US EPA to judge ethanol mandate compliance on a collective basis

Washington (Platts)--28Dec2005

The US Environmental Protection Agency plans to determine compliance with
a new rule requiring that renewable fuels be blended into gasoline in 2006
using a collective, rather than individual, basis, the agency said Wednesday.

     Under this regulation, refiners, blender and importers together will be
responsible for ensuring that 2.78% of the gasoline sold or dispensed to
consumers in 2006 must be a renewable fuel. An individual refinery, blender or
importer will not be responsible for meeting the 2.78% standard for the
specific gasoline it produces, EPA said.

     EPA will determine compliance using gasoline and renewable fuel
consumption data available from the US Energy Information Administration,
supplemented by information from other sources.

     If EPA determines that the default standard has not been met in 2006 on a
collective basis, any deficit will be carried forward and applied as an
adjustment to the standard for 2007. The regulations for 2006 do not include
any provision for credit generation or credit trading, given the "collective
nature of the obligation," EPA said.

     EPA said it issued the regulations to give refiners, importers and
blenders of gasoline some certainty on how the government would handle recent
changes in the Clean Air Act that require a significant increase in the volume
of renewable fuel that is blended into gasoline. 

     The new rule, which requires 7.5-bil gal/year of renewable fuels (mainly
ethanol) to be used in US motor fuel supplies by 2012, was part of the Energy
Policy Act of 2005, the comprehensive energy legislation that was enacted into
law in August. The act called for EPA to issue final regulations on the new
renewable fuel requirement by Aug 8, 2006. If EPA had not adopted such
regulations, then 2.78% of the gasoline sold or dispensed to consumers for
calendar year 2006 must be renewable fuels.

     EPA Wednesday said it did not believe it could meet the August 2006
statutory deadline. "The issues that need to be resolved in adopting such
comprehensive regulations are complex, making it important for EPA to receive
input from the various stakeholders which will require significant amounts of
time and effort, including analysis of important issues such as feasibility,
costs, emissions inventory impacts, and benefits," the agency said. "This work
cannot be completed" by August 2006, EPA added.

   As a result, the default 2.78% standard will be in effect for 2006, it
said. Because "it is critical that the industry be informed of how to
demonstrate compliance prior to August 2006 since the program begins in
January 2006," EPA has established "a limited set of regulations" that it
hopes will "provide certainty to the parties involved as to what their
responsibilities are for 2006, and will help to provide a smooth transition to
the long-term RFS program.

     "Allowing the default standard to go into effect without EPA guidance
could potentially result in significant disruptions in gasoline and renewable
fuel production, blending and distribution systems," EPA said.

     EPA said it decided to measure compliance on a collective, rather than
individual, basis for 2006, because it believed the default standard would be
met on a collective basis "even without imposition of any RFS obligations."

     Estimates from the US Departments of Agriculture and Energy project total
ethanol production for 2006 to be above 4-bil gallon, which meets the 2.78%
default standard, EPA said. The Renewable Fuels Association also has indicated
that total ethanol production capacity already exceeds 4-bil gal and that
additional production capacity currently under construction exceeds 1.2-bil
gal, the agency added.

     EPA noted that the default standard of 2.78% provided in the Energy
Policy Act applies exclusively to 2006, and the collective compliance approach
will likewise apply only to next year. "For 2007 and beyond, EPA will
determine and publish the applicable renewable fuel standard for each year and
develop a RFS credit trading program per statutory direction," it said.

     That rule will specifically identify liable parties, lay out the
compliance program including record keeping and reporting requirements, and
delineate all elements of the credit trading program, EPA said. 

		--Cathy Landry, cathy_landry@platts.com

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