Modest Biofuel Quota for 2017 Blasted by Producers

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United Soybean Board

The Obama administration tried to strike a cautious compromise May 18 in setting quotas for a controversial renewable fuels program that pits Big Oil against Corn Belt interests.

The Environmental Protection Agency proposed compelling refiners to blend 18.8 billion gallons of biofuel into the U.S. gasoline and diesel supply next year, with no more than 14.8 billion gallons of that coming from conventional corn-based ethanol. The overall number — which is higher than oil companies wanted but lower than what biofuel producers sought — represents a modest increase over the 18.11 billion gallons of total renewable fuels the agency required for 2016.

But it is still far below a 24 billion gallon biofuel target that lawmakers established in a 2007 statute, and it dips below the law’s 15 billion cap on conventional renewable fuel, limiting the potential for ethanol producers such as POET, Green Plains Inc. and Pacific Ethanol Inc.

The EPA’s proposal — like last year’s version — reflects oil companies’ concerns that the Renewable Fuel Standard is pushing them beyond a “blend wall” where the targets force them to mix a higher proportion of ethanol into fuel than the 10% level approved for use in all cars and trucks.



"It’s a very cautious proposal," Pavel Molchanov, a senior vice president and analyst at Raymond James Financial Inc., said in a telephone interview. "It’s a cautious proposal and that’s really a reflection, particularly for corn-ethanol, that blending is very close to that 10% threshold."

Biofuel backers blasted the EPA’s plan, saying the agency was kowtowing to oil companies.

“The agency continues to cater to the oil industry by relying upon an illegal interpretation of its waiver authority and concern over a blend wall that the oil industry itself is creating,” Bob Dinneen, head of the Renewable Fuels Association, said in an e-mailed statement. “As a consequence, consumers are being denied higher octane, lower cost renewable fuels. Investments in new technology and advanced biofuels will continue to languish and greenhouse-gas emissions from automobiles will be unnecessarily higher.”

Brooke Coleman, executive director of the Advanced Biofuels Business Council, said the proposed targets don’t live up to the goals of the Renewable Fuel Standard: to drive the commercialization and use of low-carbon alternatives on U.S. roads.

“If the administration wants our industry to be aggressive when it comes to financing and commercializing low carbon fuels in the United States, as they have asked us to do, they need to hold up their end of the bargain and make some critical adjustments to the RFS final rule,” Coleman said in an e-mailed statement.

Oil industry trade groups had lobbied the EPA to cap the total ethanol mandate at 9.7% of gasoline demand — an amount that would provide a buffer below the 10% blend while simultaneously accommodating sales of ethanol-free gasoline. The EPA’s proposal instead would require ethanol be about 10.3% to 11% of gasoline demand — about the same as the 10.4% to 10.9% volume estimated for the 2016 quotas — according to calculations from the American Petroleum Institute.

"From our standpoint, it continues the threat of breaching the blend wall," said Frank Macchiarola, director of the American Petroleum Institute’s downstream group. "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.”

Although modest, the EPA’s proposed 2.1% increase in required renewable fuel that could be derived from corn starch is a benefit for ethanol producers and represents a continuing headwind for oil refiners, said Benjamin Salisbury, an analyst with FBR Capital Markets & Co.

"The EPA continues to very slowly edge the market above the 10% blend wall, which we view as part of a concerted effort to incentivize consumption of higher blends over time without risking market disruption," Salisbury said in a note to clients.