WASHINGTON, D.C. — "Disappointed" is one way to describe how a number of corn and ethanol marketing groups seemed left by last week’s U.S. EPA proposal of renewable biofuel mandates for 2015 and 2016.
Illinois Corn Growers Assoc. President Ken Hartman Jr.’s reaction was less understated. "EPA has attacked U.S. farmers for the second time this week," he said in the organization’s press release, referring also to the federal agency’s decision earlier last week to finalize the controversial Waters of the U.S. rule.
Of EPA’s Renewable Fuel Standard (RFS) proposals for this year and next, he said "the corn ethanol numbers can only be described as absurd … My initial reaction was to say out loud, ‘You’ve got to be kidding me.’"
EPA put forth its annual proposal for 2014 Renewable Volume Obligation (RVO) numbers in November 2013. A few hundred-thousand comments from farmers and environmentalists dissatisfied with what they felt were too-low volumes halted implementation, so much that a substitute proposal didn’t materialize until last Friday – with 2014 already in the past.
The 2014 "mandate" is simply the amount of each biofuel actually produced last year – 33 million gallons of cellulosic, 1.63 billion of biomass-based biodiesel, 2.68 billion of advanced biofuel, going toward a total of 15.93 billion gallons of various types of biofuel (which includes corn ethanol).
Of real interest to those in the biodiesel and ethanol supply chains are the 2015 and 2016 proposals. They are, respectively for each: 106 million and 206 million gallons of cellulosic biofuel; 1.7 billion and 1.8 billion of biomass-based biodiesel; and 2.9 billion and 3.4 billion of advanced biofuel, all part of the total projected mandate of 16.3 billion gallons in 2015 and 17.4 billion in 2016.
National Corn Growers Assoc. President Chip Bowling said, "Once again, the EPA has chosen to ignore the law by cutting the corn ethanol obligation 3.75 billion gallons from 2014 to 2016. This represents nearly a billion and a half bushels in lost corn demand. The only beneficiary of the EPA’s decision is Big Oil, which has continuously sought to undermine the development of clean, renewable fuels.
"We are evaluating our legal options for defending the law and protecting the rights of farmers and consumers," he said.
The EPA is accepting comments on its proposal through July 27, said Janet McCabe, acting assistant administrator for its Office of Air and Radiation. Toward this, it will host a June 25 public hearing in Kansas City. She said it is the agency’s hope to finalize RVOs by Nov. 30, which would put it back on its normal RFS schedule.
McCabe said in a May 29 press conference the proposal reflects "both that renewable fuels are being produced and used in increasing volumes, and that there are limits to the amounts of volumes that can be supplied."
"The RFS program has been successful, and biofuels use over the past decade has increased significantly," she said, per the Congressional mandates of 2005 and 2007. "This is true for ethanol, for biodiesel and, recently, we have seen important developments in cellulosic biofuels production."
But, McCabe added, the EPA sees limitations to further growth in renewable fuels in the near future, and she admitted cellulosic volume has not developed as quickly as expected. She also said there has been less growth in gasoline use than envisioned in 2007, and that there are constraints in supplying biofuel to all consumers – particularly ethanol in greater than a 10 percent blend, or E10.
She called the 2015-16 RVOs "an ambitious but responsible rate" to incentivize growth in the biofuel industry, pointing to the cellulosic RVO for 2016 being 173 million gallons more than actual 2014 production, or about sixfold.
McCabe said the EPA believes these RVOs are consistent with what Congress wanted from the RFS, and is only part of the government’s strategy for biofuel, adding the USDA and Department of Transportation run supportive programs and private business innovation contribute to market development.
One reporter in the conference asked how cellulosic ethanol production is supposed to grow with the E10 blend wall in place and corn ethanol filling that. McCabe would only say the blend wall won’t prevent this growth, but when pressed for an explanation, did not provide one. Another reporter noted the EPA in its documentation behind the proposed RVOs was criticizing fuel refiners for not preparing to overcome the blend wall – and also biofuel producers.
"We’re not blaming anybody in the rule," McCabe said. "We’re reflecting what we’re seeing in actual data and reflecting what we read to be Congress’ intent to move these fuels forward." She said the market will decide what fuels will be sold and used to meet the RVOs.
The corn ethanol industry is going to have to learn to get by and grow without a government mandate, opined market analyst Dave Hightower, co-founder of The Hightower Report of Chicago. If the EPA won’t hike its RVOs enough to demand more domestic use, he said ethanol can be exported.
It has been already, and to some surprising destinations such as the United Arab Emirates and Brazil – neither of which would appear to have much need of American ethanol. "That shows you there’s viable potential," he said.
Too, Hightower said if China is interested in reducing vehicle emissions, it may be a potential customer as well, as the country does not have the infrastructure to manufacture its own ethanol now.
"In the long run, ethanol and biodiesel production will be driven by economics, not government mandate, and will have a lot to do with the long-term value of oil," said Shawn Hackett, president of Hackett Financial Advisors of Florida, when asked about the announcement’s effect on corn and soy futures. "I doubt any ethanol will be made from corn 10 to 15 years from now."
