U.S. may adjust 2014 corn ethanol target after outcry: sources

WASHINGTON Fri May 23, 2014 7:31am EDT

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WASHINGTON (Reuters) - The Obama administration is likely to partly backtrack on proposed steep cuts to renewable fuel targets for 2014 when it finalizes a rule due out in June, industry sources said.

Biofuel groups expect the Environmental Protection Agency to send the final proposed targets to the White House as soon as Friday.

The EPA shocked biofuel supporters in November with a draft rule that slashed federal requirements for biofuel use in gasoline and diesel. The agency argued that U.S. energy markets could not absorb the levels of renewable fuels that would be required by a 2007 law.

Since then, though, rising projections for gasoline consumption give the agency leeway to raise its corn ethanol target from November's proposal of about 13 billion gallons to about 13.6 billion, a biofuel industry source said.

The more gasoline consumed, the more ethanol that can be absorbed before hitting the "blend wall," the point at which the law would require more ethanol to be used than the 10 percent blend found at most U.S. gas stations.

The rumored adjustment would still leave the corn ethanol target for 2014 far below the 14.4 billion gallons called for by law, and will likely enrage oil companies who lobbied hard for cuts to the targets.

The industry source said administration officials have told stakeholders that "no one is going to be happy" regarding the final rule.

The Renewable Fuel Standard requires increasing amounts of various types of biofuels to be blended into U.S. gasoline and diesel supplies each year through 2022.

Citing the looming blend wall, the EPA issued a proposal last year to cut the overall biofuel use target from 18.15 billion gallons to 15.21 billion gallons, the first overall cut in the program's history.

Refiners said the reductions were necessary to prevent crippling compliance costs for their industry and possible fuel shortages.

Tim Cheung, an energy analyst for ClearView Energy, also predicted an ethanol requirement of 13.6 billion gallons. He noted the targets could be raised higher if EPA estimates there will be more consumption of the 85 percent ethanol blend, known as E-85, used in flex-fuel vehicles. An estimated 10.6 million such vehicles are now on U.S. roads.

Biodiesel producers said Wednesday the administration has hinted that it plans to leave the biodiesel target at the proposed 1.28 billion gallons, while slightly raising the overall target for advanced biofuels from 2.2 billion gallons.

"This decision would have lasting, damaging consequences for the jobs and economic activity supported by the U.S. biodiesel industry, while undermining your efforts to boost U.S. energy security through clean, domestic energy production," Joe Jobe, chief executive of the National Biodiesel Board, said in a letter to President Barack Obama.

Jobe said raising the advanced biofuel target, without increasing the biodiesel requirement, would merely encourage large amounts of imports of Brazilian sugarcane ethanol.

(Reporting by Ayesha Rascoe, editing by Ros Krasny and Andrew Hay)

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