduce the volume of corn-based ethanol to about 800 million gal. less than this year's 13.8 billion gal. The "blend wall" is considered to be roughly 13.3 billion gal. The law requires 14.4 billion gal. in 2014.
The leaked figure is much less than many economists had expected.
For instance, Purdue University agricultural economist Wally Tyner had projected that EPA might reduce the level to 15.85 billion gal. (Feedstuffs, Sept. 30).
Bill Lapp, president of Advanced Economic Solutions, said it is not surprising that EPA could make cuts to the RFS, but the size of the cuts to a level slightly below the blend wall came as a "mild surprise."
"EPA strongly hinted at this about 60 days ago, when they announced the 2013 RFS volume requirements for obligated parties. They indicated that they did not believe there was a workable way around the blend wall via E15 or E85 (fuel blends)," Lapp said. He added that the change "would make the RFS more workable and rational for obligated parties."
The draft document indicates that in order to make the changes, EPA intends to use the inadequate supply justification for the waiver.
Bob Dinneen, president of the Renewable Fuels Assn., offered a lengthy explanation of the terms under which EPA can use this authority and questioned whether EPA can do so.
In past years, EPA has written down the levels for cellulosic or advanced biofuels but kept the mandate for total renewable fuels the same.
Dinneen explained that EPA may not adjust the requirements for advanced biofuels or total renewable fuels by an amount greater than the reduction of cellulosic biofuels.
"In other words, the difference between the total renewable fuel volume and the advanced biofuel standard (14.4 billion gal. in 2014) cannot be affected by any adjustments made by EPA," Dinneen said.
EPA could use its "general" waiver authority, which would allow the agency to reduce the total required renewable fuel volume by an amount greater than the reduction of the cellulosic biofuel requirement.
"However, in order to effectuate such a waiver, EPA would have to determine, after public notice and comment, that implementation of the RFS would 'severely harm the economy or environment of a state, a region or the United States,'" which, as shown during past waiver requests, has not been accomplished, he said.
Dinneen added that the existing vehicle fleet and current refueling infrastructure can easily absorb at least 14.4 billion gal. of ethanol in 2014.
He noted that the Energy Information Administration (EIA) projects 2014 gasoline consumption to total 132.9 billion gal., meaning 13.29 billion gal. of ethanol can be consumed via E10 blends.
"This leaves a need for 1.1 billion gal. of ethanol consumption above the E10 'blend wall' in order to fulfill the 14.4 billion-gal. difference between total renewable fuel and advanced biofuel," Dinneen explained.
Lapp noted that use of ethanol above 10% fuel blends remains minimal, citing EIA data that usage was at nearly 150 million gal. in 2013 and that use of E85 has never exceeded 1% of its potential. In addition, of the nearly 170,000 gas stations in the U.S., only 30 offer E15.
Lapp warned that if too much pressure is put on biodiesel to make up for a shortfall in total advanced biofuels, the markets could be affected. Around one-third of soybean oil production in the U.S. is expected to be used for biodiesel in 2013-14, based on USDA forecasts. This would grow to 50% in 2016 with the larger mandate and the blend wall.
"We forced corn prices higher with the mandates. Now, we risk a dramatic rise in (vegetable oil) prices due to the RFS," he warned.
The proposal is supposedly under review by the White House's Office of Management & Budget. However, with the government shut down, nothing official will be released until work resumes.
Dinneen said the market is already responding to the leaked draft document, reflecting the ongoing debate within the Administration about the 2014 renewable volume obligations.
He noted that the leaked document does not represent a final determination and has not yet been subjected to interagency review. Moreover, the proposed 2014 obligations will be subject to public review and comment.
In past years, though, the initial proposed levels have not been changed once released.