A major U.S. oil and gas trade group asked the Obama administration on Tuesday to ease the federal biofuel mandate for 2014, citing the potential for serious economic harm if ethanol targets exceed 10 percent of gasoline demand.
The American Petroleum Institute's waiver request calls on the Environmental Protection Agency to lower overall ethanol targets next year to prevent a collision with the so-called blend wall.
"The (Renewable Fuel Standard) is broken beyond repair, and we are calling on the EPA to use its waiver authority to provide a stopgap measure for this unworkable mandate," API downstream group director Bob Greco said in a statement.
This is the first official waiver request that API has submitted on behalf of refiners, who must comply with the mandate.
Prior petitions from states and other groups to lower the biofuel mandate have been rejected, but the EPA has signaled it plans to modify the 2014 targets.
The API and other industry groups have urged Congress to completely repeal the Renewable Fuel Standard, which requires increasing amounts of biofuel to be blended into U.S. fuel supplies, warning that the targets will lead to higher fuel prices and possible shortages.
API launched a media campaign earlier this year aimed at defeating the mandate.
Tim Cheung, energy analyst for ClearView Energy Partners, said the EPA's pledge to address the blend wall next year does not ensure that this waiver will succeed.
"EPA could eventually propose to lower targets for 2014, but that does not mean it has to grant this particular waiver," Cheung said.
The biofuel mandate is set to rise to 18.15 billion gallons in 2014, from the 16.55 billion this year. The EPA has said the mandate puts the country on track in 2014 to hit the blend wall.
Stagnant U.S. gasoline demand has failed to keep up with the rising biofuel targets laid out in the 2007 renewable fuel law, meaning that to comply with the mandate next year refiners would have to blend ethanol into gasoline at a higher level than 10 percent per gallon, which is currently the dominant blend in the United States.
This dilemma is referred to as the blend wall.
While the EPA has approved blends of up to 15 percent ethanol for use in newer vehicles, retail gas stations have been reluctant to sell the higher blend, citing concerns that the 15 percent blend, or E15, could harm engines.
With infrastructure currently lacking to accommodate widespread sale of E15, refiners have said they may be forced to sell less gasoline or export more refined products to meet the law's requirements.
The API said the need for a waiver is supported by a study it commissioned by NERA Economic Consulting last year that found RFS requirements could raise the cost of diesel 300 percent and of gasoline 30 percent by 2015, causing substantial economic damage.
Biofuel groups have blasted the move from API as another attempt to stifle competition with petroleum fuels.
The National Biodiesel Board called the NERA study "inaccurate propaganda," saying it was based on "wildly exaggerated assumptions that have already been proven wrong as biodiesel has met or exceeded RFS targets for three years."
The EPA pledged last week to adjust the 2014 mandate to address the fuel crunch. After finalizing the 2013 targets more than eight months after the legal deadline, the EPA has said it plans to propose preliminary 2014 targets some time in September.
"That's just not sufficient for us," Greco told Reuters. "We need the certainty going forward."
Greco said the API hopes the waiver request will force the agency to act without delay. Once the waiver request is officially received, the EPA has about 90 days to respond.
The API filed the request in conjunction with the American Fuel & Petrochemical Manufacturers trade group.
Refiners have been squeezed by the rising costs of biofuel credits needed to comply with the mandate. Prices rose to almost $1.50 in late July from a few cents in January before subsiding to less than $1.00 last week.
Several states petitioned the agency to ease the mandate last year in the wake of a historic drought that threatened the corn crop, the raw material for much of the ethanol blended with gasoline. The EPA rejected the petitions, saying they failed to show the mandate would cause severe economic harm.
The EPA also denied a petition to waive the mandate from Texas in 2008.