Nov. 15 (Bloomberg) -- The Obama administration proposed today a reduced quota for the amount of renewable fuel that refiners must use next year, bowing to industry complaints that the targets contained in 2007 legislation were too high.
In a draft rule, the U.S. Environmental Protection Agency said it would wait until Spring to issue a specific quota, though said it would be in a range of 15 billion to 15.52 billion gallons for renewable fuels such as corn ethanol and biodiesel from soybeans, according to a document posted on the EPA’s website. That compares with 18.15 billion gallons set in the legislation.
The range is in line with an August draft that was leaked and prompted intense lobbying from industry officials.
Overall, the proposal, which is set to be finalized in the first quarter of 2014, would reduce demand for corn-based ethanol and lower compliance costs for refiners such as Valero Energy Corp. and Tesoro Corp.
"While the agency took a step in the right direction, more must be done," said Jack Gerard, the chief executive of the American Petroleum Institute, the Washington-based group that represents companies such as Exxon Mobil Corp. "They are getting close to making sure they don’t breach us through the blend wall."
The agency also proposed a range for the mandate for biodiesel and cellulosic products, such as those made from corn stalks or woody waste, which would be somewhere from 2 billion gallons to 2.5 billion gallons. That’s below the 3.75 billion gallon target spelled out in the legislation, and compares to 2.21 billion gallons from the leaked draft.
This "could significantly chill investments in advanced biofuels projects," Brent Erickson, executive vice president of Biotechnology Industry Organization, said in a statement. "We will focus over the immediate comment period on convincing the administration to right the course on this policy."
EPA officials say they are listening to those concerns and have pledged to preserve a market for what are dubbed "next generation fuels." In presenting a range, the agency would allow outside groups to weigh in over the next two months prior to a final EPA decision.
Advanced biofuel, such as biodiesel and Brazilian ethanol, is part of a larger program for renewable fuels that is anchored by corn-based ethanol. Corn growers and the ethanol industry pushing for an increase in the 13 billion-gallon quota called for in the leaked August plan, which is below the 14.4 billion gallons in the law. The EPA has the ability to adjust the quotas in response to market pressures.
Refiners, fast-food restaurants, motorboat makers and chicken farmers have all pushed the EPA to scale back the ethanol mandate, saying it risks ruining engines by forcing more ethanol to be blended into gasoline and is acting to push up demand for corn. Gasoline demand is falling, and so rising requirements for renewable fuels are ramping up the percentage of those fuels in the overall mix.
Refiners, which have waged a battle against the corn ethanol mandate, haven’t fought so hard against biodiesel, as it doesn’t present the same constraints as ethanol. Escalating the required amount of ethanol could force refiners to sell blends with more than 10 percent of the corn-based fuel, a phenomenon known as "hitting the blend wall," according to the American Petroleum Institute.
Fuel with more than 10 percent ethanol can cause engine materials to break down and damage emission-control systems, according to research from the oil-industry group. Supporters of ethanol say newer cars can run on fuels with 15 percent ethanol, and many flex-fuel vehicles can use 85 percent ethanol.
"Part of our challenge is, the oil industry has done a pretty good job of making it harder to access higher blends and making it harder to take advantage of all the flexible fuel vehicles that are on the road today," Agriculture Secretary Tom Vilsack said this week.
--Editors: Jon Morgan, Craig Gordon
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