OMAHA (DTN) -- Goodbye blend wall. That's how executives at ethanol interest group Growth Energy view the effect of the final Renewable Fuel Standard volumes released by the U.S. Environmental Protection Agency Monday.
By and large, reaction from ethanol and agriculture groups pointed to a flawed methodology by EPA to finalize volumes below statutory levels, saying the final volumes will hurt consumers and rural America. Yet, the petroleum and poultry industries also complained that EPA didn't go nearly far enough in curbing the growth of biofuels.
A philosophical divide between biofuels and agriculture interest groups about the future of the biofuels industry has stirred calls in past years for the industry groups to get on the same page. Still, Growth Energy stood apart in its read of the final RFS. In short, Growth Energy executives said the final RFS numbers will force ethanol opponents to take steps to crash through the so-called blend wall where total ethanol production exceeds the available E10 blending market.
"I would just say our members are very happy about what we've seen today," said Jeff Broin, founder of corn-ethanol giant and cellulosic ethanol developer Poet, and co-chairman of Growth Energy. "This really is a break in the blend wall that should move America forward. The numbers basically make certain we're continuing to improve the environment and move the industry.
"We continue to be concerned about the methodology" EPA used that includes justifying a cut in overall biofuels blended based on inadequate fueling infrastructure, he said.
EPA used a waiver rule to change the blend volumes required by petroleum marketers. Overall biofuels volumes are set in the final rule at 16.28 billion gallons for 2014, 16.93 billion gallons for 2015 and 18.11 billion gallons for 2016. Earlier in the year, EPA had proposed blending volumes at 350 million gallons lower for 2014, 630 million gallons lower for 2015 and 710 million gallons lower for 2016.
The new rule issued Monday lowers blend volumes from the original 2007 law by 1.87 billion gallons for 2014, 3.57 billion gallons for 2015 and 4.14 billion gallons for 2016.
Corn-based ethanol will see its volumes set below the statutory 15 billion gallons for 2014 and 2015, at 13.57 billion and 13.93 billion gallons, respectively. The mandated blend level for corn ethanol is capped at 14.27 billion gallons in 2016, although industry groups say producers are poised to produce at least 15 billion gallons.
Tom Buis, co-chairman of Growth Energy, said though his group would consider a potential legal challenge to EPA's methodology, the industry has to take the good with the bad.
"Did we get 100% of what we want? No," he said. "Did they move the ball forward? Did they improve it? They definitely improved from the original proposal."
One of the major concerns aired by companies developing commercial cellulosic ethanol plants was that doubt about the RFS was creating uncertainty among investors in next-generation plants. According to some estimates, EPA's hedging on the law has led to a loss of some $19 billion in potential investment in cellulosic ethanol.
Broin said EPA's announcement should begin to ease some of those concerns, though RFS volumes for cellulosic ethanol continue to be dramatically lower than statutory volumes.
"I would say it's a start in bringing back interest in cellulosic ethanol," he said. "But we need to see increased numbers to solidify investors."
Advanced Biofuels Business Council Executive Director Brooke Coleman said the waiver issue will need to be addressed.
"What we're seeing in the RFS final rule, volumetrically at least, is continued growth in renewable fuel blending," Coleman said in a statement. "That counts for something, predominantly in markets already inclined to offer consumers more renewable fuels. But it is frustrating that the administration missed this opportunity to fix two waiver issues that are undercutting U.S. investment in low-carbon, advanced biofuels. Waivers are absolutely critical to U.S. investment, because they define for investors when the field of play can be altered."
The tone coming from the Renewable Fuels Association and other agriculture industry groups on the RFS was far different.
Bob Dinneen, president and chief executive officer for the Renewable Fuels Association, said in a press statement that the EPA action "turns our nation's most successful energy policy on its head." When EPA released the proposed rule last spring, he said, the agency claimed it was attempting to get RFS back on track.
"Today's decision, however, fails to do that," Dinneen said. "It will deepen uncertainty in the marketplace and thus chill investment in second-generation biofuels ... 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."
The industry has expressed concern that leading up to climate talks in Paris, France, President Barack Obama had not touted RFS successes in reducing greenhouse gas emissions. At the same time, USDA and the U.S. Department of Energy have provided millions of dollars toward expanding biofuels markets.
"Today's decision by EPA furthers that conflict and, sadly, significantly undercuts President Obama's credibility as he prepares to take the world stage to address climate change at the COP21 talks in Paris," Dinneen said.
Bob Stallman, president of the American Farm Bureau Federation, said in a statement Monday the final volumes hurt farmers and ranchers.
"We are disappointed to see the agency move forward with a decision that will stall growth and progress in renewable fuels as well as the broader agricultural economy," Stallman said. "Farmers, ranchers and consumers will be impacted by the drop in ethanol production and the falloff in livestock feed that goes along with it. In the end, we lose the jobs and stability that come from growing renewable fuel."
Bob Greco, group director of downstream and industry operations for the American Petroleum Institute, chastised EPA for falling short as the oil lobby demanded congressional action to either repeal the RFS or significantly reduce it. Greco declared the oil industry was concerned about protecting consumers and not just losing market share to biofuels.
"EPA must lower biofuel mandates further to ensure Americans have access to the fuels they want and can safely use their vehicles," Greco said.
API had asked EPA to limit total ethanol volumes to no more than 9.7% of demand. Going beyond the 10% blend wall -- to 10.1% blend levels -- will require petroleum marketers to sell more 15% or 85% blends, which the petroleum marketers in most states have largely refused to do.
Greco then highlighted a complaint raised by biofuel supporters. He noted EPA is raising the blend volume from its proposal last spring, despite failing to recognize any greenhouse-gas emission reduction from biofuels in the Obama administration's submission to the Paris climate talks. Greco cited EPA and the Environmental Working Group to claim corn-based ethanol leads to higher greenhouse-gas emissions than gasoline.
Greco said API would be stepping up its call to Congress to repeal or significantly reduce the RFS.
Speaking of greenhouse gas reductions, the biodiesel industry is the only commercial-scale advanced biofuel in the RFS. Industry officials lauded the administration's efforts in recognizing biodiesel's importance. The final RFS sets volumes above the statutory minimum of 1 billion gallons through 2017.
"This decision means we will displace billions of gallons of petroleum diesel in the coming years with clean-burning biodiesel," said National Biodiesel Board Chief Executive Officer Joe Jobe. "That means less pollution, more American jobs, and more competition that is sorely lacking in the fuels market. It is a good rule. It may not be all we had hoped for, but it will go a long way toward getting the U.S. biodiesel industry growing again and reducing our dangerous dependence on fossil fuels."
The National Chicken Council said in a news release Monday the implied increases in corn-based ethanol -- which still come in below the 15-billion-gallon cap in the final rule -- will hurt the chicken industry and consumers.
"EPA's action will cost consumers at the pump and on the plate by effectively raising fuel and food prices," National Chicken Council President Mike Brown said. "By increasing the mandated volume of ethanol beyond the blend wall for next year, and retroactively increasing the mandates for 2014 and 2015, more corn from feed and food will be diverted into fuel production, resulting in increased costs for poultry and livestock producers."
Members of the Nebraska Corn Growers Association said in a news release the final RFS will hurt corn demand.
"EPA has clearly bowed to the influence of the oil industry in reducing these volume requirements," said David Merrell, a family farmer from St. Edward, Nebraska, and chairman of the Nebraska Corn Board.
"The unquestioned success of the RFS has created greater fuel choice at the pump for consumers and that cuts into the market share for the oil companies. They don't like that -- and apparently EPA paid a lot of attention to their complaints."
The reduction in the corn ethanol portion of the RFS means more than 500 million bushels of total lost corn demand for 2015 and 2016.
"Instead of amplifying the contribution that rural America can make to our nation's energy future, EPA has decided to default to the status quo and extend our dependence on fossil fuels and their detrimental effect on our economy and environment," Merrell said.
DTN Ag Policy Editor Chris Clayton contributed to this story.
Todd Neeley can be reached at email@example.com
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