The federal government on Friday proposed backing away from its ambitious effort to keep building the nation’s ethanol industry, opting to drop the amount of ethanol petroleum companies must buy in 2014 to close to current levels.
The change proposed by the Environmental Protection Agency would reduce by almost 3 billion gallons the amounts of ethanol and other biofuels blended into gasoline in 2014.
The industry, in 2012, made about 13.2 billion gallons, but some of that was exported.
The standard adopted back in 2007 required petroleum companies to purchase increasing amounts of ethanol to blend with their gasoline every year – until the amount reached 36 billion gallons by 2022. The EPA proposal on Friday would drop the 2014 requirement to 15.2 billion gallons of ethanol and other biofuels.
The issue for the government is that petroleum companies are already buying enough ethanol to make up 10 percent of every gallon of gasoline sold in the country. If the mandate continued to rise, as required by the law, petroleum companies would either have to blend more ethanol into their gas, or buy credits from companies that did.
EPA officials said they were still committed to alternative fuels as part of a comprehensive energy strategy. If the EPA had stuck to the volumes mandated by law, the amount of biofuel required would generate more ethanol than many engines can safely handle, officials said.
Biofuel supporters, however, said the proposal marked a departure for the Obama administration.
Dave Vander Griend, CEO of Colwich-based ICM, a designer and operator of ethanol plants, said the EPA’s proposal is simply the result of the petroleum industry’s political muscle.
“They just didn’t want to give up market share, and they have more clout than we do, so they won in Washington,” he said.
The Renewable Fuel Standard was designed to force the petroleum industry to use ever-increasing amounts of ethanol, but when push came to shove, he said, the government balked at forcing the petroleum companies to move above the 10 percent blend.
He said that if the EPA proposal goes through it means the absolute high-water mark for the ethanol industry. Although there is an export market to Brazil and the European Union, at the moment, he doesn’t see much growth there.
“At best, we will stay the same,” he said of ethanol production levels. “At worst, demand for gasoline will soften, and then we’ll see corn prices soften and soybean prices soften. You’re telling farmers that the third market for their crops is now capped.”
The Renewable Fuel Standard was championed by both parties in the 2007 law as a way to cut automobile emissions, help wean America off imported oil and boost farm incomes by creating a huge new market for corn.
But the law’s authors didn’t anticipate that automobile fuel economy would improve as much as it has in recent years, cutting the demand for gasoline, nor was the dramatic increase in domestic oil production part of the picture.
And while the ethanol mandate did help corn farmers, others in agriculture, such as the livestock industry, blasted it for raising their costs, and environmental groups said it encouraged planting in marginal agricultural ground.
The oil industry lobbied hard for a reduction and is pleading with Congress to completely repeal the law.
Jack Gerard, president and CEO of the American Petroleum Institute, said the EPA’s move is a step in the right direction, but “ultimately, Congress must protect consumers by repealing this outdated and unworkable program once and for all.”
House Energy and Commerce Committee Chairman Fred Upton, R-Mich., said his panel is working on “comprehensive reforms” to the law.
Bob Dinneen, the head of the Renewable Fuels Association, the Washington group that lobbies on behalf of the ethanol industry, said the announcement is ill-timed as the country is currently harvesting a record corn crop. He said the industry may sue if the proposal is not altered.
“This is exactly the wrong time to be reducing the required volumes of renewable fuels,” Dinneen said.