Ethanol Blog

Gasoline Demand key to Final RFS Volumes

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
Connect with Todd:

The U.S. Environmental Protection Agency's change of heart about corn ethanol in the latest Renewable Fuel Standard volumes can be summed up in one phrase: expected increased demand for gasoline.

Back in May when EPA released its proposal that called for 14.8 billion gallons of corn ethanol in the RFS as an implied number, ethanol industry officials cried foul, saying the industry has the ability to produce above and beyond the 15-billion-gallon cap.

EPA made the case gasoline consumption estimates were too low to support 15 billion gallons of ethanol in the fuel supply.

The total RVO was finalized at 19.28 billion gallons. That includes 4.28 billion gallons of advanced biofuel and 311 million gallons of cellulosic biofuel. That means the implied RVO for conventional biofuels including corn ethanol will be 15 billion gallons. The EPA had proposed a 14.8-billion-gallon mandate for corn ethanol back in May.

EPA originally called for a total RVO of 18.8 billion gallons. In addition, the agency had proposed 4 billion gallons for advanced biofuel and 312 million gallons for cellulosic biofuel. Although the biodiesel industry is poised to produce about 2.6 billion gallons in 2016, the EPA went with its original proposal of 2 billion gallons for biomass-based biodiesel in 2017 and 2.1 billion gallons in 2018.

Some commenters to EPA said the industry could produce around 15.6 billion gallons, meaning there was no need to keep the implied volume below 15 billion.

As part of its release of the 2017 RFS volumes Wednesday, EPA posted to its website a 584-page document that includes the agency's response to public comments: http://bit.ly/….

Many corn ethanol industry representatives filed comments with EPA on the proposal, calling on the agency to reverse a proposed reduction in the corn mandate. The agency's proposal, however, represented an increase from 14.5 billion gallons to 14.8 billion gallons. Yet, the industry made the case the 2017 proposal was a reduction because the industry is capable of producing in excess of 15 billion gallons.

"Nevertheless, based on comments received and additional information acquired since release of the NPRM which supports the greater availability of renewable fuels, including an increase in projected gasoline consumption, we are finalizing standards that provide an implied conventional renewable fuel volume of 15 billion gallons, the same as the implied conventional volume in the statute," the agency said in response.

From the time of the original proposal, the U.S. Energy Information Administration bumped up its estimates for total gasoline consumption based on the E10 market.

CORN MARKET

In addition, a number of commenters were concerned that setting the corn ethanol volumes below 15 billion gallons would have negative effects on the corn market.

The EPA said in its response it has no way of knowing how renewable volume obligations set in the RFS would affect other markets.

"Some stakeholders argued that the proposed volume requirements would undercut the market with severe economic consequences," EPA said.

"They alleged that there would be a reduction in investments, demand for corn, and farm sector profits, which would consequently lead to declines in land values and increases in federal support to farmers. We disagree.

"These comments tended to focus on reductions from the statutory volumes that have not, and cannot be achieved, rather than the growth in renewable fuel volumes relative to previous years. The final volume requirements are in fact significantly higher than the volume requirements and actual supply in all previous years. As a result of the final volume requirements, supply must expand as compared to past years, and with it opportunities for growth in the renewable fuel market."

CELLULOSIC ETHANOL

In the months since EPA's proposal was announced, the biofuels industry was concerned the RFS was not incentivizing cellulosic ethanol and other advanced technologies. EPA said it disagrees with the assertion.

According to the original RFS law, there was to be about 5.5 billion gallons of cellulosic biofuel produced in 2017. For years, EPA has been faced with the task of adjusting cellulosic ethanol volumes because the industry has been slow to develop commercial production.

EPA set the cellulosic volumes at 311 million gallons in 2017 -- far below statutory requirements.

"On the contrary, the proposed volume requirements would have provided for growth in advanced biofuels without causing the market uncertainty associated with standards which cannot be attained," the agency said in its response to comments.

"Further, we have updated our assessments and evaluated additional information provided by stakeholders since release of the NPRM and have determined that the final volume requirement for advanced biofuel in 2017 can be somewhat higher than the proposed level while still being reasonably attainable and appropriate. The result is substantial growth in advanced biofuels in 2017 that can only be achieved if the market responds as expected with increased production and makes progress with respect to the various supply constraints."

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

Follow me on Twitter @toddneeleyDTN

(ES)

Comments

To comment, please Log In or Join our Community .