Delayed rules mean uncertainty for ethanol industry

Nov 24, 2014

Bonanza BioEnergy ethanol plant on the east side of Garden City, KS along US Highway 50.
Credit Conestoga Energy Partners; www.conestogaenergy.com/bonanza-bioenergy

The Environmental Protection Agency said last Friday that it won’t release rules for how much ethanol oil refiners have to mix in to our gasoline supply this year.

The ethanol rules, called the Renewable Fuel Standard (RFS), are meant to prop up the U.S. biofuels industry by creating demand for ethanol. Without the rules, both oil companies and the biofuel sector will be left in the dark as to what the demand for ethanol will be.

The RFS is also a big deal for Midwest farmers, as ethanol consumption drives demand for the corn they grow and buttresses corn prices. With corn prices plummeting, robust ethanol demand would help farmers’ bottom lines.

The EPA last year proposed cutting the amount of corn ethanol that oil companies are required to buy, which worried ethanol producers. Oil companies, meanwhile, say the original rules would require them to buy ethanol that they can’t use, because Americans are generally buying less gasoline thanks to the Recession and more fuel efficient cars. The arguments have complicated EPA’s rule-making process.

“The proposal has generated significant comment and controversy, particularly about how volumes should be set in light of lower gasoline consumption than had been forecast,” the EPA said in a statement Friday. (PDF)

At this point, the future of the biofuels industry is anything but clear. The EPA says it will “take action” on the 2014 rules in 2015, leaving some to speculate that the Obama Administration may essentially re-draw the ethanol rules for 2014, 2015 and 2016 in one fell swoop.

Uncertainty in ethanol policy leaves both the biofuels and oil industries in the lurch, said Bruce Babcock, an agricultural economist at Iowa State University.

“What’s really important is that the EPA and the federal government resolve the uncertainty by passing clear rules and clear signals about what future mandates are going to be,” he said.

Critics of the ethanol industry, meanwhile, say if the rules can’t come out on time, maybe Congress should rewrite them.