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EPA to raise ethanol blending limit in gasoline

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EPA to raise ethanol blending limit in gasoline

The U.S. Environmental Protection Agency on March 12 proposed rule changes to allow year-round sales of gasoline blended with up to 15% ethanol and to reform the market where biofuel blending credits, known as RINs, are traded.

President Donald Trump had directed the regulator to make the rule change Oct. 11, 2018, and the agency scheduled a March 29 hearing on the proposal.

Current regulations limit the sale of the gasoline blend, known as E15, to eight months of the year, excluding the summer months because of concerns that higher ethanol blends could contribute to smog due to the fuel's higher volatility, or propensity to evaporate, as measured by Reid vapor pressure, or RVP.

The rule change would extend the 1-psi RVP waiver for the summer months that has been historically extended to gasoline blended with 10% ethanol.

The same day, the EPA proposed changes to the RINs market, including limiting parties that are allowed to participate in the market, requiring public disclosure of RIN holdings when they exceed specified thresholds, limiting the length of time that parties that are not required to blend biofuels can hold RINs, and increasing the Renewable Fuel Standard's compliance frequency from annually to quarterly.

The oil industry has slammed both proposals.

Frank Macchiarola, the American Petroleum Institute's vice president of downstream and industry operations, said Feb. 26 ahead of the EPA's announcement that proposed RIN market reform "both misdiagnosed the problem and provides misguided and counterproductive solutions" as "refined product prices already reflect the cost of obtaining RINs."

"Reforming the RINs market will exacerbate the already broken fuels mandate," the American Petroleum Institute said. "We urge EPA to instead focus its attention on protecting consumers from the potential damage to their vehicles that E15 use presents, and to help fix the [Renewable Fuel Standard] — which hasn't evolved alongside the changing energy and economic landscape."

Macchiarola noted that Congress adopted the policy mandating biofuel blending in part as a counterweight to the United States' reliance on crude oil imports.

In late November 2018, the U.S. was briefly a net exporter of crude oil and petroleum for the first time on record.

The International Energy Agency said in a March 11 report that it expects the U.S. to add 4 million barrels per day of oil production capacity to 2024 to account for 70% of the total increase in global capacity.

"The second wave of the U.S. shale revolution is coming," IEA Executive Director Fatih Birol said. "This will shake up the international oil and gas trade flows, with profound implications for the geopolitics of energy."

Renewable Fuels Association President and CEO Geoff Cooper said in a March 12 statement that the lobby group is reviewing the details of the proposal and conveyed a sense of urgency with regard to the policymaking.

"With just 80 days left before the start of the summer driving season, finalizing and implementing the E15 regulatory fix remains a tall order. That is why we have urged the EPA to separate the year-round provisions from the RIN reform provisions, and move forward as quickly as possible to finalize a practical and defensible year-round E15 solution," Cooper said. "With ethanol plants shutting down or idling and farmers experiencing the worst conditions in more than a decade, removing the summertime ban on E15 once and for all would send a desperately needed signal to the marketplace."

But some analysts do not expect a quick rule change to immediately boost demand for ethanol.

"We believe the impact [of the proposal] is minimal, given the limitations of infrastructure and consumer adoption," Mizuho analyst Paul Sankey wrote in a March 13 note.