US biofuel mandates rise, but still short: Update
Final US blending volumes under the Renewable Fuel Standard (RFS) slightly exceed the so-called blendwall — the level of biofuel blending beyond which current infrastructure and auto fleet limitations make it difficult to surpass.
But the agency held final volumes below those sought by the biofuel industry, including an implied conventional ethanol demand 500mn USG below that industry's goal. The EPA also held to a controversial interpretation of the law that avoids setting significantly higher blending volumes.
"Our standards provide for ambitious, achievable growth, especially in advanced fuels," EPA acting assistant administrator for the office of Air and Radiation Janet McCabe said. "We must balance congress's clear intent to increase the use of renewable fuels in order to address climate change and energy security, with the real world circumstances that have affected progress toward such goals."
The final rule increased overall requirements for the volumes of biofuels refiners, importers and others must ensure entered the US transportation fuel supply in 2014, 2015 and 2016.
Total blending volumes in 2016 will increase to 18.11bn USG, including 3.61bn USG for advanced biofuels and an implied 14.5bn USG of blending to be filled by conventional ethanol. Volumes for 2014 and 2015 reflected actual biofuel use, higher from the May proposal by 2pc and 4pc to 16.28bn USG and 16.93bn USG, respectively.
Opponents to the final rule may sue within 60 days of its publication in the federal register. Neither side indicated whether they would return to court over the program.
Most all US gasoline contains roughly 10pc ethanol, a blend referred to as E10. The 2016 volume represents 10.1pc of estimated fuel consumption for the year, essentially forcing higher consumer use of 15pc and as high as 83pc ethanol blends of gasoline. Such blends are not approved for use in the majority of US vehicles on the road today.
Oil industry groups praised the EPA for setting volumes well short of Congressionally-mandated levels. But the agency had placed consumers at risk by requiring increased use of higher-ethanol blends, said Bob Greco, head of downstream for the American Petroleum Institute.
"Today's announcement makes clear that, in order to protect consumers, Congress must step in and repeal or significantly reform the RFS," Greco said.
Biofuel groups were split over the final decision. The Renewable Fuel Association (RFA) denounced the final rule as ceding the future of their industry to oil companies. The group has rejected warnings about the lack of infrastructure or approved vehicles to consume higher volumes, insisting that only sticking to originally mandated levels will compel the kind of changes needed to deliver such fuels.
"Today's decision will severely cripple the program's ability to incentivize infrastructure investments that are crucial to break through the so-called blend wall and create a larger market for all biofuels," chief executive Bob Dinneen said.
Another biofuel industry group, Growth Energy, hailed the EPA's decision to break through the blend wall at all, given the more conservative volumes the agency initially proposed in May.
"The victory here, I think, is that we are piercing the blend wall," co-chairman and Poet ethanol chief executive Jeff Broin said.
Volumes set today will trigger a required adjustment to future required volumes for advanced and cellulosic fuels.
US biofuel mandates require the agency to in 2016 modify required blending volumes if the EPA waives at least 20pc of the advanced biofuel, cellulosic biofuel or biodiesel requirements for two consecutive years, or by 50pc in a single year.
But EPA gave no indication today of how it would address that reset for future years.
Refiners, importers and other obligated companies must now weigh how to use banked credits that show compliance with the blending requirements, called renewable identification numbers (RINs), to meet the final requirements. Obligated companies can use credits acquired from others or carried over from previous years to meet mandates. Higher-than expected demand in 2015 could help generate excess RINs to cushion the rising requirements in 2016. But questions remain on how the industry would address rising requirements further into the future with EPA willing to break the blend wall.
Prices for 2015 RINs reached a six-month high following the EPA publication, based on Argus assessments.