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EPA Proposes to Increase Fuel Ethanol Content Standards

| Feb 21, 2013 | News

Days before President Obama suggested that Americans “shift our cars and trucks off oil for good” during his State of the Union Address, the Environmental Protection Agency (EPA) proposed a rule that would require energy companies to increase the amount of cellulosic ethanol in diesel and gasoline.

UnderFuel Economy.jpg the proposed rule, the EPA predicts that fourteen million gallons of cellulosic ethanol, a chemical created from wood, grass, and crop residue, will be available in the United States in 2013. Based on this estimate, the EPA has raised the percentage of renewal fuel that energy companies must include in the diesel they produce in 2014 to 9.63 percent overall and to 0.008 percent for cellulosic biofuel.
The Clean Air Act requires the EPA to make annual estimates of biofuel availability and to use these numbers to set percentage standards for the fuel industry. The Agency derived its estimate by identifying a subset of biofuel sources that “could be producing commercial volumes of qualifying cellulosic biofuel for use as transportation fuel.” It then estimated each facility’s potential output based on “factors such as the current and expected state of funding, the status of the technology utilized [and] progress towards construction and production goals.”
A number of critics have taken issue with the EPA’s assessment, arguing that the estimate is unreasonable because the cellulosic ethanol industry is still nascent. Last year, producers reportedly generated only 21,000 gallons of ethanol. In the past, a shortage of ethanol has created a hot market for RIN numbers – numeric code indicating that producers have met their ethanol percentage targets.  If energy producers are unable to secure enough ethanol, they can purchase RIN numbers, which can trade at very high rates during an ethanol shortage.
The issue is further complicated by the unpredictability of weather patterns in recent years. Last year, corn production decreased due to draughts, greatly impacting the ethanol industry.
In a recent opinion column, Daniel Kish, the senior vice president at the Institute for Energy, argued that “the EPA’s projection [is] not an objective forecast, but an attempt to create a market for cellulosic ethanol.”
Kish suggested that the impact of this proposed rule will extend beyond members of the industry that are directly involved in the production and procurement of fuels, and may harm consumers by causing gas prices to increase.  He reasoned that if refineries are fined for not adhering to the percentage standards, they will “pass on their cost increases to [consumers] at the pump.”
Industry insiders are not the only group with doubts about the market for ethanol.  In a recent decision, the D.C. Court of Appeals stated that the “EPA’s 2012 projection of cellulosic biofuel production was in excess of the agency’s statutory authority” and was “unrealistic.”  Although the court remanded the rule for further deliberations in line with the opinion, the EPA’s 2013 projection surpassed the 2012 prediction at issue in the court’s decision.

The EPA is accepting public comments until March 25, 2013.

 



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