Analysis: Brewing U.S. ethanol legal battle hinges on meaning of 'supply'

Fri Oct 18, 2013 6:49am EDT
 
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By Cezary Podkul

CHICAGO (Reuters) - The fate of a landmark U.S. requirement to blend increasing amounts of biofuels into the nation's gasoline pool rests on the meaning of three words tucked into a mammoth law: unless there is "inadequate domestic supply."

But "supply" of what? The law does not say.

As a years-long battle over the future of the U.S. fuel supply begins to shift to the courts, the two fierce foes - the biofuel industry and oil refiners - are debating a definition that lawyers say leaves much room for interpretation.

To ethanol backers, the phrase seems clear: it's the volume of renewable fuel that can be produced or imported; and at the moment ethanol is abundant, with falling corn prices and a record harvest spurring production.

To the oil industry, it's something else entirely: the volume of biofuel-blended gasoline or diesel that can be physically sold in the United States. They say the country lacks the consumer demand and physical infrastructure to sell gasoline blended with more than 10 percent ethanol - a "blend wall" that, in essence, restricts supply.

According to a draft U.S. Environmental Protection Agency proposal reported by Reuters and other news outlets last week, the EPA appears sympathetic to the oil groups' argument.

In the proposal for the 2014 blending requirements - which are not yet finalized - the agency proposed to cut them a break by invoking for the first time a clause in the law that allows it to waive the blending targets if it finds there to be "inadequate domestic supply."

The constraints on fuel consumption caused by the blend wall, the EPA argued, are grounds for such a finding.   Continued...