WASHINGTON The Obama administration must decide in coming weeks if it will temporarily lift requirements to blend ethanol into the nation's gasoline supply. The issue has been largely dormant on the campaign trail, but it's critical to the success or failure of the next generation of biofuel plants under construction today, which won't rely on corn to make fuel.
A public comment period ended early this month, and now the administration must decide by Nov. 13 whether or not to temporarily suspend the renewable fuel standard, created in 2005 and modified in 2007 to help the ethanol industry get off the ground by requiring its use in gasoline.
Ethanol is required to be blended into gasoline to help keep pollution down, and it has the added benefit of lowering dependence on crude oil, about half of it imported and the other half drilled domestically.
The governors of Arkansas, North Carolina and several other states want the ethanol mandate suspended amid rising corn prices brought about by this summer's punishing drought. Governors of corn states are opposed.
The administration is widely expected to reject the request for a one-year suspension of ethanol mandates, but the move is actually just an opening salvo in a much larger fight that's coming in the next Congress over the renewable fuel standard.
That debate comes just as the ethanol industry prepares to launch commercial-scale, next-generation biofuels.
Also at issue: Whether mandates, passed in 2005 when oil demand was at its peak are realistic, given falling energy consumption, a boom in low-cost natural gas production, rising corn prices and improvements in the fuel efficiency of cars.
As part of deficit reduction efforts, the ethanol industry this year lost federal subsidies that had surpassed $20 billion. And mandates requiring future use of ethanol in the fuel supply are both complex and controversial. They currently call for ethanol to make up 10 percent of the nation's fuel supply, or about 13.2 billion gallons.
But that volume is scheduled to grow to 15 billion by 2015 and 36 billion by 2022. The 36 billion gallons, half of which must come from non-corn sources, would still represent just 7 percent of anticipated future U.S. fuel consumption.
The mandates were passed in an era before the deep financial crisis and improvements in fuel efficiency. At the time, gasoline demand was expected in the neighborhood of 160 billion gallons annually. It's far from that today.
"It was never supposed to be '130 billion gallons and falling,' " said Kevin Book, an energy analyst for researcher ClearView Energy Partners. "And it will continue to fall because of the CAFE standards," which require more miles per gallon from automobile manufacturers in years ahead.
"The actual pool (of gasoline) is getting smaller as requirements (for ethanol use) are getting larger," Book said.
This contradiction is called the "blend wall," akin to a perfect storm on ethanol producers just as the next-generation product is about to come to market. Producing at least half of the nation's ethanol from non-corn sources by 2022 will depend on next-generation cellulosic ethanol.
"We're in the age of cellulosic. The key question still is going to be increased volume and a competitive price," said Daniel Yergin, Pulitzer Prize-winning oil historian and author of "The Prize: The Epic Quest for Oil, Money & Power," and its recent sequel, "The Quest: Energy, Security, and the Remaking of the Modern World."
Oil companies, which sell less product when ethanol is blended, want to roll back the blending requirements. Ethanol producers, who consume about 40 percent of the nation's corn crop, argue that the solution is raising the amount of ethanol required to be blended into fuel, to somewhere in the ballpark of, say, 15 percent or 20 percent.
The Environmental Protection Agency has approved sale of gasoline made up of 15 percent ethanol, or E15, for use in newer cars. It is not required, however.
President Barack Obama has made ethanol a key part of his "all of the above" strategy for energy production. Campaign rival Mitt Romney, the former governor of Massachusetts, released a white paper on agriculture on Oct. 9, also supporting the existing renewable fuel standard.