U.S. EPA Issues Renewable Fuel Rules

The most publicized issue related to renewable fuels has been the ethanol “blend wall,” the theoretical point at which ethanol use will be surpassed by the amount of ethanol required by law. As Americans drive less, demand for gasoline falls also reducing demand for ethanol. Because blenders are required either to use the mandated amount, regardless of demand, or pay for credits for the amount they don’t use, the EPA has been granted authority by Congress to adjust the mandated levels if necessary.

The EPA ruled today that the mandated 16.55 billion gallons of renewable fuels will not be changed. The major change to the mandated levels came in the area of cellulosic ethanaol, where the 1 billion gallon statutory mandate was reduced to 6 million gallons, reflecting the reality of the situation with cellulosic ethanol production.

Regarding the ethanol mandate, here’s the EPA’s conclusion:

[C]urrent corn ethanol production capacity is 14.5 bill gal, compared to the 13.8 bill gal needed to meet the RFS requirements in 2013. There will also be a significant number of carryover RINs available from 2012 that can be used in lieu of actual volume in 2013 and which are sufficient in number to address limitations in consumption of ethanol blends higher than E10 or limitations in volumes brought about through the 2012 drought.

The Renewable Fuels Association (RFA), which represents some of the country’s largest ethanol makers, applauded the decision. The American Petroleum Institute (API) has fought the renewable fuel standard (RFS) vigorously, saying that the RFS will raise gasoline prices by 30% and cost the U.S. $770 billion in GDP by 2015.

The RFA counts among its members leading biofuels producers like Archer Daniels Midland Co. (NYSE: ADM), The Andersons Inc. (NASDAQ: ANDE),  and Pacific Ethanol Inc. (NASDAQ: PEIX). Valero Energy Corp. (NYSE: VLO), Kior Corp. (NASDAQ: KIOR), and privately held POET Inc. are not on the RFA’s membership roster.

To take some of the sting out of the blending requirements for 2013, the EPA is extending the compliance deadline for blenders until June 30th of next year.