US Environmental Protection Agency Aims to Adopt New Fuel Economy Rule by March, E15 Rule by May

October 18, 2018

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by Meghan Gordon (S&P Global Platts) The US Environmental Protection Agency aims to adopt final rules for fuel economy standards by March and year-round sales of higher ethanol blends by May, according to a fall regulatory agenda released Wednesday by the Trump administration.

The fuel economy rule is expected to increase US oil demand by 500,000 b/d, as efficiency standards for light-duty vehicles adopted by the Obama administration would be frozen for six years at the 2020 target of 43.7 miles per gallon.

EPA also aims to revoke California's long-held waiver to set its own tougher-than-federal fuel economy standards, which a dozen other states follow.

The proposal said booming US oil production has added new stable supply to the global oil market and "reduced the urgency of the US to conserve energy," one of the goals of the original fuel economy standards.

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The E15 expansion and RINs trading changes are not expected to have an immediate impact on fuel prices or trade flows as they will have to undergo a long rule-making process, and oil refiners have already promised to challenge the policy in court.

Among the RINs changes, the White House asked EPA to consider banning anyone but obligated parties from buying separated RINs, requiring public disclosure when RIN holdings exceed specified limits and limiting the time a non-obligated party can hold RINs.

High gasoline prices have become a political liability ahead of the US midterm elections, and Trump's previously unfulfilled promise to approve year-round E15 was threatening to hurt Republicans in farm states.

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The fall regulatory agenda also showed EPA aims to meet the November 30 deadline for setting final blending volumes for the 2019 biofuel mandate and 2020 biodiesel mandate. READ MORE

EPA plans to issue higher-ethanol gasoline proposal by February: filing (Reuteres)

WHEELER ADDRESS E15 ELEPHANT IN THE ROOM: (Politico's Morning Energy1)

HOUSE MEMBERS PRESS FOR CALIFORNIA FUEL WAIVER: (Politico's Morning Energy2)

EPA chief says agency can expand ethanol sales without Congress (Reuters)

The fight against E15: What can you believe? (Iowa Agribusiness Radio Network; includes AUDIO)

EPA TO UNVEIL E15 PROPOSAL EARLY NEXT YEAR (Brownfield Ag News)

OMB releases estimated timelines for EPA’s E15 rule, 2 RFS rules (Ethanol Producer Magazine)

OPEI Issues Statement on Expansion of E15 Sales to Year-Round Announcement by President Trump (Outdoor Power Equipment Institute)

CAR RULES: 'Nobody believes those numbers' (E&E News)

Excerpt from Politico's Morning Energy1: EPA has the legal authority to expand sales of 15 percent ethanol fuel, acting Administrator Andrew Wheeler said Thursday, ending months of restraint on the issue, Pro's Eric Wolff and Sarah Zimmerman report. "Yes we do have the authority to move forward on E15 and I hope that the oil industry will join us in helping to make the RFS program function better for the American public," Wheeler said at an event on food waste in Washington.

'Thanks Mr. Trump': Agriculture Secretary Sonny Perdue tweeted out this picture from an Indiana farmer who thanked Trump on E15 with a crop formation. READ MORE

Excerpt from Politico's Morning Energy2: A bipartisan group 68 House lawmakers — including five Republicans on the House Climate Solutions Caucus — want EPA to uphold California's power to set its own vehicle efficiency standards, reports Pro Energy's newest member, Zack Colman. In the letter to Wheeler, the lawmakers argue the Trump administration's plan would penalize states that want to exceed national goals to benefit public health. Notably, several Republican members of the Climate Solutions Caucus from states that follow the California vehicle standard did not sign the letter. READ MORE

Excerpt from E&E News: The Trump administration is claiming that weakening one of President Obama's biggest climate rules will save the U.S. economy between $120 billion and $340 billion.

That's a lot of money. And many experts aren't buying it.

"Do I believe any of these numbers? The answer's no. Nobody believes those numbers," said Jeff Alson, a former staffer in EPA's Office of Transportation and Air Quality.

At issue is the administration's projected cost savings from rolling back Obama-era tailpipe pollution rules for cars.

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When issuing the car standards in 2012, EPA estimated that climate benefits greatly outweighed their compliance costs. In its regulatory impact analysis, the agency said the rules would result in climate benefits of between $106 billion and $126 billion as a result of reduced air pollution. EPA also said automakers would need to spend less than $800 per vehicle to meet the standards.

The Trump administration flipped that analysis on its head to justify the rollback. In its own preliminary regulatory impact analysis, it argued that the rules were too costly for automakers to meet and that weakening them would have a negligible impact on air quality.

"This huge discrepancy between the original analysis and the new analysis that's being used to justify the rollback should raise red flags for anyone," said Jessica Wentz, a senior fellow and associate research scholar at Columbia University's Sabin Center for Climate Change Law.

"It doesn't seem right," Wentz said. "How on Earth could enough new information have come to light that it would make sense for them to be reaching the complete opposite conclusion about the economic impact of the standards?"

Alson said the Trump administration "cooked the books" by making a number of flawed assumptions in its analysis.

"They made so many assumptions, most of which are biased, some of which are horribly wrong," said Alson, who retired five months ago after a 40-year career at EPA.

'Scrappage model'

So what were the flaws?

Wentz pointed to the Trump administration's approach to the social cost of carbon, which estimates a dollar value for the harm caused by climate change.

The Trump administration based its calculation on a domestic social cost of carbon, whereas the Obama administration relied on a global social cost of carbon value.

The domestic approach is problematic because climate change is a global problem, Wentz said. "If all countries did that, we would have completely inadequate climate action," she said.

The Trump administration also made unrealistic assumptions about consumer behavior, said Joshua Linn, a senior fellow at the nonpartisan think tank Resources for the Future.

"Really, the major issue seems to be the assumptions they make about the way that households decide what vehicles they want to own and how much they're going to drive those vehicles," Linn said.

Unpacking those assumptions is complicated. They're related to something called the "scrappage model" — a projection of when consumers will "scrap" an older vehicle in favor of a newer model.

The Trump administration's reasoning went like this: Weakening the car rules would lower the cost of a new car. That would encourage people to buy new cars and scrap their older vehicles, resulting in fewer vehicle miles traveled (VMT), fewer traffic accidents and less air pollution.

But Linn said that reasoning was flawed. He said the Trump administration made erroneous claims about the scrappage model. In particular, he said research shows that people who bought new cars would likely still keep their older models and drive them occasionally. That would result in more VMT, more traffic accidents and more air pollution — and lower projected cost savings.

"From the literature, what we think would happen is that if you had two older cars, you might scrap one but drive the other one more," said Alan Krupnick, another senior fellow at Resources for the Future who worked with Linn on a recent blog post about the car rules. "So at the end of the day, you wouldn't get the benefits that the Trump administration says you would get."

In regulatory comments, experts have also pointed out that the Trump administration ignored available technology that can reduce the cost of complying with the car rules. For example, it failed to consider Atkinson cycle technology applied to turbocharged engines — something the Obama administration considered in its 2016 technical assessment report that called for maintaining the current standards through 2025.

Concern has also surfaced on Capitol Hill. READ MORE