EPA likely to lower US renewable fuels mandate


WASHINGTON -- The Environmental Protection Agency said Tuesday it will propose cutting next year's federal mandate for using alternative motor fuel, a reversal that comes as Congress heightens scrutiny of the program.

The agency said it would seek to reduce the amount of "renewable" fuel that the oil industry must blend into the US gasoline supply, a move that could shrink the market for ethanol and other products.

A 2007 law calls for the US to consume ever-rising amounts of renewable fuel, mainly corn ethanol made in the US. But the agency acknowledged Tuesday that the US is approaching a "blend wall" -- the point at which the market can't absorb any more ethanol without using new types of fuels that aren't widely sold.

"It's a significant development for the EPA to overtly state that it intends to be flexible," said Jason Bordoff, director of Columbia University's center on global energy policy. Mr. Bordoff has called for the agency to reduce the renewable-fuel requirement, saying that not doing so could cause an increase in gasoline prices.

The EPA announcement came as part of the rollout of the final requirement for 2013, which will remain unchanged at 16.55 billion gallons of ethanol and other fuels, up more than 1 billion gallons from the previous year.

The lion's share of that mandate -- about 13.8 billion gallons -- is expected to be met with ethanol from Midwestern corn, with ethanol made from Brazilian sugarcane, diesel-motor fuel made from soybeans and other fuels making up the rest.

The 2013 mandate puts government-required ethanol consumption at close to 10% of the US gasoline supply. Most gasoline today contains no more than 10% ethanol.

Next year, the mandate is set to rise again, but US gasoline consumption is expected to be flat as Americans continue to drive more fuel-efficient cars. "EPA does not currently foresee a scenario in which the market could consume enough ethanol" to meet the 2014 requirements outlined in the law, the EPA said in a fact sheet released Tuesday.

"The administration now acknowledges the blend wall as real and unavoidable," said Stephen Brown, vice president for federal government affairs at Tesoro. "A clear signal is also being sent to Congress that additional authority to address the blend wall may be needed via legislation."

Reps. Fred Upton and Henry Waxman, the top Republican and Democrat, respectively, on the House Energy and Commerce Committee, have said they are discussing possible changes to the renewable-fuel law.

The ethanol industry has said major changes aren't necessary because refiners can switch to higher ethanol blends, which so far are not being sold widely even though the EPA says they are safe for new vehicles.

Having the EPA tweak the requirements to provide flexibility "is exactly how the program was designed to work," said Brooke Coleman, executive director of the Advanced Ethanol Council, which represents developers of alternative fuels. "There are no problems with the program on the horizon that can't be fixed administratively."

Dow Jones Newswires

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