An amendment to the Keystone XL Bill aims to eliminate the corn ethanol mandate in the Renewable Fuel Standard.

On January 16, 2015, Sens. Dianne Feinstein (D-CA) and Pat Toomey (R-PA) introduced the “Corn Ethanol Mandate Elimination Act of 2015” as an amendment to the Keystone XL Pipeline Act (S1) introduced on January 6.  The amendment would abolish the corn ethanol mandate in the Renewable Fuel Standard (RFS), which requires blending increasing volumes of renewable fuels into the U.S. transportation fuel supply.  The sponsors cited two potential issues associated with continuing the mandate of annually increasing corn ethanol consumption:

• Corn consumption – approximately 40 percent of U.S. corn is used in ethanol production, artificially inflating food and animal feed prices and adversely impacting the environment
• Blend Wall – the point where blending targets exceed the 10 percent limit at which ethanol can be safely blended into the fuel supply, as the vast majority of U.S. vehicles are not equipped for higher ethanol blend gasoline

The previous version of the measure – S.1807 introduced in December 2013 by Sen. Feinstein – aimed to amend the Clean Air Act to eliminate the RFS volumetric standards applicable to corn ethanol.  It intended to solve potential issues by removing the top-line mandate for renewable fuels without altering the advanced biofuels mandates.  It noted that elimination of the corn ethanol mandate would not deter ethanol blending with transportation fuel as ethanol is the preferred octane booster to increase gasoline efficiency, providing economic benefits.  The action also intended to eliminate the pressure on corn prices, enabling the corn ethanol industry to directly compete with oil, based on market factors rather than mandates.  The bill stalled in the Senate Committee on Environment and Public Works.

Ethanol prices have historically averaged below gasoline prices on a volumetric (dollars per gallon) basis, however this trend is reversed on an energy content (dollars per British thermal unit [Btu]) basis, as ethanol contains about ⅔ the energy content of gasoline.  With crude oil and gasoline prices declining over the previous seven months, ethanol futures prices have averaged higher than gasoline, further separating the two commodities on an dollars per Btu basis.

The RFS volumes – defined by the 2007 Energy Independence and Security Act (EISA) – are set to increase from nine billion gallons in 2008 to 36 billion gallons by 2022.  In recognition of the challenges posed by cellulosic biofuel supply and 10 percent ethanol limit — the “blend wall” — acceptable for much of the existing vehicles and infrastructure, the Environmental Protection Agency (EPA) has waived or reduced annual cellulosic biofuel requirements in previous years.  In its 2014 RFS proposal, the EPA reduced proposed standards from statutory levels for the first time.  In November 2014, the EPA issued a notice of delay in finalizing the 2014 RFS requirements – citing delays in evaluating comments elicited by the proposed standards – and extended the compliance deadlines for 2013 RFS requirements to 2015.  Whether or not the RFS is repealed, similar amounts of corn ethanol would likely be used in the national gasoline mix over the next few years.  The blend wall continues to be a barrier to ethanol blend increases, as the vast majority of domestic transportation vehicles and infrastructure are not equipped for higher ethanol blends.

The ethanol industry has pushed back against the measure.  The Renewable Fuels Association denounced the argument that the ethanol mandate drives up commodity prices, and other groups like Growth Energy stressed the success of the policy over the last 40 years and the importance of “homegrown renewable fuels.”  According to Senators supportive of the RFS, such as Sen. John Thune (R-SD), the amendment is not expected to gain traction in the Senate due to its importance to production agriculture, the economy, and lessening dependence on foreign sources of energy.

The measure to repeal RFS corn ethanol mandate is among over 50 introduced amendments to the Senate Keystone XL Pipeline bill, which aims to approve TransCanada Corporation’s May 2012 application to construct and operate the pipeline and its cross-border facilities.  A companion version of the bill passed the house on January 9, marking the 10th time the House has voted to approve a Keystone XL bill.  President Obama has vowed to veto the bill, continuously citing its circumvention of the State Department approval process.  On January 19, the State Department notified eight federal agencies to complete their project assessments by February 2, the final step before Secretary of State John Kerry’s final review.

Originally published by EnerKnol.

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