WASHINGTON – On Tuesday, the U.S. Environmental Protection Agency (EPA) issued a long-awaited rule setting the renewable fuel volume obligations, as required by the Renewable Fuels Standard (RFS), for 2013. The rule complies with the statutory requirement of the RFS that a total of 16.55 billion gallons of qualified renewable fuels be blended into the market this year, but indicates that EPA may reduce the overall requirement below the statutory level for 2014 in order to avoid hitting the blend wall, that point beyond which the market is unable to accommodate additional volume.

In issuing the 2013 requirements, EPA noted that there were sufficient RINs (Renewable Identification Numbers) to allow refiners to comply with the mandated volumes. However, EPA acknowledged a lack of advanced biofuels to satisfy the statutory levels and reduced the required volumes for cellulosic biofuels. The advanced biofuels requirement will meet the mandated 2.75 billion gallons, but the cellulosic mandate is reduced from 1 billion to 6 million gallons. The balance must be satisfied by other qualified advanced biofuels, such as sugar-cane based ethanol or fuels like butanol.

While the announcement was greeted with disappointment by the refining community which is concerned about its ability to meet the 2013 requirements, indications that additional flexibility will be provided in 2014 was greeted with cautious optimism.

In testimony before Congress last month, NACS proposed that the EPA should use the waiver authority granted by the RFS to reduce renewable fuel volume obligations to reflect actual market conditions and avoid burdening consumers with unnecessary price spikes that could result from hitting the blend wall.  In its announcement EPA indicated it does have such authority and might take such action for 2014.

“…we recognize that ethanol will likely continue to predominate the renewable fuel pool in the near future, and that for 2014 the ability of the market to consume ethanol in higher blends such as E85 is constrained as a result of infrastructure- and market-related factors. Most stakeholders that submitted comments in response to the NPRM made reference to the impending E10 blend wall, though they differed on how EPA should address it. A number of obligated parties and other stakeholders have communicated to EPA that while the E10 blend wall may be manageable in 2013, in 2014 compliance is expected to become significantly more difficult. We agree with that assessment. In 2014 the applicable volume of total renewable fuel set forth in the statute rises to 18.15 billion ethanol-equivalent gallons, of which 14.4 bill gal would be non-advanced biofuel comprised primarily of corn-ethanol, and 3.75 bill gal would be advanced biofuel. A significant portion of the fuel available to meet the advanced biofuel requirement would also likely be ethanol, including domestically produced cellulosic and advanced ethanol, along with advanced ethanol imported from Brazil. However, the maximum volume of ethanol that could be consumed as E10 in 2014 is projected to be just 13.2 bill gal.

“Given the history of the market and relevant constraints, EPA does not currently foresee a scenario in which the market could consume enough ethanol sold in blends greater than E10, and/or produce sufficient volumes of non-ethanol biofuels (biodiesel, renewable diesel, biogas, etc.), to meet the volumes of total renewable fuel and advanced biofuel stated in the statute.

“Given these challenges, EPA anticipates that in the 2014 proposed rule, we will propose adjustments to the 2014 volume requirements, including to both the advanced biofuel and total renewable fuel categories. We expect that in preparing the 2014 proposed rule, we will estimate the available supply of cellulosic and advanced biofuel, assess the E10 blend wall and current infrastructure and market-based limitations to the consumption of ethanol in gasoline-ethanol blends above E10, and then propose to establish volume requirements that are reasonably attainable in light of these considerations and others as appropriate. EPA believes that the statute provides EPA with the authorities and tools needed to make appropriate adjustments in the national volume requirements to address these challenges. We are currently evaluating a variety of options and approaches consistent with our statutory authorities for use in establishing RFS requirements for 2014. We will discuss these options in detail in the forthcoming NPRM for the 2014 standards and expect to utilize the notice and comment process to fully engage the public in consideration of a reasonable path forward that appropriately addresses the blend wall and other constraints.”

NACS is encouraged by EPA’s acknowledgement that the market will reach the blend wall in 2014 and that adjustments to the obligated volumes must be made to protect the market and consumers. It is at this point unclear how exactly the agency plans to accomplished this stated objective. NACS will carefully review the proposed rulemaking once it is released and provide comments to the agency as appropriate.