EPA Revisits Ethanol Mandate As Fuel Use Slips

We talked about this in a blog a few weeks ago, the risk of ethanol usage slipping. Maybe I will look for the original post later.

But for now, The Wall Street Journal is reporting:

U.S. regulators said they would propose for the first time lowering the mandated consumption of corn ethanol used in motor fuel, a reversal in policy that puts a powerful industry on the defense.

One word: Wow.

Okay, two words: Wow and Wow.

The move could shrink demand for alternative fuels whose use is required by the U.S. mandate. It also could make it easier for oil refiners to meet the rules, depending on how the Environmental Protection Agency handles the change.

It will be interesting to see how this effects Tesoro, Valero, PSX, etc. (For newbies, "etc." is not a stock ticker symbol.)

Because Americans are continuing to drive more fuel-efficient cars, U.S. gasoline consumption is expected to fall this year. At the same time, a 2007 law calls for rising use of ethanol, which makes up about 10% of the U.S. gasoline supply, and other fuels defined as renewable. That means the U.S. is heading toward the "blend wall," the point at which fuel marketers can't absorb any more ethanol into the gasoline supply without using higher-percentage ethanol blends that aren't widely sold.

As a result, on Tuesday the agency said that next year it would take the unprecedented step of seeking to reduce the amount of renewable fuel that the oil industry must use, saying it "does not currently foresee a scenario in which the market could consume enough ethanol."

Oh, I don't know. Why don't they just store all that excess ethanol in a Strategic Ethanol Reserve, alongside the SPR.