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EPA Guarantees Market for Ethanol

Written by Brian Hicks
Posted May 3, 2007

Two weeks ago, the U.S. Environmental Protection Agency (EPA) guaranteed the ethanol industry a robust market for its products.

That’s the effect of the new Renewable Fuel Standard (RFS) program they announced, which was mandated by the Energy Policy Act of 2005. The program was designed to double the production of domestic biofuels by 2012.

Although some of the requirement will be met by biodiesel, the majority will come from ethanol blended into gasoline.

The program allows the oil industry (major refiners, blenders and importers) to use a flexible credit trading system to achieve mandated minimum amounts of renewable fuels between now and 2012, so they can blend ethanol where it makes the most economic sense for them.

The required minimums are a percentage of the total volume of what fuel a company produces or imports, starting at 4.7 billion gallons (about 4%) in 2007 and increasing gradually each year up to 7.5 billion gallons in 2012.

So far, the industry is already ahead of the targets. The RFS went into effect in January 2006 under a default rule, and in 2006 we produced 4.86 billion gallons of ethanol, exceeding the 2007 target.

Additional ethanol capacity now under construction will continue to push production above the RFS requirement.

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Currently, the nation has 115 ethanol bio-refineries with a 5.7 billion gallon annual production capacity. But there are another 79 ethanol bio-refineries and seven plant expansions currently under construction, which will add another 6 billion gallons of capacity.

Altogether, that makes more than 150% of the RFS standard for 2012!

So if the industry is (once again) far outpacing the EPA, why is the EPA’s ethanol program significant?

Because the mandate means a guaranteed market. Even if the price of oil drops and makes ethanol less competitive. Even if the price of corn goes sky-high. Even if the price of ethanol drops--as it already has, to $1.92 per gallon, from the $2.49 it fetched at the end of 2006.

The benefits of the program to the public are pretty straightforward: By 2012, it should displace nearly 4 billion gallons of petroleum and avoid 13.1 million metric tons of greenhouse gas emissions (equivalent to that of 2.3 million cars).

The EPA also cleared another hurdle for the ethanol sector by allowing producers of ethanol for fuel to operate under the same Clean Air Act emissions rules as producers of ethanol for drinking or for industrial purposes. They will no longer have to account for “fugitive emissions” of pollutants--those that do not come directly from the process stacks and vents of the plant.

The new rule will also permit new ethanol facilities to have greater emissions of pollutants (up to 250 tons per year), so long as they are not located in areas known to exceed the EPA’s air quality standards, or in areas where ground-level ozone is a known problem.

Thanks to these new EPA rulings, it’s clear skies ahead for ethanol!

And in related EPA news, on April 24 EPA administrator Stephen Johnson testified before the Senate Environment and Pubic Works Committee on “The Implications of the Supreme Court’s Decision Regarding EPA’s Authorities with Respect to Greenhouse Gases under the Clean Air Act,” which I wrote about a few weeks ago.

At issue was how the EPA would respond to the recent Supreme Court ruling that greenhouse gases are “pollutants” that the EPA is required to regulate.

Johnson asserted that it’s not clear what action the EPA might take, if any, despite the clear intent of the Supreme Court ruling, earning him sharp words from the committee Chairman, Barbara Boxer (D-CA).

EPA also appears to be set to fight California’s request for a waiver that would allow the state to proceed with its own much more restrictive plan to regulate emissions. In return, the state has vowed to sue EPA for the right to implement the plan.

“It is clear that Californians are unified when it comes to taking bold, swift action to reduce global warming pollution. It is long past time for the federal government to respond to the urgent call from the states to address the challenge of global warming,” said Boxer.

Stay tuned to this space for updates and further developments!

Until next time,

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Chris

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