Hitting the Blend Wall – Proposed Reductions in the EPA 2014 Renewable Fuel Standard

May 2014

The Environmental Protection Agency (EPA) has recently mandated a new Renewable Fuel Standard (RFS2) that reduces the amount of renewable fuels required to be blended into the petroleum fuel supply by approximately three billion gallons. Since cellulosic and advanced biofuels rely heavily on RFS mandates as a key external-funding driver, this change appeared to be a significant setback for the renewable fuels industry. However, taken in context with the larger economic factors, potential technological advances, and potential policy gains, the newly mandated standards do not appear as extreme, and renewable fuels continue to be one of the best paths forward to increased energy and environmental security.

The new proposed mandate will reduce the required total amount of total renewable fuels blended into the petroleum fuel supply from 18.15 billion gallons in the original RFS2 to 15.21 billion gallons in 2014.

Two critical factors driving this reduction are:

  • Usage of gasoline has decreased – Under the first year of the original Renewable Fuel Standard (RFS1) program in 2006, total gasoline use in the United States was approximately 142 billion gallons. Ethanol use that year was approximately four billion gallons representing approximately 3% of gasoline volume. In 2006, gasoline consumption was projected to reach 157 billion gallons by 2012 and RFS1 mandates of 7.5 billion gallons would have kept ethanol blend rate at approximately 5%. However, instead of increasing at a steady rate, total gasoline consumption in the United States had decreased to approximately 133 billion gallons which combined with increasing renewable standards would have driven the blend rate to more than 11%.
  • Blending constraints – The petroleum industry has long opposed blending above the 10% level. Model year 2001 and older vehicles that run on gasoline are more susceptible to corrosion of certain metal parts when high levels of ethanol are present. It has been demonstrated that all vehicles can be run on E10 (10% ethanol, 90% gasoline) with no adverse consequences.

Taken together, these limiting factors create what is commonly referred to as the “blend wall” or the volume of renewable fuel that can be reasonably absorbed into the petroleum-based fuel supply (currently set at approximately 10%). The blend wall would have been felt especially strong in 2014 as 2013 was a record year for corn production and farmers planted next year’s crop based on volume assumptions prior to the announcement of the potential RFS2 revision. The 2014 proposed changes to the RFS2 recognize more realistic assumptions about U.S. gasoline consumption: revising 2014 downward from approximately 154 billion gallons to approximately 131 billion gallons. The proposed changes to the RFS2 will yield a gasoline blend rate closer to the 10% target favored by the industry (from approximately 11.8% to approximately 10.6%).

Also included in the RFS2 revisions is a significant reduction in “set asides” for advanced and cellulosic biofuels. While this revision appears to be a setback for the industry, it is largely a recognition of actual production. While corn-based ethanol has thrived, advanced biofuel production has not met mandated volumes. The cellulosic targets have been consistently waived down over the past several years, in effect the same as reducing the target.

There are many factors in play that enhance the attractiveness and viability of biofuels:

  • New cellulosic biofuels facilities – Seven new production facilities are expected to come online in 2014 and produce between 8 and 30 million gallons. This particular type of biofuel is particularly sought after as it has the highest lifecycle greenhouse gas reduction (60%) in the renewable fuel family.
  • Changes in blending standards – There is currently research underway to study the effects of higher blends of ethanol in non-flex-fuel gas engines (E10 to E15 or 10% ethanol mix to 15% ethanol mix). If proven and accepted by automakers and consumers (and if an EPA wavier for pre-2001 vehicles was implemented), this would be a substantial victory for the biofuel industry. For example, if E15 was accepted as the blend standard, the proposed RFS2 mandate would increase from 15.21 billion gallons and approximate ceiling of 22.8 billion gallons, an approximate 50% increase in volume. While a change in the blend standard would require significant infrastructure costs (e.g., pump and storage tank modifications) other countries such as Brazil have been able to manage the transition effectively.






Additional Contributing Authors: Alex Cerwin, Mary Coppedge

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