Environmental Protection Agency Revisits Ethanol Mandate as Fuel Use Slips

August 8, 2013

U.S. regulators said they would propose for the first time lowering the mandated consumption of corn ethanol used in motor fuel, a reversal in policy that puts a powerful industry on the defense. The move could shrink demand for alternative fuels whose use is required by the U.S. mandate. It also could make it easier for oil refiners to meet the rules, depending on how the Environmental Protection Agency (EPA) handles the change, says the Wall Street Journal.

  • Because Americans are continuing to drive more fuel-efficient cars, U.S. gasoline consumption is expected to fall this year.
  • At the same time, a 2007 law calls for rising use of ethanol, which makes up about 10 percent of the U.S. gasoline supply, and other fuels defined as renewable.
  • That means the United States is heading toward the "blend wall," the point at which fuel marketers can't absorb any more ethanol into the gasoline supply without using higher-percentage ethanol blends that aren't widely sold.

As a result, on Tuesday the agency said that next year it would take the unprecedented step of seeking to reduce the amount of renewable fuel that the oil industry must use, saying it "does not currently foresee a scenario in which the market could consume enough ethanol."

Still to be determined is how big the cuts might be and who might suffer the largest hit.

  • The EPA announcement came as part of the rollout of its 2013 fuel requirements, which mandated use of 16.55 billion gallons of ethanol and other fuels, up more than a billion gallons from the previous year.
  • The lion's share of that mandate -- about 13.8 billion gallons -- is expected to be met with ethanol from Midwestern corn.
  • That would put government-required ethanol consumption at close to 10 percent of the U.S. gasoline supply.
  • In future years, the effective annual ethanol requirement was supposed to jump above 14 billion gallons and beyond, under the 2007 law.

Any change proposed by the EPA could create winners and losers in the fuel industry.

  • Some oil refiners blend ethanol into gasoline themselves, meaning they can generate credits that count toward compliance with the EPA rules.
  • Others don't and could have to buy those credits at high prices unless the EPA eases its requirements.

Source: Ryan Tracy, "EPA Revisits Ethanol Mandate as Fuel Use Slips," Wall Street Journal, August 6, 2013.

 

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