Federal ethanol standard comes under new scrutiny

Minnesota produced more than a billion gallons of ethanol last year, making it the fifth largest ethanol maker in the country.

Much of that production was spurred on by a federal requirement known as the Renewable Fuel Standard, which took effect in 2007 but is coming under new scrutiny in Congress.

The issue prompting this reevaluation is known in the ethanol industry as the "blend wall." The Renewable Fuel Standard requires increasing amounts of ethanol to be mixed in with the gasoline supply, currently 10 percent.

But those standards were written in 2007 and no one forecast that Americans were about to start driving less or that their cars were about to become more fuel-efficient.

Refiners are being asked to mix increasing amounts of ethanol into a shrinking pool of gasoline, Purdue University energy economist Wally Tyner said.

"By 2014 or 2015, we literally will not be able to blend as much corn ethanol as the renewable fuel standard requires," Tyner said.

In other words, the industry will hit the blend wall.

One way to continue to meet the standard would be to expand the use of fuels that contain 15 percent or more ethanol. The problem with those blends is that cars made before 2001 and most gasoline engines that power boats, chainsaws and generators cannot use fuels with that much ethanol. And gas stations have been reluctant to install separate pumps for the different kinds of fuels.

That reluctance leads some ethanol advocates to blame the oil industry.

"The blend wall is a creation of the oil companies' own making, said Bob Dinneen, president of the Renewable Fuels Association, an ethanol industry trade group.

No serious legislation to change or undo the Renewable Fuel Standard has yet been introduced. But the House Energy and Commerce Committee is asking industry and environmental groups for feedback on the RFS in the coming months and is drafting a series of white papers on problems with the standard.

Dinneen said ethanol's rapid growth over the past decade is making Big Oil fearful and has prompted this congressional review.

"Ethanol is now 10 percent of the barrel," Dineen said. "It is growing. They don't want to lose any more market share."

"Everything that we were sold in 2007 has turned out to be wrong."

The review comes at a time when the ethanol industry has lost some of the political clout it once had on Capitol Hill.

Unlike many issues in this divided Congress, opposition and support for ethanol tends to be based as much on geography as it is on ideology.

The industry lost a big tax break at the beginning of 2012 and both political parties have signaled a willingness to roll back some crop subsidies for corn farmers.

While ethanol production has been using as much as 40 percent of the nation's corn crop in recent years, last year's drought and high corn prices spurred by the ethanol boom have forced some ethanol plants to shut down.

Although Dinneen is eager to pin ethanol's challenges on the oil industry, other interest groups are also unhappy with the ethanol mandate.

"Everything that we were sold in 2007 has turned out to be wrong," said Scott Faber, top lobbyist for the nonprofit Environmental Working Group.

"We haven't seen the environmental benefits that were promised. We haven't seen gas prices go down."

Faber's group points to studies showing that ethanol barely has an advantage over gasoline when it comes to greenhouse gas emissions, and that high corn prices have encouraged farmers to put marginal, environmentally sensitive land under cultivation.

Livestock producers and food companies which use corn have also argued the Renewable Fuel Standard should be rolled back because the mandate has raised their costs.

Even if those industries got what they wanted and eliminated or rolled back the ethanol mandate, things might not change as much as they expect, Tyner said, because oil refiners have now become used to blending ethanol and gasoline and are unlikely to stop doing it.

"The biofuels industry is a government-created industry," Tyner said. "As it turns out, today if the RFS went out for corn ethanol, corn ethanol would stay, despite what the industry says."

This debate will take a while to play out. The House Energy Committee is likely to hold hearings on the standard this summer, with legislation possibly following in the fall.

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