Bloomberg News

Bid to End Ethanol Mandate Seen Diluted by Renewable Change (1)

August 08, 2013

Corn ethanol producers say a pledge by U.S. regulators to lower the level of renewable fuel use required next year may deflate a well-funded oil industry effort aimed at persuading Congress to repeal the mandate.

Ethanol supporters say the U.S. Environmental Protection Agency showed it can adjust to market needs with its Aug. 6 announcement that it will lower an 18.15 billion-gallon mandate for 2014 because demand for gasoline has lagged expected levels. That could slow momentum building in Congress for tougher action, they say.

“To a large extent, the effort in Congress probably lost a little wind in its sails,” said Bob Dinneen, president of the Renewable Fuels Association in Washington, whose members include Archer-Daniels-Midland Co. (ADM:US) and Pacific Ethanol Inc. (PEIX:US)

The EPA’s announcement, which was paired with an agency decision to give refiners an additional four months to reach 2013 goals, came as lawmakers in both chambers of Congress are preparing for a fight over whether to alter the mandate first established in 2007.

The debate over the renewable fuel standard puts the ethanol industry, which once had rock-solid support for its mandates and tax preferences, on the defensive.

Demand for gasoline and U.S. production of next-generation sources of fuel have lagged behind what was projected six years ago, and refiners complain that they could be forced to blend in more than 10 percent of ethanol, which they say isn’t safe for all engines.

Advertising Blitz

The American Petroleum Institute began an advertising blitz last month designed to build pressure for a repeal of the federal biofuel rule, with TV, radio and print ads that focus on potential costs to consumers. One print ad says the higher ethanol mandate “could damage your engine, and void your warranty. Your engine won’t like it, but your mechanic will.”

Bob Greco, director of API’s downstream group, said the EPA’s action this week underscores how unrealistic the current mandate is, and his group will redouble efforts to convince lawmakers to provide some relief. API represents refiners and oil producers including Exxon Mobil Corp. (XOM:US) and Chevron Corp. (CVX:US)

“These are band-aids that will help fix this, but the statute itself is fundamentally broken,” Greco said.

In both chambers, some lawmakers are calling for changes to the mandate. At a hearing of the House Energy and Commerce Committee last month, lawmakers in both parties said there may be enough support to make some changes, although there probably isn’t enough for a full repeal.

Slipping Support

The panel’s chairman, Republican Representative Fred Upton of Michigan, has asked a handful of lawmakers from his party -- including Representatives John Shimkus of Illinois and Lee Terry of Nebraska -- to examine which revisions should be considered.

Support for producers of the biofuel already has slipped. In June 2011, 33 Senate Republicans voted with Democrats in favor of eliminating a tax credit and a tariff that subsidize ethanol production.

While that didn’t become law, with little fanfare at the end of that year the 45-cent-a-gallon tax credit for ethanol blenders expired, as did a 54-cent-a-gallon tariff on imports.

The declining political allegiance to ethanol, once required for political gains in rural states, also was on display in the 2012 Republican presidential campaign, where for the first time support for corn-based biofuels didn’t play much of a role.

Iowa Caucuses

Rick Santorum, who won the Iowa caucuses, relied far more on his support from religious conservatives than his backing of biofuels. Mitt Romney, the eventual Republican presidential nominee and an opponent of long-term government subsidies for the fuel, came in second, while Ron Paul, another subsidy foe, took third. Newt Gingrich, who had the highest rating on farm policy from the Iowa Corn Growers Association, was fourth.

Ethanol is a fixture of the farm economy, driving up demand for corn and helping boost farmland values and agriculture profits to records. The U.S. Department of Agriculture said last month that ethanol will use up 35 percent of this year’s corn crop.

Groups protecting the interests of ethanol producers say that as the oil industry engages in a consumer awareness campaign, their lobbying is centered more on one-on-one talks with lawmakers.

Talks Continue

“We continue to talk to congressmen,” said Pam Johnson, a corn and soybean farmer outside Floyd, Iowa, who is president of the Corn Board of the National Corn Growers Association. “We need to show them we need a long-term plan. We don’t need a short-sighted move to repeal the RFS because we want them to take the long-term big picture view of what’s necessary for fuels in this country.”

Ethanol groups also say they can look to the EPA’s show of flexibility to aid them.

“What the EPA did was send a strong signal to Congress that they have the administrative flexibility to adjust these volume goals accordingly,” said Michael Frohlich, a spokesman for Growth Energy, which represents ethanol producers and is led by Poet LLC, the nation’s largest biofuels maker.

At the same time, a Congress that hasn’t been able to agree on cutting budget deficits also appears incapable of doing much with environmental policy, he said.

‘Strong Signal’

Splits in Congress over the issue were evident this week.

Senator Tom Carper, a Delaware Democrat, said the decision “sends a strong signal to our refineries that the EPA is listening to their concerns and working responsibly to address them.”

The biggest defender of ethanol standards in Congress, Republican Senator Charles Grassley of Iowa, a major corn-growing state, said he’ll fight any attempt to curb the standard.

“The RFS has already led to significant environmental, economic and national security gains,” Grassley said in a statement. “The promise of the next generation of biofuels will add even more. But that’s only if we protect the existing supportive policies and work to provide greater certainty for this burgeoning industry. I intend to do just that.”

At the same time, other lawmakers who have advocated outright repeal or broad revisions said they’ll press ahead.

Representative Bob Goodlatte, a Virginia Republican, and Senator James Inhofe, an Oklahoma Republican, called for an end to the biofuel requirement.

Waiver Urged

In a letter to President Barack Obama, Senator David Vitter of Louisiana, the top Republican on the Environment and Public Works Committee, urged the administration to waive the 2014 biofuel mandates altogether to buy time for Congress to make broad changes.

“The premise and structure of the RFS were based on many assumptions that no longer reflect the current market conditions,” Vitter wrote in the Aug. 1 letter that was also signed by Inhofe and Senator Mark Pryor, an Arkansas Democrat.

Jason Bordoff, director of Columbia University’s Center for Global Energy Policy, said while the battle moves to Congress, it’s unclear what any new mandate might look like and whether there’s enough momentum for action.

“It would be cleaner for Congress to revise the statute to fix the problem in the first instance,” Bordoff said. “The tension is that the more flexible EPA is, the more pressure it might remove from Congress to in fact take the steps to fix the blend-wall problem through legislation.”

To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net


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Companies Mentioned

  • ADM
    (Archer-Daniels-Midland Co)
    • $48.2 USD
    • 0.12
    • 0.25%
  • PEIX
    (Pacific Ethanol Inc)
    • $18.5 USD
    • 0.37
    • 2.0%
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