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http://www.platts.com/latest-news/agriculture/dallas/us-epa-to-base-2014-rfs-on-actual-output-blend-21016342

US EPA to base 2014 RFS on actual output; blend wall to factor in 2015/2016 rule

Dallas (Platts)--19Feb2015/1249 pm EST/1749 GMT

The US Environmental Protection Agency plans to base its 2014 Renewable Fuel Standard on actual biofuels production, an agency official said Thursday at an ethanol conference, reiterating its pledge to issue the 2014, 2015 and 2016 mandates this spring.

The 2015 standard will be based on actual biofuels production to date and a projection of fuel demand and production through the rest of the year, said Chris Grundler, director of the EPA's Office of Transportation and Air Quality.

That makes the 2016 standard the one to watch, Grundler said, as it will be unencumbered by actual production figures and be based on the EPA's assessment of US fueling infrastructure and its ability to absorb higher ethanol blends.

But despite the biofuels industry's claims that the blend wall is a product of the oil industry's refusal to accommodate higher ethanol blends, the EPA has no choice but to take into account the limited infrastructure for E15 and E85 when setting RFS mandates going forward, he said.

"The fact remains that we have 3,500 or so E85 stations and 10 [million] to 11 million flex-fuel vehicles," Grundler said on the sidelines of the National Ethanol Conference. "That will limit how much ethanol we can use in this country, at least for the short term. We can't ignore those facts."

He called the blend wall one of the "fundamental issues that have stymied" the agency in finalizing the 2014 standard.

At last year's conference, Grundler pledged to finalize the 2014 RFS by June 20, 2014. That date obviously lapsed, and the agency has since missed the November statutory deadline to finalize the 2015 RFS.

Those decisions have been delayed due to the ethanol industry's uproar over the agency's proposal to cut the biofuels blending volumes for 2014 due to what the EPA said was the inability of US fueling infrastructure to handle significant quantities of gasoline blends with more than 10% ethanol -- the so-called blend wall.

The proposed 2014 RFS, which called for 15.21 billion gallons of biofuels to be blended, down from 16.55 billion gallons in the 2013 rule, has since been tabled indefinitely.

Renewable Fuels Association President Bob Dinneen, in a keynote speech at the conference, said the proposal sent "a devastatingly negative signal ... to farmers making planting decisions, marketers weighing whether or not to install blender pumps to enable E15, and investors determining the efficacy of cellulosic ethanol market opportunities."

EPA 'REGROUPING'

The RFS requires annually increasing amounts of biofuels to be blended with the US transportation fuel supply, but gives the EPA some authority to adjust the volumes.

The ethanol industry has said the RFS statute, passed by Congress in 2005 and expanded in 2007, was intended all along to breach the blend wall to incentivize higher ethanol blends like E15 and E85.

Grundler acknowledged that goal of the statute but said practical limitations on fueling infrastructure have tied the EPA's hands.

"The whole debate is, how far, how fast, and what legal tool are you using to" adjust the annual RFS mandates, he said. "Looking at that data will clearly be part of our consideration."

In his keynote address at the conference, Grundler apologized to ethanol producers for the delays to the program.

But he cited the many time demands on his office's staff of 10 to 12, including lawsuit threats filed by the oil industry over the RFS and waiver requests filed by refineries, for the agency's failure to finalize the 2014 biofuels blending mandate.

"To me, it's simply mission critical that the RFS get back on track and that we have a long-term trajectory in this country for lowering the carbon content of transportation fuels," Grundler said. "We intend to put out a proposal this spring that will address 2014, 2015 and 2016. We believe that by doing so, we can get back on the statutory schedule that's laid out in the law."

He noted that the RFS carries significant implications in economic, agriculture, environmental and energy policy, which are sometimes at odds with each other. To that point, he said that 340,000 comments were filed on the proposed 2014 RFS.

"We have to figure out how we're going to advance this cause in the face of flat and, indeed, declining gasoline demand going in the future," Grundler said. "We have to overcome the current market limitations, the so-called blend wall. ... And, of course, whether and on what basis the statutory volumes should be lowered in light of these considerations.

"In the next few months, we are regrouping. We are going to try to answer these questions."

--Herman Wang, [e-mail]
--Edited by Annie Siebert, [e-mail]