Last week the U.S. EPA revised (PDF) the federal renewable fuels standards, known as the Renewable Fuels Standards (RFS), to include lower targets. Clare Foran at National Journal highlights EPA's revisions:

The 2014 mandate proposes a range of 15 billion to 15.52 billion gallons of biofuels to be added to the U.S. fuel supply next year, with a recommended target of 15.21 billion gallons within that range.

The target number, if it becomes law, would be a reduction of nearly 3 billion gallons relative to the statutory requirement for 2014 of 18.15 billion gallons.

It also proposes a range of 2 billion to 2.51 billion gallons of advanced biofuels with a recommended target of 2.2 billion gallons. The range falls below the proposed target of 3.75 billion gallons under the Energy Security and Independence Act of 2007.

Last revised in 2007, the RFS sets volumetric targets for producers to blend biofuels with gasoline and diesel, which would offset imported petroleum with domestically grown fuels.

The RFS sets a 36 billion gallon target for total renewable fuels in transportation fuel, of which 15 billion gallons per year can come from corn-based ethanol (capped in 2022). The remaining 21 billion gallons are so-called advanced biofuels: 16 billion gallons from cellulosic ethanol and 5 billion gallons per year from other feedstocks like algae.

But two important shifts have happened since 2007 and 2013 and the new rules reflect this new landscape: U.S. gasoline consumption peaked in 2007 and cellulosic biofuels production has grown at a much slower pace than anticipated.

Higher vehicle fuel economy standards, slower economic growth, higher gasoline prices, and possible changes in consumer behavior have resulted in lower gasoline demand:

Gasoline consumption declined in 2007. Source: EIA Annual Energy Review 2012

While demand has declined, corn-based ethanol supply has quickly approached the "blend wall", an upper limit of how much corn-based ethanol can be blended into gasoline. For most cases, the wall is set at 10 percent, but in 2010 EPA revised it to 15 percent (hence the yellow fuel pumps you see marked "E85").

Therefore, the remainder must be made up of ethanol from switchgrass and other cellulosic material. Unfortunately, the development of cellulosic ethanol has not materialized. Earlier this year EPA lowered the target from 1 billion gallons to requirement to just 6 million gallons.

The calculus for EPA was whether to allow more corn-based ethanol into the fuel market or cut back on targets. More corn ethanol would likely require blends of 15 percent ethanol (E15) or building out a fuel infrastructure capable of more than 10 percent ethanol (more E85 filling stations and tanks, etc). In the end, EPA decided that the costs of more corn ethanol (environmental, climate, water, energy return, etc) did not outweigh the benefits of more biofuels.

There will be a 50-day public comment period once the rule is published in the Federal Register.