EPA’s Biofuel Announcement Takes A Bite Out Of Corn

Jun 02, 2015

By Alex Guillén

“They have simply acquiesced to the demands of Big Oil,” the head of one ethanol group says.

The Obama administration handed more disappointing news Friday to the once-powerful corn lobby, giving growers less support than they had wanted in a federal ethanol program that’s under attack from the oil industry, food producers, tea partiers and some green groups.

The EPA announced it wants to scale back — but not slash — the amount of biofuel that gasoline refiners must blend into the nation’s fuel supply through 2016, under a program that Congress created a decade ago to trim U.S. dependence on Mideast oil. The proposal allows a modest boost for 2016, but falls far short of the ethanol lobby’s hopes for an ever-soaring share of the nation’s fuel supply. And though it also goes against the oil industry’s demand that Washington abolish or make steep cuts to what it calls a wasteful mandate, ethanol advocates were the first to cry foul Friday.

“The initial read on EPA’s proposal is they have simply acquiesced to the demands of Big Oil,” said Tom Buis, CEO of the ethanol industry group Growth Energy.

Brian Jennings, executive vice president of the American Coalition for Ethanol, said the administration is essentially bowing to the oil industry’s efforts to limit how much biofuel is allowed in the marketplace. “It’s like the NFL saying it’s OK for the New England Patriots to deflate footballs while everyone else must play by the rules,” he said in a statement.

Friday’s move, which came a year and a half after EPA first proposed cutting the requirement, is the latest twist on a biofuel program that pits powerful industries against each other and crosses party lines. It comes just a day after Democratic presidential candidate Hillary Clinton published a newspaper op-ed in corn-rich Iowa that called for putting the mandate “back on track” while making changes that reflect the shifting realities of the energy markets.

For the ethanol industry, Friday’s news included disappointing numbers for producers of the traditional, corn-based version, who will get to sell 14 billion gallons of their fuel to the gasoline refiners next year. That’s a billion gallons less than Congress had envisioned for 2016 when it created the current version of the ethanol program eight years ago.

Producers of “advanced” biofuel, including cellulosic ethanol made from plants like switchgrass, will be limited to less than half of what lawmakers once anticipated. The disparity reflects the fact that production of cellulosic ethanol has fallen far short of earlier projections.

All told, EPA is ordering the petroleum industry to make room for a total of 16.3 billion gallons of biofuel this year and 17.4 billion gallons in 2016. Congress had originally set this year’s target at 20.5 billion gallons, with dreams of ramping that up to 36 billion gallons seven years from now.

The agency also retroactively set ethanol mandates on Friday for 2014, a decision that by law it was supposed to have made in November 2013.

But oil industry groups weren’t satisfied with EPA’s plan, saying the figures were still too ambitious.

“Today’s announcement makes abundantly clear that the only solution is for Congress to repeal or significant reform the RFS,” American Petroleum Institute President Jack Gerard told reporters, adding EPA’s assumptions of how much biofuel can be mixed into the gasoline pool were flawed.

EPA is set to make those numbers final by Nov. 30 under the terms of a settlement agreement with two oil industry groups.

The fact that ethanol supporters had to fight so hard even for this outcome is yet another sign that the corn lobby has lost much of its punch in Washington, as many of its lions in Congress have faded away. Even in Iowa, Republican Sen. Joni Ernst won her election handily last year despite expressing ambivalence about the ethanol program. And Sen. Ted Cruz (R-Texas), who is pushing to abolish the mandate, openly defended that stance in March during an appearance at an Iowa agricultural summit — a once-unthinkable step for a presidential hopeful visiting such a crucial caucus state.

It’s a far cry from two decades of incentives that biofuel producers received under political heavyweights like former Senate GOP leader Bob Dole, former House Speaker Dennis Hastert and former Senate Democratic leader Tom Daschle, who helped ensure a triple play of incentives for ethanol — the blending mandate, a tax credit and a tariff on ethanol imports. Lawmakers let both the tax credit and tariff expire at the end of 2011.

Meanwhile, opponents of the mandate have been lining up. Some automakers and boat engine manufacturers warn against using higher corn-ethanol blends in gasoline for fear of engine damage. Livestock groups like the National Turkey Federation say the mandate artificially raises the price of corn. And corn-based ethanol has fallen out of favor with some environmental groups, which once viewed the fuel as a more climate-friendly alternative to oil. (Many greens still have high hopes for the advanced biofuels, however.)

Ethanol has also lost momentum because of the domestic energy boom, which has turned the U.S. into one of the world’s biggest oil producers, and because of the Great Recession, which caused the demand for gasoline to flat-line for several years.

Senate Environment and Public Works Chairman Jim Inhofe (R-Okla.) said Friday that Congress needs to do “rigorous oversight” of the mandate in light of EPA’s handling of the issue. “EPA’s announcement adds to the building evidence of how poorly the agency has managed” the program, he said.

Still, Congress is unlikely to repeal or tinker with the mandate anytime soon, given the regional divides on ethanol and the remaining strength of Corn Belt lawmakers in both parties. That leaves EPA in the driver’s seat.

And White House hopefuls may get an earful on the issue from Iowa Gov. Terry Branstad, who is behind a multimillion-dollar campaign to pressure candidates — primarily Republicans — who don’t strongly support the mandate.

The National Corn Growers Association said it was looking at legal options for challenging EPA’s proposal, which it said would cut the expected corn demand by nearly a billion and a half bushels.

“Unfortunately, the EPA’s gift to Big Oil comes at the expense of family farmers, American consumers and the air we breathe,” NCGA President Chip Bowling said.

In addition to the gallon figures that EPA released Friday, the agency offered a mixed assessment of the oil industry’s arguments that the gasoline supply is running out of room more for ethanol — a phenomenon that the petroleum lobby calls the “blend wall.” Gasoline sold in the U.S. typically contains 10 percent ethanol, a concentration known as E10.

Ethanol advocates denounce the blend wall as a myth meant to prevent biofuels from taking an even larger share of the market. They also accuse oil companies of creating obstacles by making it harder for higher-percentage ethanol blends, such as 15 percent, to gain a foothold in the marketplace.

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