2012 EPA ethanol requirements reduced

Dec 30, 2011

The Environmental Protection Agency (EPA) waited until the 5th hour to release their reduced 2012 biofuel requirements under the Renewable Fuel Standard (RFS).

Renewable fuel advocates say they are not worried about negative effects of the year’s-end expiration of the 45 cent ethanol blender credit voted on in June, or the 54 cent per gallon import tariff. However, the Renewable Fuels Association did raise concerns after EPA missed a Nov. 30 statutory deadline to finalize the blending mandate for 2012 on the grounds that the missed deadline affects market certainty for renewable fuel suppliers.

In the past due release, EPA finally announced the percentages in last week’s report for corn-based ethanol in motor fuel. Setting the bar at 13.2 billion gallons, the quotas published by EPA, just five days before the New Year, will give the ethanol industry about 4.7 billion bushels out of the nation’s corn supply next year. The target is reduced considerably from the original numbers called for four years ago.

EPA also acknowledged that the supply of non-corn, “ceullosic,” ethanol has failed to materialize, and reduced the target for that category to less than 2 percent of the amount originally mandated by Congress.

The target for conventional, cornstarch-based ethanol in 2012 is 600 million gallons more than the target for 2011, as set by the 2007 law. This change has the ethanol industry buying approximately 214 million more bushels of corn than in 2011.

In its annual setting of quotas for renewable fuels to be utilized by the motor fuel industry, EPA said that the industry would have to use 8.65 million gallons of cellulosic biofuel, a small fraction of the target of 500 million gallons set by the Energy Independence and Security Act (EISA) of 2007. EPA can reduce the target if the fuel is not being produced com mercially

in sufficient quantities and can fine the ethanol industry for failing to meet the targets.

“EPA continues to support greater use of renewable fuels within the transportation sector every year through the RFS2 program, which encourages innovation, strengthens American energy security and decreases greenhouse gas pollution,” the agency said in a statement.

Fuel refining industry organizations, such as the National Petrochemical and Refiners Association (NPRA), pointed out the flaws in the entire system, saying that the latest rule is another reminder that the federal RFS needs to be modified.

“Once again, refiners are being ordered to use a substance that is not being produced in commercial quantities—cellulosic ethanol—and being required to pay millions of dollars for failing to use this nonexistent substance. This makes no sense,” said Charles T. Drevna, president of NPRA, in a release.

“Instead of imposing an unreasonable biofuels mandate, which would raise energy costs and impact fuel supplies, government should allow consumer choice and the free market to determine the mix of energy sources to best meet our nation’s needs,” Drevna added.

EISA established the RFS2 program and the annual renewable fuel volume targets, which should steadily increase to an overall level of 36 billion gallons by 2022. To achieve these volumes, EPA calculates a percentage-based standard for each coming year. Based on the standard, each refiner and importer determines the minimum volume of renewable fuel that it must ensure is used in its transportation fuel.

The final 2012 overall volumes and standards are:

Biomass-based diesel (1.0 billion gallons; 0.91 percent) Advanced biofuels (2.0 billion gallons; 1.21 percent) Cellulosic biofuels (8.65 million gallons; 0.006 percent) Total renewable fuels (15.2 billion gallons; 9.23 percent) Last spring, EPA had proposed a volume requirement of 1.28 billion gallons for biomass-based diesel for 2013. EISA specifies a 1 billion gallon minimum volume requirement for that category for 2013 and beyond, but enables EPA to increase the volume requirement after consideration of a variety of environmental, market and energy-related factors. EPA is continuing to evaluate the many comments from stakeholders on the proposed biomass based diesel volume for 2013 and will take final action next year.

The program is implementing EISA’s requirement to blend more than 1.25 billion gallons of renewable fuels over the amount mandated for 2011, it said on Dec. 27. Of the 15.2 billion gallons, or 9.23 percent total renewable fuels portion of U.S. refined products, biomass-based diesel fuel is to grow to 1 billion gallons, or 0.91 percent; advanced biomass is to rise to 2 billion gallons, or 1.21 percent; and cellu losic biofuels is to increase to 8.65 million gallons, or 0.006 percent.

EPA said that only one plant is currently producing cellulosic ethanol, with five more expected to be producing in 2012. Total production at the six plants is projected at 8.65 million gallons in 2012, they said, adding that it hoped to support the market for added production.

The slow development of alternative fuels is creating growing, very powerful political pressures, according to DTN’s Washington Insider. Ethanol advocates want to be allowed to meet a growing part of that standard, over the opposition of a number of environmental groups. Refiners, who are caught in the middle of this debate, are pushing for Congress to lower the mandate, which has become a growing embarrassment for Congress and the administration. Pressures for change also are coming from livestock groups and others who compete for grains and oilseeds and see the mandates as boosting their costs.

But EPA disagrees. “By setting the standard for cellulosic biofuel based on the volumes that are reasonably attainable, we are providing incentives for producers to overcome uncertainties and greater opportunities for funding based on an established demand,” EPA said in a release.

In addition to the changes in quotas, in June of 2011, the U.S. Senate voted to end the ethanol blenders’ tax credit, a move criticized by some ag groups but supported by others.

Now, that tax credit, formally known as the Volumetric Ethanol Excise Tax Credit, ended Dec. 31, 2011. With it goes the 54-centper-gallon tariff on imported ethanol. Ethanol industry groups were upset with the decision, but cattle industry groups such as National Cattlemen’s Beef Association called it a “giant step toward leveling the playing field for a bushel of corn.”

What this all means for corn production still remains to be seen.

Dr. Robert Wisner, university professor emeritus at Iowa State University, said that after USDA’s Sept. 12 crop report, the production forecast was well below total corn use in the marketing year ending Aug. 31 and was lower than indicated in August.

Corn prices have fallen, primarily because of (1) heightened concern about the European sovereign debt crisis, with fears that some countries may default on debt, placing large international banks and the world economy at risk, and (2) USDA’s Sept. 30 U.S. corn and wheat stocks report. The stocks report showed 160 million bushels more U.S. corn in storage on Sept. 1 than anticipated by the grain trade and less wheat feeding than expected. Thus, U.S. corn supplies will not be as tight as previously anticipated. The reported stocks suggested domestic corn feeding has already been sharply curtailed, a conclusion that looks out of line with other indicators. The Oct. 12 USDA crop report showed an additional 64 million bushel decline in expected 2011 corn production, along with an additional 123 million bushel decline in the Nov. 9 crop report.

According to Wisner, analysts use quarterly grain stocks to calculate corn and wheat feeding. Feed use is not measured directly but is calculated as a statistical residual. Known uses indicated by processing and export data are subtracted from beginning supplies. Then, after subtracting ending supplies, the difference is termed “feed and residual disappearance.” The “residual” portion reflects spoilage, handling losses, and possible statistical errors.

Analysts are puzzled at the relatively low summer quarter corn feed and residual disappearance for the second consecutive year. Large livestock numbers and severe drought with lack of pasture and forage for cattle feeding in the southern Great Plains were believed to have boosted grain feeding. The lower-than-expected wheat feed and residual number would be expected to support June-August corn feeding. — Traci Eatherton, WLJ Editor