Lawmakers Seek Ethanol Cap

OMAHA (DTN) -- The ethanol industry has hit the blend wall where total production exceeds the available E10 market, and a small group of federal lawmakers wants to keep it that way.

The American Petroleum Institute has been pushing particularly hard for reform to the Renewable Fuel Standard in the past couple of years -- often pointing to the need to cap the percentage of ethanol in the nation's gasoline supply at 9.7% in making claims the RFS is broken.

Legislation introduced in the U.S. House of Representatives on Tuesday would cap the volume of ethanol blended in gasoline at 9.7%.

Reps. Bill Flores, R-Texas; Peter Welch, D-Vt.; Bob Goodlatte, R-Va.; and Jim Costa, D-Calif., introduced "The Food and Fuel Consumer Protection Act." In a news release, Flores said H.R. 5180, "limits the RFS mandate to levels that our nation's cars, trucks, boats and other small engines can safely accommodate."

The lawmakers make the case the RFS has harmed consumers. Goodlatte also has made a push for RFS reform, introducing bills in 2013 and last year.

"In today's market, the RFS is hurting consumer choices and increasing food and fuel costs for our families," Flores said in a news release statement.

"Market conditions have dramatically changed since 2005 and 2007, when Congress created and subsequently expanded the RFS. Since that time, gasoline demand has fallen and is well below the volumes implied by the ethanol mandates in the 2007 statute. As a result, the legacy RFS formula has now caused a situation where the ethanol mandate exceeds the maximum amount of ethanol that can be efficiently blended into gasoline under real-world market conditions, and forces refiners to increase ethanol volumes above 10% of total gasoline production.

"Higher ethanol blends of this nature are harmful for small engines, engines for recreational vehicles and older vehicle engines. Furthermore, the current RFS mandates are causing higher emissions as well as higher fuel and food costs for consumers."

Though lawmakers make the argument on higher food costs, U.S. food inflation averaged about 1.2% in 2015 and is expected again this year to stay below the 20-year historic average of 2.5%, according to USDA.

Renewable Fuels Association President and Chief Executive Officer Bob Dinneen said in a statement the bill is likely dead on arrival.

"Passage of this bill would represent a complete capitulation to the oil industry that steadfastly refuses to provide consumers higher-octane, lower-cost alternative fuels at the pump," he said.

"They whine about a so-called blend wall even as they continue to build it themselves by denying consumer access to E15 and E85. The RFS was made necessary by oil company intransigence. It was intended to break the stranglehold oil companies have on the motor fuel market by forcing access. This bill would gut the RFS and send America's energy and climate change policy back decades."

Because progress is slow in building E15 and E85 markets, ethanol producers have been looking for export opportunities in light of the blend wall challenges.

Ethanol producers continue to face tight margins with lower gasoline demand. However, U.S. Energy Information Administration (EIA) information released this week shows the tide may be turning.

Gasoline demand for the week averaged 405.6 million gallons, or about 9.7 million barrels daily. At 148.1 billion gallons annualized, it was the highest rate of gasoline demand since August 2015 and 15th highest in the 1,321 weeks of EIA recordkeeping.

According to EIA, ethanol production averaged 962,000 barrels per day, or 40.4 million gallons daily. That is an increase of 39,000 from the prior week and a five-week high.

Ethanol stocks plunged to 21.3 million barrels, or about a 4.3% decrease from last week and an 18-week low.

"The ethanol mandate is operating outside of the confines of reality," Goodlatte said in a statement. "Mixing greater amounts of ethanol into the fuel supply decreases fuel efficiency, sending motorists to the pump more frequently. It can also lead to costly trips to the repair shop for families, businesses, and farmers to fix the damage caused by higher ethanol blends to some vehicles and small engines, like lawn mowers. Forcing more ethanol to be blended into the fuel supply than consumers want, or that engines can safely handle, makes little sense."

The bill would direct the U.S. Environmental Protection Agency to cap the maximum volume of ethanol blended at 9.7% of projected gasoline demand as determined by the EIA. It also requires EPA to meet statutory deadlines in setting annual RFS volumes. If those deadlines are not met, previous RFS volumes would apply.

Read the legislation here: http://1.usa.gov/…

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

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