According to a new report from GlobalData, the U.S. and EU are considering relaxing targets on biofuels causing concerns around the growth of the industry and the role of biofuels in global renewable energy targets. The U.S. is considering reducing its biofuels target for 2014 and from 18.2 billion to 15.2 billion gallons while the EU has lowered its ceiling on food-based biofuels used in the transportation fuel mix from 10 percent to 7 percent.
The Third Quarter 2013 Regulatory Outlook finds that the U.S. Environmental Protection Agency is considering reducing 3 billion gallons from the 2014 renewable volume obligations, (the EPA has submitted its final rule to the Office of Management and Budget but until approved, the industry does not know the final volume requirements) which would mark the first reduction to the Renewable Fuel Standard (RFS) since its implementation in 2007.
Carmine Rositano, GlobalData’s Managing Analyst covering Downstream Oil & Gas, said, “While gasoline demand has declined over the past seven years, the approved annual use of ethanol in gasoline has not been adjusted to reflect this change, as increasing amounts of biofuels have been mandated to be blended into petroleum products each year through to 2020. The refining industry has warned that increasing ethanol use in gasoline would exceed the 10% mix that dominates car engine designs and the gasoline fueling infrastructure, so revising the mandated amounts for biofuels in the energy mix would make economic sense.”
While U.S. biofuels targets are expected to be cut to mirror the decrease in gasoline demand, the EU has a different reason for its own target adjustments.
Rositano explained, “The EU’s new 7% biofuels ceiling comes in response to claims that using biofuels made from food crops increases inflation on food costs. As the EU is still aiming to achieve 10% of transportation fuels made from renewable energy sources by 2020, the gap between this target and the 7% ceiling of food-based biofuels indicates a reliance on next generation biofuels made from algae, waste and other materials.”
Matthew Jurecky, GlobalData’s Head of Oil & Gas Research, added, “It’s normal for agencies to review challenged policy. Ongoing analysis on the actual reduction of greenhouse gases, inclusive of the entire value chain, the impact they’ve had on food crops and prices, and the simple economics associated with producing them, underlies the regulatory shift. Biofuels will, however, remain a part of meeting mandated renewable energy and emissions targets, but other industries and policies, such as more stringent efficiency standards, will also form a part.”