The Environmental Protection Agency slashed the amount of ethanol that oil refiners must blend into the country’s gasoline supply for the first time Friday after months of intense lobbying by the biofuel and oil industries.
The EPA had increased the amount of ethanol refiners are required to blend under the Renewable Fuels Standard every year since the program was created in 2005.
The oil industry argued it was rapidly approaching a "blend wall," when the ethanol supply would outpace the amount motorists could use, due to the mandate.
Critics also argued the renewable fuels standard distorted markets and raised food prices. The ethanol industry and its allies say the requirement brings greater energy independence to the country and spurs new, greener technology.
The agency raised the requirement to 16.55 billion gallons of ethanol this year. However, the EPA’s new proposal would lower that requirement to 15.2 billion gallons next year, roughly the same as the 2012 standard.
Within the overall mandate, the EPA reduced the amount of advanced biofuels refiners must blend next year from a projected 3.75 billion gallons to 2 billion gallons.
The ethanol industry criticized the decision.
"EPA is proposing to place the nation’s renewable energy policy in the hands of the oil companies," Bob Dinneen, CEO of the Renewable Fuels Association, told Politico. "That would be the death of innovation and evolution in our motor fuel markets, thus increasing consumer costs at the pump and the environmental cost of energy production. This proposal cannot stand."
However, the oil and gas industry said the decision was a long-due recognition of the underlying problems with the mandate.
"With this ruling, even the EPA now recognizes that this program is flawed and fails to take into account existing market realities," AEA President Thomas Pyle said in a statement. "Today's action by the EPA, however, does not take away the need for Congress to act quickly to repeal the law. With this ruling, the ‘blend wall’ may not immediately be hit, but the real problems for consumers have not gone away."
House Energy and Commerce Committee Chairman Rep. Fred Upton (R., Mich.) applauded the decision.
"As our white papers and hearings made clear, the status quo is no longer workable," Upton said in a statement. "While the proposal is not a perfect solution, these targets would alleviate the immediate pressure of a looming blend wall. Yet uncertainty remains for the future."
"EPA is thoughtfully addressing concerns about the RFS," Rep. Henry Waxman (D., Calif.) said in a joint statement with Upton. "As we continue to look at this policy, I encourage EPA to implement the RFS in ways that increase environmental benefits, especially by reducing carbon pollution, both through supporting cellulosic and other low-carbon fuels and by minimizing emissions from indirect effects on land use."
While the EPA’s decision may not be popular with the ethanol industry, the agency’s willingness to bend may mollify Congressmen who want to repeal the mandate entirely.
Still, some fiscal hawks in Congress will not rest until the program is scrapped.
"It is progress for the EPA to finally recognize and attempt to address the ‘blendwall’ by slightly reducing next year’s mandates, but let’s not get ahead of ourselves: the RFS remains a fundamentally flawed program that limps along year after year, wreaking havoc on those required to participate, including the American consumer," Sen. David Vitter said in a statement (R., La.).
The EPA expects to make a final decision on the renewal fuels standard requirements for 2014 by next spring.