Today the Environmental Protection Agency (EPA) released its final rule for 2013 renewable fuel percentage standards. That’s an awkward way of saying that under the Renewable Fuel Standard (RFS), enacted in 2007, the EPA sets annual amounts for how many gallons of biofuel refiners are required to blend with our gasoline. While the law sets out ever-increasing amounts each year, the EPA does have discretionary authority to reduce these levels. Different levels are set for various kinds of biofuels including corn ethanol, cellulosic, and biomass.
The ruling today underscored two things:
- There would be no change in the total number of gallons of biofuel, pegged at 16.55 billion gallons, refiners expected to add in 2013 (up from 15.2 billion in 2012).
- But due to the fact that there is still so little cellulosic ethanol available commercially, the EPA has reduced the mandate of 14 million to 6 million gallons.
Despite the drop in one form of biofuel, the overall mandate is still far higher than consumers and affected businesses would like to see. By not lowering the overall mandate in tandem with the cellulosic reduction, refiners will have to either blend even higher amounts of imported sugarcane ethanol or more expensive biodiesel into the fuel supply, or purchase increasingly pricey biofuel credits called Renewable Identification Numbers or RINs to fill the gap.
The fact that the EPA didn’t see fit to rein in the RFS mandate, even though it is within its power to do so, means that the threat of the dreaded “blend wall” is closer than ever. When first instituted, the RFS mandated that obligated parties blend ever increasing volumes of biofuels into gasoline and diesel. The RFS also assumed that fuel demand would continue to grow over the coming decades.
Since 2007, however, a number of things have thrown a wrench into that plan. The economy has tanked, purchasing power has dropped, and fuel efficiency has increased – just to name a few variables. The bottom line is that Americans are consuming less gasoline than anticipated. The latest numbers indicate a practically flat line in gasoline consumption from last year to this, yet the EPA is insisting we somehow burn through about 1.3 BILLION more gallons of ethanol than the year prior. The divide between growing volumetric mandates and shrinking gasoline demand will continue to grow in the coming years, forcing the onset of the blend wall, or the practical limit on the amount of ethanol that can be safely used in current vehicles and infrastructure.
The blend wall is one reason why some have been pushing for E15 – gasoline with a 15 percent ethanol content, not 10 - in order to make room in the gasoline supply for more and more government-mandated ethanol. This is a terrible idea for a number of reasons. The higher ethanol content is bad for older cars and small engines. Gas pumps aren’t designed to dispense it. Ethanol costs consumers more to go the same distance as gasoline. And it means diverting even more of already tight corn supply from the food chain to the gas tank.
While today’s ruling didn’t bring any relief to consumers, the EPA did acknowledge:
EPA does not currently foresee a scenario in which the market could consume enough ethanol sold in blends greater than E10, and/or produce sufficient volumes of non-ethanol biofuels to meet the volumes of total renewable fuel and advanced biofuel as required by statute for 2014.
Therefore, EPA anticipates that in the 2014 proposed rule we will propose adjustments to the 2014 volume requirements, including the advanced biofuel and total renewable fuel categories
The fact that the EPA is beginning to understand the problem that people have been predicting for years is cold comfort for the consumers, livestock producers, and many others who have been decrying the damaging effects of the RFS for years.
Taxpayers can’t wait for the EPA to “propose adjustments.” Today’s ruling, so out of touch with the market realities of the RFS, is one more indicator that the RFS is broken. Instead of hoping the bureaucrats at the EPA do the right thing, we need to urge our legislators to move forward with real reforms like S. 1195 in the Senate and H.R. 1462 in the House – both are robust bipartisan plans that would level the playing field and inject some much-needed commonsense to an out-of-control mandate.
In the long run, the EPA’s repeated energy fumbles only underscore the need for Washington to stop picking winners and losers and get out of the energy market. Until then, as the biofuel mandate keeps going up, perhaps we should just be happy the EPA has not set a minimum gas consumption standard … yet.