Ethanol blow

Obama curbs ethanol in blow to corn growers

By Alex Guillén

The Obama administration delivered a blow to the corn industry on Monday, easing the amount of ethanol the nation must consume below the levels Congress had set nearly a decade ago — and potentially laying a political stumbling block for Hillary Clinton in Iowa.

The ethanol pullback comes as a slump in gasoline consumption and a domestic energy boom have lessened the fears of dependence on Mideast oil that inspired lawmakers to create the mandate during the George W. Bush administration. But the mandate is still popular in Iowa, home of the nation's first presidential caucus, where corn and ethanol producers have warned that they’ll view any weakening of the program as a cave-in to Big Oil.

That creates a political box for all the presidential candidates, but perhaps most of all for Clinton, who has already had to distance herself from President Barack Obama’s Arctic drilling policies and long indecision on the Keystone XL pipeline. She has offered few specifics about her opinions on the ethanol requirement, aside from calling earlier this year for the administration to put it “back on track.” And the program is increasingly unpopular with green groups that make up a powerful part of the national Democratic base.

The mandate that the EPA set on Monday calls for mixing 18.11 billion gallons of biofuels into the nation’s fuel market next year. That figure, which includes corn ethanol, biodiesel and next-generation "cellulosic" ethanol, is well below the 22.3 billion gallons required under a 2007 law.

The EPA put the target for traditional, corn-based ethanol at 14.5 billion. That's 500 million gallons below its target under the law, which the corn lobby had defended and oil interests attacked in a massive advertising and lobbying blitz.

Clinton and fellow Democratic presidential candidates Bernie Sanders and Martin O’Malley have all called for a strong EPA Renewable Fuels Standard, particularly for more support for advanced biofuels, as have Republicans Donald Trump, Mike Huckabee and Chris Christie. But Ben Carson, Ted Cruz and Rand Paul have attacked the mandate as a threat to free markets, while Marco Rubio, Jeb Bush, Carly Fiorina and John Kasich have been harder to pin down on the issue. Rubio just last week said that he would not have voted for the program, but that he doesn’t believe the policy should be repealed now that farmers and fuel producers have made investments based on it.

The National Corn Growers Association took the news diplomatically, with President Chip Bowling saying in a statement that he was "pleased" EPA had released a number for the ethanol mandate that was higher than it had proposed in May, although "it is unfortunate that Big Oil’s campaign of misinformation continues to carry weight in the court of public opinion, and in this decision." The corn group is evaluating its options, he said, a hint it planned a lawsuit.

Other groups were more blunt. Brent Erickson of the Biotechnology Industry Organization slammed it as "a severe blow to American consumers and the biofuels industry." National Farmers Union President Roger Johnson said the mandate "exacerbates the serious damage already done to the renewable fuels industry and America’s family farmers."

Dave Banks, executive vice president of the anti-RFS group American Council for Capital Formation, said it was pleased EPA "finally conceded to reality and came in with a number below the artificially inflated congressional targets, which haven’t been defensible for years."

The administration, which also issued its long-delayed ethanol mandates for 2014 and 2015 on Monday, defended its veering away from Congress' targets by citing market constraints that it says have essentially capped how much ethanol can be accommodated by the nation’s cars and trucks. At the same time, it argued that ethanol can ramp up over time back to where Congress wanted it.

"We’ve recognized that technology for advanced fuels, made from cellulosic feedstocks … have not developed as fast as Congress anticipated," acting EPA air chief Janet McCabe told reporters on a conference call. The mandates will "provide for ambitious, achievable growth, especially in advanced fuels that maximize carbon emission reductions compared to gasoline," she added.

The corn and oil industries have skirmished for years over whether ethanol has hit a ceiling and whether biofuels are really better for the planet than oil is. Critics in the oil industry say that higher-blend biofuels can damage many vehicles, are less energy efficient and drive up food costs by sucking up 40 percent of the U.S. corn

Environmental groups have also grown disenchanted with the program, which has generated only modest quantities of cellulosic, non-food-based sources of fuel despite high hopes early in the last decade. Instead, greens blame the mandate for promoting fertilizer use and turning unfarmed lands into corn fields.

Despite the controversy, Congress is not expected to take action to change the RFS anytime soon. There is bipartisan support for measures that would reform the program, particularly a measure from Sens. Pat Toomey (R-Pa.) and Dianne Feinstein (D-Calif.) that would drop the ethanol requirement while keeping other biofuel mandates in place.

But a bipartisan chunk of Congress is dead set against any changes, and it has enough power to prevent any reform effort from getting very far off the ground.

Instead, the future of the ethanol mandate will play out largely in the White House and the courts.

The oil industry, with backup from drivers’ group AAA, argues that ethanol has hit a “blend wall” at about 10 percent of the U.S. market, and no more room exists for growth based on current gasoline consumption levels. But ethanol advocates say the oil industry is simply defending its market share by putting up roadblocks for consumers to higher ethanol-gasoline blends.

Citing that issue, EPA is relying on a part of the law that allows it to cut the ethanol mandate in case of an “inadequate domestic supply.” Ethanol groups argue that the provision was meant to protect against a shortage in U.S. biofuels production — not a slowdown in gasoline consumption that constricts how much ethanol can be sold.

For once, the oil industry is ready to defend EPA in court, but it remains unclear whether a judge will agree with the agency’s interpretation.

“That’s the $50 question,” said Stephen Brown, vice president for federal government affairs at the refiner Tesoro.

“Federal judges are increasingly unhappy with how the statute is constructed and how EPA is performing under it in terms of meeting its statutory obligations,” he said.

Whether EPA can continue to use such a waiver in the future will be decided in the courts, but the broader RFS faces other challenges in the meantime.

This year’s rule sets the stage for EPA to potentially set new annual biofuels targets, a sort of fail-safe that Congress built into the mandate in case the targets specified by lawmakers proved to be drastically off course — as has been the case with cellulosic biofuels, whose production has lagged far behind expectations.

If EPA is forced to waive the requirements significantly, the law gives the agency the ability to set new targets through 2022, the RFS’ end date. In theory, setting new targets would provide certainty for both biofuels and oil producers.

It remains unclear whether EPA will set new targets in the future for corn ethanol. Under the 2007 law, ethanol was supposed to top off at 15 billion gallons annually by this year, allowing the more advanced biofuels to continue to grow. McCabe told lawmakers this summer that setting new targets is a “significant undertaking” because the agency has to consider every year through 2022.

The environmental implications of the mandate are also likely to receive closer scrutiny in coming years.

Environmentalists largely disregard the program in favor of initiatives with more clear-cut climate benefits, and some, like the Environmental Working Group, actively argue against it. EPA’s inspector general recently began an inquiry into whether the agency has proven that the mandate is curbing greenhouse gas emissions.

Ethanol is ready and willing to defend its green profile, said Tom Buis, CEO of the ethanol group Growth Energy.

“You want to have a debate and comparison between us and oil and the over 10,000 oil spills every year, the biggest environmental and ecological disaster in our country’s history in the Gulf of Mexico, all the associated problems with fracking and tar sands oil and everything else?" he said.

"We’ll gladly have that debate.”