It is not an understatement to say that the EPA's proposed rulemaking for 2014 is highly controversial. At the heart of the controversy is the EPA's argument that it has the statutory authority to write down the total mandate by more than the write down in the cellulosic mandate, which effectively implies a write down in the mandate for corn-based ethanol. The EPA argues that its authority in this regard is based on the waiver provision in the RFS statutes pertaining to "inadequate domestic supply." It is asserted by the EPA that "supply" in this context encompasses not only the production of biofuels but also the ability to distribute, blend, dispense, and consume biofuels. A thorough analysis of the legal issues surrounding the RFS waiver authority of the EPA can be found in theNovember 6, 2013 farmdoc daily post by Jonathan Coppess.
Note that the EPA will receive public comment on the proposed volume requirements and announce final rule making after those are evaluated. In addition to the specific volumes proposed as shown in Table 1, the EPA also provided ranges for the cellulosic, advanced, and total mandates that may be considered for final rulemaking. If the proposed volume requirements in Table 1 stand as the final EPA rules for 2014, we expect a legal challenge to ensue.
In this section we trace through the likely implications of the EPA rulemaking as announced on November 15 in the same manner that we analyzed alternative implementation options in our September 5 and earlier posts. Recognizing that the proposed rules could be altered by the EPA or as the result of legal challenge, we also analyze the likely implications of writing down the 2014 advanced volume to 2.2 billion gallons and the total volume requirement to 16.6 billion gallons. This alternative would leave the implied renewable volume requirement at the statutory level of 14.4 billion gallons. The analysis is extended to 2015 under the assumptions outlined below. In addition, the alternative of writing down only the advanced mandate is evaluated under two scenarios. The first assumes that the gap between the implied renewable mandate and the E10 blend wall is satisfied mostly with biomass-based biodiesel and the second assumes the gap is filled mostly with E85. This parallels the compliance scenarios we analyzed in our September 5 post. In some of our earlier work we assumed that the gap between the implied renewable mandate and the E10 blend wall would be largely filled by biodiesel due to logistical and infrastructure limitations associated with increasing E85 deployment. Recent analysis shows that market incentives may allow more rapid E85 expansion during the next two years (see our own analysis here, analysis by Seth Meyer, Rob Johansson, and Nick Paulson here, and analysis conducted at Iowa State University by Bruce Babcock and co-authors here andhere). The two compliance pathways are chosen to illustrate the range of possible compliance scenarios to fill the gap between the renewable mandate and the E10 blend wall. In actuality, there are multiple combinations of biodiesel and E85 that could fill the gap.
Some key assumptions for the analysis include: a) ethanol exports total 0.5 billion gallons in 2013, 2014, and 2015; b) imports of Brazilian ethanol total 0.5 billion gallons in 2013 and 0.1 billion gallons in 2014 and 2015; c) the E10 blend wall declines from 13 billion gallons in 2013 to 12.94 billion gallons in 2014 and 12.87 billion gallons in 2015 due to declining domestic motor fuel consumption; d) maximum domestic ethanol production capacity is 15.2 billion gallons per year; e) maximum domestic biodiesel production capacity is 3.6 billion gallons per year; f) no B5 blend wall restrictions on domestic biodiesel use; g) the biodiesel mandate is 1.28 billion gallons each year; h) the cellulosic mandate increases to 0.068 billion gallons in 2015; i) the advanced mandate for all scenarios in 2015 is 2.57 billion gallons, reflecting the maximum write down of the advanced mandate given the cellulosic mandate and projected cellulosic production; j) the renewable mandate is fixed at 13.01 billion gallons in 2015 under the advanced and renewable write down alternative; k) the renewable mandate is set at the statutory levels of 14.4 and 15 billion gallons in 2014 and 2015, respectively, under the advanced only write down alternative; l) blending of undifferentiated advanced domestic biofuels other than biomass-based biodiesel totals 0.1 billion gallons in 2013, 0.15 billion gallons in 2014, and 0.20 billion gallons in 2015; m) net trade of biodiesel is zero; n) the biodiesel tax credit is not reinstated for 2014 and 2015; and o) the stock of RINs credits for the D4, D5, and D6 categories total 2.5 billion gallons at the beginning of 2013, and the total stock of credits from all three categories, if needed and available, is applied to the renewable mandate.