2014, 2015 & 2016 Targets Are Below The Original Targets

Under the RFS, ethanol consumption in 2014, was originally set at 14.4 billion gallons while the levels for 2015 and 2016 were set at 15 billion gallons for both years. In today's announcement, the EPA has proposed ethanol consumption for 2014, 2015 and 2016 at 13.25 billion gallons, 13.4 billion gallons and 14 billion gallons respectively, well below the original levels stipulated in the RFS. But, as the EPA has pointed out previously, it has no problems going against the law (and defeating its original purpose). In its announcement today, it said the statutory volume targets set by Congress were "intended to be ambitious."

No Big Surprises

There were no surprises with the target proposed for 2014 (13.25 billion gallons) as the agency used the actual volume of ethanol consumed domestically last year. It also wasn't a big surprise that the targets for 2015 and 2016 were below the original RVOs as the EPA has been fixated on the "blend wall," a fictitious concept created and propagated by the oil industry to prevent ethanol consumption from exceeding 10 percent of the total volume of transportation fuel.

It's All About 2016

While today's announcement included targets for 2014, 2015 and 2016, it really was only about 2016 as it was logically too late to set any target for 2015 that wasn't in line with current market conditions. In fact, the target of 13.4 billion gallons for this year represents a minor increase from last year which is in line with expectations of a slight increase in gasoline consumption this year.

Moreover, it has to be emphasized that today's announcement are just targets and that will be finalized by Nov 30 (yes, there's a chance 2015's target will be finalized one month before the year is over).  So, this really isn't about 2014 or 2015. It's all about 2016. And while the target for 2016 falls short of the original RVO, it represents a 600 million gallon increase in ethanol consumption. Expect Big Oil to go crazy.

2016 RVO And USDA Announcement

Indeed, the EPA's target for 2016 seemed a little out of sync in comparison to its targets for 2014 and 2015 which stayed in line with Big Oil's "blend wall." In today's announcement, it said : "Congress set targets that envisioned growth at a pace that far exceeded historical growth rates." Unless there is going to be a dramatic increase in gasoline used next year, it seems as though the EPA has abandoned the "blend wall" in determining the target for 2016.

In fact, one of its key arguments in supporting the "blend wall" theory has been "constraints in the fuel market to accomodate increasing volumes of ethanol." As such, it's clear that the EPA envisions a significant increase in E15 and E85 usage next year. Coincidentally, the USDA today announced it would be investing up to $100 million in a Biofuels Infrastructure Partnership which seeks "to double the number of fuel pumps capable of supplying higher blends of renewable fuels to consumers, such as E15 and E85."

Does the EPA's target for 2016 have anything to do with the USDA's announcement? Is this just a mere coincidence or is the agency working with the USDA to find a way of increasing access to E15 and E85. It's been written on countless occasions that the "blend wall" problem wouldn't arise if E15 became the new regular and as NREL concluded earlier this week, most existing fuel dispensing infrastructure components are compatible with E15.

Perhaps the EPA has finally arrived at the same conclusion and that may be the only thing postive to take out of today's announcement The question then would be why wasn't this approach taken earlier?