Ethanol Blog

As the Office of Management and Budget continues to analyze the latest renewable volume obligations in the Renewable Fuel Standard, an official with the Renewable Fuels Association made the case in an analysis Thursday the de-facto RVO for corn ethanol should be set at the statutory 15 billion gallons for 2017.

The OMB has until the end of November to finalize the volumes.

Ethanol industry groups have made the case the U.S. Environmental Protection Agency has no apparent reason to keep corn ethanol's portion of the RFS below the statutory cap of 15 billion gallons.

The EPA doesn't actually set an RVO for corn ethanol, per se, as the agency does for other biofuels. The EPA instead sets volumes for cellulosic ethanol, biomass diesel and other biofuels, with the remaining RFS volumes covered by corn ethanol.

Geoff Cooper, RFA senior vice president, said although the EPA proposes a corn-ethanol number below 15 billion gallons based on concerns about lower gasoline consumption back in April, the latest consumption data show the volume should be set at 15 billion.

"...The agency suggested the reduction was necessary because the marketplace lacked the capacity to consume the volume prescribed by law," Cooper said in an analysis.

"In testimony and detailed comments to the agency, RFA and other biofuel advocates pointed out that EPA does not in fact have the authority to waive statutory RFS volumes on the basis of renewable fuel distribution or consumption capacity. On this point, the law is crystal clear: if the supply of renewable fuel is adequate to meet the statutorily required volumes, then obligated parties are obligated to facilitate consumption of the fuel."

Even assuming the EPA can base its volume decisions on distribution and consumption capacity, Cooper writes, marketplace dynamics should require the RVO to be set at the statutory level in 2017.

"In the May proposal, EPA assumed the U.S. market would consume 14.2 billion gallons of conventional ethanol in 2017," he said.

The estimate was based on the 2017 gasoline consumption projection in the Energy Information Administration's April short-term energy outlook of 142.26 billion gallons.

The latest EIA projection on 2017 gasoline consumption, however, was bumped up by about 1.7 billion gallons between April and October.

"EPA also assumed the U.S. market would consume 400 million gallons of conventional (non-advanced) biodiesel and renewable diesel," Cooper said.

"Because biodiesel and renewable diesel contain more energy per gallon than ethanol, one gallon of these fuels counts as more than one gallon toward meeting the RFS required volumes (e.g., one physical gallon of biodiesel counts as 1.5 gallons toward compliance, and one physical gallon of renewable diesel counts as either 1.6 or 1.7 gallons). In the proposal, EPA assumed these 400 million physical gallons would count as 600 million compliance gallons, for an average 'equivalency value' of 1.5 compliance gallons per physical gallon."

"...In other words, the latest EIA projections - which EPA is required to use - effectively force EPA to raise its assumption of 2017 conventional ethanol consumption to at least 14.37 billion gallons."

In addition, Cooper said consumption of conventional renewable diesel is outpacing biodiesel consumption nearly two-to-one. Since renewable diesel has a "higher compliance gallon 'equivalency value' than biodiesel," Cooper said it is "not accurate to simply assume each physical gallon of biodiesel and renewable diesel will contribute just 1.5 gallons toward compliance, as EPA did in the proposal."

So based on equivalency value "the 400 million gallons of conventional biodiesel and renewable diesel EPA expects will be consumed in 2017 will actually count as approximately 660 million gallons toward compliance," Cooper said. That would place the corn ethanol number at about 15.03 billion gallons, he said.

Read Cooper's analysis here: http://bit.ly/…

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

Follow me on Twitter @toddneeleyDTN

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