EPA Sets Final Ethanol Levels

On November 30, the Environmental Protection Agency (EPA) announced the final biofuel levels for 2014, 2015, and 2016. EPA is tasked to do this each November to set the levels for the next year’s mandated biofuels volumes, but has been behind the past several years. For 2014, EPA announced the mandated levels after the fact, i.e. after the biofuels have been blended with petroleum products and been consumed, and only after a lawsuit forced EPA to finalize the volumes. EPA’s required volumes for 2016 exceed the 10 percent blend wall, which could drive up fuel prices for American motorists.

In May, EPA provided preliminary numbers for the 3 years, making sure that the proposed ethanol levels did not hit the blend wall where the ethanol requirement would be over 10 percent of motor gasoline consumption. However, in its final determination, EPA raised the biofuel requirement for 2016, ignoring the blend wall issue. The blend wall is important since many auto manufacturers will not warranty cars that consume gasoline with more than a 10 percent ethanol component because levels higher than 10 percent could result in significant problems such as accelerated engine wear and failure, fuel-system damage and false check engine lights. Further, small motors such as those in boats and lawn mowers have difficulty using even a 10 percent ethanol blend in gasoline.

EPA’s final mandate levels are 16.28 billion gallons for 2014; 16.93 billion gallons for 2015; and 18.11 billion gallons for 2016. Of that, conventional corn ethanol will make up 14.05 billion gallons in 2015 and 14.5 billion gallons in 2016–the bulk of the biofuel blended in the U.S. gasoline supply. While the 2015 mandate for total biofuels is below the 10 percent blend wall, the 2016 mandate will raise the total volume of biofuels to 10.1 percent.[i] The 18.11 billion gallons for 2016 is higher than the 17.4 billion gallons EPA proposed in May, and lower than the 22.25 billion gallons in the statue.[ii]

Keep in mind that when Congress passed the mandated biofuel levels in the Renewable Fuel Standard of the Energy Independence and Security Act of 2007, it used levels of gasoline demand projected to occur in the future. However, those projections are not reality and the forecasters did not foresee the global recession that brought transportation consumption of petroleum products down significantly. In fact, motor gasoline consumption has still not returned to 2007 levels.

Besides the total renewable volume, EPA also stipulated the volumes of advanced biofuels for each of the 3 years. While Congress anticipated that a growing volume of cellulosic ethanol made from corn stover, wood chips and other biomass sources would become economic and eventually exceed corn-based ethanol, cellulosic ethanol remains a commercially uneconomic technology despite millions of federal dollars spent on grants and loans to get the technology off the ground.[iii] EPA, however, is requiring that cellulosic biofuels almost double in 2016 to 230 million gallons.  The EPA also finalized the 2017 mandate for biodiesel fuel at 2 billion gallons. (See table below.)

The results of mandates in the Renewable Fuel Standard are significant. Ethanol production in the United States has more than doubled between 2007 and 2014—from 6.5 billion gallons in 2007 to 14.3 billion gallons in 2014 and biodiesel production has also more than doubled–from 0.5 billion gallons to 1.28 billion gallons during the same time period. While refiners would have used ethanol as an oxygenate and octane booster in the absence of the RFS, the current production volumes are likely considerably higher than what would have been demanded without the RFS due to its corrosive properties that require separate handling and transporting.

Source: Institute for Energy Research
Date: Dec 11, 2015