An embattled EPA declares biofuels volumes for 2016

1 Dec 2015 | Author: | No comments yet »

EPA approves lower ethanol increase in U.S. fuel supply than 2007 law.

WASHINGTON (AP) — The Obama administration is boosting the amount of corn-based ethanol and other renewable fuels in the U.S. gasoline supply despite sustained opposition by an unusual alliance of oil companies, environmentalists and some GOP presidential candidates. The Environmental Protection Agency on Monday issued a final rule designed to increase production of ethanol to be blended with gasoline through 2016, a decision that could reverberate in Iowa’s crucial presidential caucuses.

The ethanol pullback comes as a slump in gasoline consumption and a domestic energy boom have lessened the fears of dependence on Mideast oil that inspired lawmakers to create the mandate during the George W. The agency is two years behind in crafting the quotas, putting the agency in the awkward position Monday of issuing the rules retroactively for 2014 and 2015 as well as establishing the mandate for 2016. But the mandate is still popular in Iowa, home of the nation’s first presidential caucus, where corn and ethanol producers have warned that they’ll view any weakening of the program as a cave-in to Big Oil. Similar changes also were made by the EPA in advanced biofuels — cellulosic ethanol made from grasses, corn stalks, wood chips and other materials — with 3.61 billion gallons mandated for next year, an increase from the 3.4 billion previously proposed, and about half of what Congress intended. That creates a political box for all the presidential candidates, but perhaps most of all for Clinton, who has already had to distance herself from President Barack Obama’s Arctic drilling policies and long indecision on the Keystone XL pipeline.

Janet McCabe, the acting assistant administrator for EPA’s Office of Air and Radiation, said in an interview the ethanol quotas follow Congress’ intent to promote the increased use of renewable fuels. The decision doesn’t necessarily mean a higher percentage of ethanol in an individual driver’s tank, and isn’t likely to have much effect on gas prices. She has offered few specifics about her opinions on the ethanol requirement, aside from calling earlier this year for the administration to put it “back on track.” And the program is increasingly unpopular with green groups that make up a powerful part of the national Democratic base. She said slower-than-expected growth in the nascent cellulosic ethanol industry and lower gasoline demand made the 2007 figures from Congress no longer achievable.

The law, designed to shrink the nation’s dependence on foreign crude and curb greenhouse-gas emissions, has pitted oil companies including Chevron Corp. and Exxon Mobil Corp. that oppose using more biofuels against farmers in the corn-rich Midwest who’ve argued for higher amounts. That figure, which includes corn ethanol, biodiesel and next-generation “cellulosic” ethanol, is well below the 22.3 billion gallons required under a 2007 law. I think when people look at the numbers they will see that this really is very good for the industry.” The increase in ethanol use is unlikely to have a noticeable impact on drivers who use gasoline containing the largely corn-based product — or on food prices. Oil companies have spent many years fighting the 2007 law, saying the market, not the government, should determine how much ethanol is blended into their gas. Shares of major ethanol makers jumped on the announcement that the EPA will boost U.S. renewable fuel targets above those laid out in the agency’s earlier proposal.

That’s 500 million gallons below its target under the law, which the corn lobby had defended and oil interests attacked in a massive advertising and lobbying blitz. Shares of Green Plains (GPRE), a main US ethanol supplier, up 4.5%, while Pacific Ethanol PEIX 21.12 % rises 17.5% and ADM, largest-capacity ethanol producer, pares losses, down 0.01% on Monday. Clinton and fellow Democratic presidential candidates Bernie Sanders and Martin O’Malley have all called for a strong EPA Renewable Fuels Standard, particularly for more support for advanced biofuels, as have Republicans Donald Trump, Mike Huckabee and Chris Christie. Monday’s announcement coincides with the start of a two-week United Nations summit in Paris, where President Barack Obama is touted the U.S. commitment to tackling climate change. But Ben Carson, Ted Cruz and Rand Paul have attacked the mandate as a threat to free markets, while Marco Rubio, Jeb Bush, Carly Fiorina and John Kasich have been harder to pin down on the issue.

In May, it proposed targets that fell short of levels mandated in the law — raising the ire of renewable fuel advocates and setting off a flurry of lobbying in Washington. Rubio just last week said that he would not have voted for the program, but that he doesn’t believe the policy should be repealed now that farmers and fuel producers have made investments based on it. The announcement represents the first time the EPA has formally waived the statutory mandates for conventional corn-based ethanol in response to industry concerns that Congress’ targets would push them past a 10 percent blend wall — the amount acceptable in all cars and trucks. The National Corn Growers Association took the news diplomatically, with President Chip Bowling saying in a statement that he was “pleased” EPA had released a number for the ethanol mandate that was higher than it had proposed in May, although “it is unfortunate that Big Oil’s campaign of misinformation continues to carry weight in the court of public opinion, and in this decision.” The corn group is evaluating its options, he said, a hint it planned a lawsuit. But McCabe stressed that regulators were seeking to balance Congress’ desire to boost next-generation renewable fuels, particularly those made from non-edible plant material, while acknowledging marketplace realities. “We must balance Congress’ clear intent to increase renewable fuels…with the real-world circumstances that have affected progress toward those goals,” McCabe said.

At the same time, it argued that ethanol can ramp up over time back to where Congress wanted it. “We’ve recognized that technology for advanced fuels, made from cellulosic feedstocks … have not developed as fast as Congress anticipated,” acting EPA air chief Janet McCabe told reporters on a conference call. The mandates will “provide for ambitious, achievable growth, especially in advanced fuels that maximize carbon emission reductions compared to gasoline,” she added. The corn and oil industries have skirmished for years over whether ethanol has hit a ceiling and whether biofuels are really better for the planet than oil is. Critics in the oil industry say that higher-blend biofuels can damage many vehicles, are less energy efficient and drive up food costs by sucking up 40 percent of the U.S. corn crop.

Environmental groups have also grown disenchanted with the program, which has generated only modest quantities of cellulosic, non-food-based sources of fuel despite high hopes early in the last decade. In the presidential race, Democratic front-runner Hillary Clinton has said she will seek to strengthen the standards, and her fellow Democratic candidates have also supported it. But a bipartisan chunk of Congress is dead set against any changes, and it has enough power to prevent any reform effort from getting very far off the ground.

Iowa, host of the leadoff presidential caucuses next year, produces more ethanol than any other state, and the renewable fuel standard is a powerful economic and political issue. But as national security and the economy have eclipsed farming issues in many rural areas, some candidates like Cruz have felt comfortable criticizing it and have still fared well in the polls. In March, Cruz told an audience at an Iowa agricultural forum that he has “every bit of faith that businesses can continue to compete, continue to do well without going on bended knee to the government.”

This year’s rule sets the stage for EPA to potentially set new annual biofuels targets, a sort of fail-safe that Congress built into the mandate in case the targets specified by lawmakers proved to be drastically off course — as has been the case with cellulosic biofuels, whose production has lagged far behind expectations. For 2015, EPA proposed a requirement for 16.3 billion gallons of total renewable fuels, including The higher final targets could provide inflationary pressure on the price of renewable identification numbers, the credits refiners use for compliance, said Timothy Cheung, vice president of the energy research firm ClearView Energy. McCabe told lawmakers this summer that setting new targets is a “significant undertaking” because the agency has to consider every year through 2022. Environmentalists largely disregard the program in favor of initiatives with more clear-cut climate benefits, and some, like the Environmental Working Group, actively argue against it.

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