U.S. ethanol production to rise as EPA sets share

WASHINGTON Mon Nov 29, 2010 6:00pm EST

WASHINGTON (Reuters) - Ethanol sales in the United States are expected to rise to 13.95 billion gallons (54.27 billion liters) in 2011 from 12.95 billion gallons this year, the Environmental Protection Agency said on Monday.

The agency, in its annual setting of the renewable fuel standard, said ethanol and other renewable fuels must account for at least 8.01 percent of the motor fuels sold in 2011 at U.S. service stations to comply with a federal mandate.

In July, the EPA proposed a target of 7.95 percent for 2011. However, because gasoline and diesel sales are not expected to be as strong next year as the EPA had estimated, renewable fuels will have to account for a bigger share.

The EPA sets the renewable fuel standard every year as required by Congress, based on gasoline and diesel demand projections from the U.S. Energy Department.

Congress requires U.S. annual ethanol production to gradually increase to 36 billion gallons by 2022. Lawmakers pushed for more ethanol to stretch available U.S. gasoline supplies and reduce petroleum imports.

More ethanol use, which in the U.S. is made mostly from corn, will benefit farmers. Nearly 40 percent of the U.S. corn crop is used to make ethanol. It will also benefit ethanol producers by soaking up surplus supplies.

Ethanol consumption could be even higher than forecast next year if EPA clears the way for gasoline blended with up to 15 percent ethanol to be used in older vehicles. The current limit is 10 percent.

The agency is expected to make that decision in January.

Next year's renewable fuel standard will include 12.6 billion gallons of ethanol made from corn and the remaining 1.35 billion gallons will consist of biodiesel, advanced biofuels and cellulosic ethanol.

EPA agency slashed the amount of cellulosic ethanol, which is made from switchgrass and other agricultural waste, that must be produced next year.

The EPA said five plants were likely to produce 6.6 million gallons of fuel from cellulose in 2011, far less than the original target of 250 million gallons. EPA said its target still was large enough to encourage higher cellulosic output.

"By reducing the standard for cellulosic biofuels, EPA is accurately reflecting the difficulties cellulosic biofuel technologies have encountered in obtaining the capital needed to fully commercialize," the Renewable Fuels Association trade group said in a statement.

However, the trade group said EPA needed to keep cellulosic targets ambitious enough to attract investment in the technologies that will make commercial cellulosic ethanol production possible in large volumes.

Four companies -- DuPont Danisco, Fiberight, KL Energy Corp and Range Fuels -- are expected to produce alcohols and KiOR aims to produce some cellulosic diesel fuel in 2011.

Fiberight would be the largest producer at 2.8 million gallons from a plant in Blairstown, Iowa, whose feedstocks include waste cellulose from a paper recycling plant.

The largest U.S. ethanol makers, using corn as a feedstock, are privately owned POET, Archer Daniels Midland and Valero Energy Corp.

(Additional reporting by Ayesha Rascoe; Editing by Lisa Shumaker)

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