EPA sets 2016 blending targets for ethanol and other biofuels

More biofuel will be required to be blended into the nation's fuel supply next year, but the ethanol industry isn't entirely happy about it.

The U.S. Environmental Protection Agency (EPA) on Monday issued final blending requirements under a 2007 renewable fuels law, ordering distributors to mix 8 billion gallons of ethanol, biodiesel and other advanced biofuels into the nation's fuel supply next year.

For the first time, the overall U.S. mandate for corn-based ethanol — about 14.5 billion gallons — will exceed 10 percent of the nation's expected gasoline use. That's intended to spur expansion of higher ethanol blends, such as 15 percent ethanol, or E15, which is now sold at just 36 Minnesota stations.

Almost all regular gasoline in the nation is a 10 percent ethanol blend, and that won't change.

For the ethanol industry, this overall market share has been called the "blend wall" — a barrier to selling more biofuel.

"We have seen a break in the blend wall," said Jeff Broin, chief executive of Poet Inc., the nation's second-largest ethanol producer with four plants in Minnesota.

Broin, who also is chairman of Growth Energy, an ethanol trade group, said the EPA's decision "should move renewable fuels forward." On a conference call, Broin said about 5,000 U.S. fuel stations are on track to install equipment to dispense E15, and he expects the higher-ethanol blend to sell at a discount to regular gasoline. In Minnesota, E15 typically sells for about 10 cents less than unleaded regular.

The 2016 corn-ethanol level is below the 15 billion gallons envisioned in the 2007 law — and is about 1 billion gallons less than the annual capacity of the nation's 212 ethanol plants.

Other ethanol industry leaders and supporters criticized the EPA's decision. The Minnesota Corn Growers called it a "step backward" and the Minnesota Biofuels Association, a state trade group, called it "capitulation to the oil industry" — echoing similar comments from the Renewable Fuels Association, an ethanol trade group based in Washington.

Sen. Al Franken, D-Minn., said the EPA biofuel targets are too low, even though they are higher than the agency proposed earlier this year. "[W]hile I'm glad they raised levels from what was proposed, these final numbers just don't cut it — especially for ethanol," Franken said in a statement.

Oil industry groups, which have fought expanding market share of ethanol, also were critical. "This decision is hard to view as anything other than an attempt by EPA to placate the biofuels lobby," said Chet Thompson, president of the American Fuel & Petrochemical Manufacturers.

Minnesota has 21 corn-ethanol plants, although two are shifting production to other corn-based biochemicals or fuel. Tim Rudnicki, executive director of the Minnesota Biofuels Association, said it's too early to say what effect the EPA decision will have on the state's ethanol industry, but "It certainly seems like a negative to me," he said.

Aside from corn-ethanol, the EPA also set higher blending levels for biodiesel, or diesel fuel made from plants, and advanced biofuels. Janet McCabe, acting assistant administrator for EPA's Office of Air and Radiation, said the rule increases the advanced biofuel blending requirement by 35 percent, but recognizes that cellulosic, ethanol technology hasn't developed as quickly as envisioned by the 2007 law. Cellulosic ethanol has a lower carbon footprint than the corn-based fuel.

Three cellulosic ethanol plants have opened in the past 14 months, including two in Iowa that process non-kernel parts of corn usually left on fields. A third plant in Kansas is owned by Spain-based Abengoa, which has begun insolvency proceedings, said Scott Chabina, a director at New York-based Carl Marks Advisory Group who tracks the industry.

Chabina said the EPA cellulosic ethanol targets could help spur investment in cellulosic ethanol, but that it won't be easy.

David Shaffer • 612-673-7090 • @ShafferStrib