Biofuel groups take aim at EPA methods in U.S. blending quota cuts

NEW YORK Thu May 15, 2014 1:41pm EDT

NEW YORK May 15 (Reuters) - Nearly three dozen advanced biofuel companies including DuPont and Spain's Abengoa appealed to President Barack Obama on Thursday to rethink the methodology for setting U.S. biofuel blending quotas.

In their letter, a copy of which was seen by Reuters, 33 suppliers of "advanced" biofuels such as lower-carbon ethanol made from corn stovers, said the proposed cuts "are too aggressive" and said the final rule should increase the volumes.

The groups also urged the administration to rethink the way it arrives at the figures. This added a new wrinkle in the months-long debate over the biofuel rules, as the agricultural industry makes a last-ditch effort to fight the proposed cuts.

Within weeks, the Environmental Protection Agency is expected to make a final decision on 2014 quotas for blending biofuels into U.S. gasoline and diesel fuel. In November, the EPA proposed reducing the quotas. That unprecedented decision was a historic win for oil refiners, who oppose the quotas, but a blow for farm and biofuel groups.

At 15.21 billion gallons, the EPA's 2014 proposal is nearly 3 billion gallons below the 18.15 billion required under the Renewable Fuel Standard (RFS), a 2007 law mandating steadily growing use of biofuels like advanced and corn-based ethanol.

The EPA is widely expected to make some changes in its final rule, including an upward revision in quotas.

While much attention has been paid to the where the quotas may ultimately fall, the advanced biofuel industry urged the administration to focus attention on how the EPA arrives at them.

"It is not clear that the Administration yet recognizes that its proposal changes how the RFS works at a fundamental level, and that this methodological shift would effectively undercut advanced biofuel projects under development," the companies wrote.

In proposing the cuts, the EPA used a provision of the Renewable Fuel Standard which allows it to adjust the blending requirements in case of "inadequate domestic supply".

But the law does not specify what "inadequate domestic supply" means, an ambiguity which allowed the EPA to view supply constraints in terms of distribution and consumption.

Gasoline is limited to 10 percent ethanol content for cars manufactured before 2001, and the vast majority of gasoline stations do not supply higher blends - a limitation called the "blend wall" which the EPA explicitly cited in its proposed rule.

To address the issue, the EPA scaled down the mandates such that ethanol would not comprise more than 10 percent of gasoline demand, and then added its estimates of advanced biofuel production to come up with the overall biofuel quota.

The advanced biofuel producers warned that this method gives the oil industry the upper hand in deciding how much biofuel is ultimately consumed.

"This interpretation has the practical effect of handing the future trajectory of the RFS to the oil industry by virtue of the fact that the oil industry itself controls the distribution of fuel to consumers," the firms wrote. (Reporting by Cezary Podkul; Editing by David Gregorio)

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