Lawsuits likely as EPA declares US ethanol blend wall a "reality"
The EPA has ruled that gasoline blended with as much as 15 percent ethanol (E15) is safe for use in cars made after the 2001 model year.
But most car warranties only cover use of up to 10 percent ethanol, or E10. And most service stations don't sell anything more than E10 due to a lack of infrastructure to distribute higher blends or concerns over liability if motorists use the wrong pump.
'Inadequate Domestic Supply'
The mechanism for the EPA's proposed rollback is an escape hatch called a "general waiver" that Congress built into the 2007 law. This can be used to reduce the volumes in two cases: if enforcing the law were to cause economic hardship; or if it were simply not feasible due to "inadequate domestic supply".
The EPA has set a high bar for the economic hardship scenario. Last year, the worst drought in 50 years prompted a waiver petition from several state governors and food producers concerned about the soaring price of corn, the main ingredient for domestic ethanol production. The EPA denied the request.
This year, with the blend wall concerns forcing a jump of almost 2,800 percent in the cost of credits used to enforce the ethanol mandate, the agency itself is proposing for the first time to use a waiver, citing a lack of usable fuel.
Ethanol supply is certainly not the problem. Bouncing back from last year's drought, the corn industry is looking at a record crop this year. And production of other biofuels, such as biodiesel - a kind of diesel that can be made from recycled cooking oil - is continuing at a healthy pace, EPA data shows.
Instead, the agency appears to be viewing the blend wall as a factor: "We interpret the term 'inadequate domestic supply' as it is used under the general waiver authority to include consideration of factors that affect consumption of renewable fuel," the agency wrote in the proposed rules.
"It's a very loose interpretation of the criteria," said Dave Juday, a commodity market analyst in Washington D.C. "I would not be surprised if it was challenged."
Regardless, according to an Aug. 26 draft proposal seen by Reuters, the waiver has enabled the EPA to cut the amount of corn-based ethanol that would be required in 2014 to 13 billion gallons.
That is about 6 percent less than this year and well short of the 14.4 billion gallons required under the 2007 law, but it is in line with a waiver request from two oil groups to cap the ethanol volume at 9.7 percent, about 12.88 billion gallons.
An EPA spokeswoman was not able to comment on the proposal or confirm the authenticity of the document.
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