The renewable fuel industry is at a crossroads. It has been put into peril by a concept, known as a "blend wall," some observers believe is a fiction created by the oil industry. The very future of the renewable fuel industry hangs in the balance.
The latest blow came on May 29 when the Environmental Protection Agency proposed new annual regulatory requirements for the enforcement of the Renewable Fuel Standard (RFS). Created by Congress in 2005, and enhanced by legislation in 2007, the RFS governs the amount of ethanol that must be blended by refiners each year into the gasoline supply. For the first time since it was conceived a decade ago, the Obama Administration has proposed weakening the RFS -- a blow to the green movement, the biofuels business, and especially the ethanol industry.
The reduced requirements, to be finalized by November 30, are meaningful. "For 2015," The Wall Street Journal reported, "the EPA proposes...16.3 billion gallons, about four billion less than what the law requires. The EPA is proposing a level of 17.4 billion gallons for 2016, compared with the statute level of 22.5 billion gallons." The original law required the petroleum industry to use 36 billion gallons of biofuel by 2022, only seven years from now. With these weakened standards, that goal will be all but impossible to meet.
The announcement also included requirements for 2014. That's because the EPA never finalized proposed RFS guidelines it issued in November 2013. For more than a year and a half, the Obama Administration has offered no direction on this vital issue that affects the energy industry. Not surprisingly, the agency set the requirement for 2014 at the amount that was actually blended that year -- 15.93 billion gallons.
The EPA defended its actions. Janet McCabe, an assistant administrator, said of the decision to weaken standards: "We're balancing two dynamics: Congress' clear intent to increase renewable fuels over time to address climate change and increase energy security and the real-world circumstances that have slowed progress toward those goals."
Industry reaction was predictable. Calling the move a "gift to Big Oil," Chip Bowling of the National Corn Growers Association told Politico the decision "comes at the expense of family farmers, American consumers, and the air we breathe." But, in the same article, Jack Gerard of the American Petroleum Institute declared: "Today's announcement makes abundantly clear that the only solution is for Congress to repeal or significantly reform the RFS."
That, simply put, is the goal of Big Oil: to kill the RFS, a concept the industry has fought from the start. The main argument Big Oil uses against the RFS says there is a so-called "blend wall," a maximum percentage of ethanol that can be blended with gasoline. If that is true, the RFS, which called for larger and larger amounts of ethanol to be blended with the gasoline supply each year, was flawed from its inception.
In its recent announcement, the EPA seemed to acknowledge the existence of a blend wall, which McCabe defined as "the amount of ethanol that could be used if all gasoline contains 10 percent ethanol." As The New York Times noted: "Most gasoline now contains that percentage, and most vehicles are not designed to handle more." This means that the current blend, known as E10, to indicate a mixture of 90 percent gasoline and 10 percent ethanol, represents the blend wall. No amount of ethanol over ten percent can be used because cars can't "handle" it.
But consider this. From the beginning, cars were meant to run on either gasoline or ethanol. Indeed, Henry Ford designed the original Model T to run on gasoline or ethanol, as in 100 percent ethanol. And today in Brazil cars are powered by fuel blends using up to 27 percent ethanol. The idea that there is some reason why ethanol should be capped at 10 percent has led oil industry critics to charge that the blend wall is a fiction made up by Big Oil to protect its self-interest -- and its profits.
Indeed, as late as May 2012, the Department of Energy was planning on E15, E20, or blends with even higher percentages of ethanol. That month, the department wrote: "The Energy Department testing program was run on standard gasoline, E10, E15, and E20.... The resulting Energy Department data showed no statistically significant loss of vehicle performance (emissions, fuel economy, and maintenance issues) attributable to the use of E15 fuel compared to straight gasoline."
So how has the myth of the blend wall been created? Look at a panel discussion, sponsored by Columbia University's Center on Global Energy Policy (GEP), held recently at the National Press Club in Washington, DC. Predictably, participants friendly to Big Oil were critical of the RFS. Robert McNally, an energy adviser to President George W. Bush who helped craft the concept of the RFS, said: "I think we have to acknowledge that [the RFS] was probably a mistake and we ought to draw it back." Brendan Williams of the American Fuel and Petrochemical Manufacturers offered: "The concern is for 2016 when we will burst through the blend wall.... The RFS ain't cutting it. If the RFS isn't adjusted, it will divorce itself from reality."
Other panelists were also critical. James Stock, a fellow at GEP, wrote in the paper that was the focus of the panel discussion: "[M]any cars are limited to gasoline with at most 10 percent ethanol (the dominant biofuel) -- the so called E10 blend wall -- and in 2013 the amount of ethanol in the U.S. fuel supply reached the E10 plateau. As a result, the RFS, and US biofuels policy more generally, has reached a critical point at which some energy industry leaders and policy makers have called for it to be reformed or even overturned."
Ron Minsk, once a special assistant to President Obama, said: "The EPA is moving past the blend wall.... It will continue to move past the blend wall." Reuters has reported that visitor logs indicate that Minsk, while working at the White House, met with representatives from the Carlyle Group who were lobbying the Obama Administration to weaken the RFS -- a position that was ultimately adopted.
And that's the question. Will the myth of a blend wall destroy the RFS, on which a good portion of the renewable fuel business is built, or will hard facts prevail?