Fuel Standards Latest Blow to Ethanol

March 6, 2014 02:28 AM
 

via a special arrangement with Informa Economics, Inc.

EPA's Tier 3 gasoline standards would limit amount of ethanol in gasoline the agency certifies to 10%


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


EPA’s Tier 3 gasoline standards are one more obstacle the ethanol industry faces for expanding the biofuel's US market. EPA’s final rule would limit the amount of ethanol in gasoline the agency certifies to 10 percent. EPA had earlier proposed to make the test fuel E15, but the final language issued this week calls for E10.

EPA’s final rule would limit the amount of ethanol in gasoline the agency certifies to 10 percent – or E10 (10 percent ethanol and 90 percent gasoline). EPA had earlier proposed to make the test fuel E15, but the final language issued this week calls for E10.

The "shift in in-use fuel is not materializing as quickly as expected, and E10 continues to be almost universal today," EPA said. The effect of the change is to relieve pressure on automakers to equip their cars to run on the higher blend.

The ethanol industry quickly criticized the EPA decision. "EPA missed the opportunity to address volatility parity with E15 and E10, missed the opportunity to provide a more equitable incentive for [flex fuel vehicles], and missed the opportunity to send a signal about future fuels by backing off the ethanol content of test fuels," said Bob Dinneen of the Renewable Fuels Association.

Of note, the initial EPA proposal also would have permitted car manufacturers to seek approval for higher fuel blends such as E30. But the final rule released Monday pared back the test fuel ethanol content to E10.

However, the oil industry hailed the EPA move, saying it better reflects the mix of fuels most commonly used. "Unlike E10, which constitutes more than 95 percent of all gasoline sold, E15 is not widely available in the market and is damaging to the majority of vehicles on the road today," said Charles Drevna of the American Fuel & Petrochemical Manufacturers in a statement. Ethanol backers dispute the contentions of damage to vehicles, pointing to EPA’s clearance of E15 as a fuel for 2000 and newer model-year cars and light trucks.

Meanwhile, improving margins for dried distillers, combined with lower corn prices, are helping ethanol producers’ bottom lines, the Energy Information Administration said. DDG margins are benefiting both from the fall in corn prices as well as increased demand for distillers grains.

In addition, the decision by EPA on the Tier 3 fuels comes as the agency is in the process of finalizing their Renewable Fuels Standard (RFS) levels for 2014. The agency received 214,750 comments on their proposal which would reduce the overall RFS level for total renewable fuels to 15.0 billion to 15.52 billion gallons compared to a mandated level in law of 18.15 billion gallons. The legislative mandate would have included 14.4 billion gallons of corn-based ethanol while the EPA plan would reduce that to 12.7 billion to 13.2 billion gallons.

And some continue to talk about the potential for EPA to revise its 2014 RFS proposal. University of Illinois ag economist Scott Irwin has published studies in Renewable Identification Number (RIN) prices recently that he says suggest an expectation that EPA will upwardly revise the RFS levels from those it proposed in Nov. 2013. In addition, USDA Secretary Tom Vilsack has said he reached out to EPA Administrator Gina McCarthy to underscore the importance of the biofuel production to the US economy.Plus, Sen. Chuck Grassley (R-Iowa) has also said he expects EPA will raise the levels in the final RFS plan compared to the proposed marks. However, both Vilsack and Grassley have admitted they have no personal knowledge of what EPA will put forth in the final RFS plan.

But others contend the prior run up in RIN prices was in part due to imported distillates due to weather-related issues in the United States.


Comments: The Tier 3 regs now have thrown another aspect into the renewable fuels debate, a debate that will continue even after EPA finalizes their 2014 RFS standards, something expected to happen by June of this year. My expectation is that no matter which direction EPA goes on the 2014 RFS levels, it will be challenged in court.

As for the 2014 final RFS requirements for corn-based ethanol, the timeline as usual with EPA is murky. It could come anytime between now and June! And despite Scott Irwin's repeated writing on this matter, Washington sources signal if there is any change in the corn ethanol mandate from the previous 13 billion gallon level, any change would likely be minor -- perhaps to 13.5 billion gallons.


 

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


 


 

 

 

 

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