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EPA Still Lacking in Transparency

Earlier this week the Environmental Protection Agency finalized the amount of ethanol that oil refiners will be required to blend into our nation’s fuel supply in 2014:

Because Americans are continuing to drive more fuel-efficient cars, U.S. gasoline consumption is expected to fall this year. At the same time, a 2007 law calls for rising use of ethanol, which makes up about 10% of the U.S. gasoline supply, and other fuels defined as renewable. That means the U.S. is heading toward the “blend wall,” the point at which fuel marketers can’t absorb any more ethanol into the gasoline supply without using higher-percentage ethanol blends that aren’t widely sold.

As a result, on Tuesday the agency said that next year it would take the unprecedented step of seeking to reduce the amount of renewable fuel that the oil industry must use, saying it “does not currently foresee a scenario in which the market could consume enough ethanol.”

“It’s a significant development for the EPA to overtly state that it intends to be flexible,” said Jason Bordoff, director of Columbia University’s Center on Global Energy Policy. Mr. Bordoff has called for the agency to reduce the renewable-fuel requirement, saying the mandate could lead to higher gasoline prices.

Still to be determined is how big the cuts might be and who might suffer the largest hit. Ethanol has long enjoyed backing from lawmakers in Iowa and other Midwestern states, and Sen. Chuck Grassley (R., Iowa) said Tuesday he would fight any effort to substantially overhaul the fuel mandates.

The EPA announcement came as part of the rollout of its 2013 fuel requirements, which mandated use of 16.55 billion gallons of ethanol and other fuels, up more than a billion gallons from the previous year.

The lion’s share of that mandate—about 13.8 billion gallons—is expected to be met with ethanol from Midwestern corn. That would put government-required ethanol consumption at close to 10% of the U.S. gasoline supply. In future years, the effective annual ethanol requirement was supposed to jump above 14 billion gallons and beyond, under the 2007 law.

Ethanol was originally promoted by a bipartisan Congress in order to reduce our reliance on foreign oil imports. However, the arrival of hydraulic fracking and stalling domestic oil demand has made it very difficult to continue blending more and more oil into our fuel supply. Additionally, the environmental benefits of corn ethanol have come into question, and cellulosic ethanol — made from more environmentally sugar — has been much harder to mass produce than initially thought.

Blending ethanol into oil is very costly to oil refiners, who often operate on razor-thin margins. They are effectively being required to dilute their product (gasoline) with a competitor’s product (ethanol) and sell it to the public, losing money from the lost oil.

So, it was interesting to see that the EPA has quietly exempted a refiner from this requirement, though they refuse to say who:

The 89-page rule is dull reading, until you get to page 11. Tucked on that page is one short sentence, which reads: “EPA has approved a single small refinery/small refiner exemption for 2013, so an adjustment has been made to the standards to account for this exemption.” In English: Of the nation’s 143 refineries, one (and only one) lucky player somehow had the pull to win itself a free pass from this government burden. Not only that, the rest of the industry gets to pick up its slack.

An exemption is no small privilege. Congress, in its limited wisdom (and fealty to corn farmers), passed legislation in 2007 requiring that the U.S. use of renewable fuels increase to 36 billion gallons annually by 2022. This year’s EPA quota is 16.5 billion gallons, and the requirements keep ratcheting up even though U.S. gasoline use is falling.

This matters because for refineries to stuff ballooning amounts of ethanol into a static gas pool, they must blend it at levels of more than 10%. Since the nation’s auto makers have declared they will void the warranties of cars using gas with more than 10% ethanol, refineries face lawsuits. Most have instead turned to buying federal renewable “credits” to make up for the ethanol they don’t blend.

So who is the lucky dog? Who could make this happen? That’s the best part. The EPA won’t say. The agency not only refused to name the refinery in its rule, but also obscured certain numbers in the document to hide the beneficiary’s identity. An EPA press officer would not give me the name, citing “confidentiality restrictions.”

The agency did send me a 2011 document that shows it granted exemptions at that time to 13 small refineries. But that exemption applied only to 2011 and 2012—and the 13 refineries had been recommended by a public Department of Energy analysis, which laid out reasons for the exemptions. The EPA rule this week said this exemption had been granted under EPA’s authority to evaluate refineries on a “case by case” basis. The press officer said DOE was involved in the evaluation.

What was the actual process? It’s a worthy question, given that the refinery sector is no stranger to politics. As hard times have hit, politicians have become deeply involved in protecting their home-state refineries. Many are unionized, which raises the question of whether Big Labor engaged in an exemption request.

The ethanol program should be scrapped or limited to prevent future hardships. And the EPA should not be charging for ethanol waivers for ethanol that doesn’t exist. In the meantime, the Obama Administration shouldn’t be allowed to exempt it’s cronies from the harmful policies that they support.

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