Oil Companies Happy, Biofuels Companies Distraught Over New EPA Rules

Today the U.S. Environmental Protection Agency today proposed lowering the amount of biofuel required under the Renewable Fuels Standard.

The decision is a blow to biofuels companies, but drew praise from some odd bedfellows—the American Petroleum Institute and the Union of Concerned Scientists.

Last year the EPA required refiners and importers to blend 16.55 billion gallons of renewable fuel into the fuel supply. This year, it proposes to lower that number to 15.21 billion, which will have the effect of shrinking the amount of biofuel that’s sold.

The EPA said that it’s not practical to use more than 15.21 billion gallons of fuel given the current state of biofuels infrastructure and the declining demand for gasoline. It referred to something known as the “blend wall.” Most gasoline has 10 percent ethanol. To increase the amount of ethanol used to above 15 or 16 billion gallons, drivers would need to start using gasoline with higher percentages of ethanol. But although the EPA says cars built after model year 2001 can use blends that contain up to 15 percent ethanol, some automakers warn drivers not to use such high blends. Some cars can use blends up to 85 percent ethanol, but the scarcity of pumps for this fuel and the fact that it reduces fuel economy have limited its use.

The decision by the EPA shouldn’t come as a surprise—earlier this year it said it would probably lower requirement for renewable fuel to take into account the blend wall. In a statement, Jack Gerard, president and CEO of the American Petroleum Institute, said the reduction was “a move in the right direction.” The Union of Concerned Scientists applauded the decision, saying that it will reduce the use of food for fuel.

While the EPA lowered the overall amount of renewable fuels required, it raised the requirement for cellulosic biofuel, fuel produced from sources such as grass, corn stover, and wood chips. The new requirement is 17 million gallons, up from 6 million gallons last year.

But the cellulosic biofuels industry had hoped for a higher number. The RFS was originally supposed to require 1.75 billion gallons of cellulosic biofuel in 2014. James Moe, chairman of the board for the biofuel company POET-DSM, said the new requirements “underestimate the volume of cellulosic biofuel that will be produced next year” as new plants come on line.

The Biotechnology Industry Organization said the new rule “could significantly chill investment in advanced biofuels projects.” But BIO thinks the pressure needs to stay on oil companies to push them to install infrastructure and promote biofuels for the long term success of the fuels (see “The Cellulosic Ethanol Industry Faces Big Challenges”).