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Seth Perlman/AP Photo

There's a battle raging in the U.S. Congress in which Big Oil is trying to drive a stake through the heart of a major competitor – the renewable fuels industry.

It is playing out south of the border, but it has a direct effect in Canada as we follow the U.S. policy lead because the vehicle manufacturing and energy supply sectors are integrated.

Big Oil, in this case the American Petroleum Institute (API), is demanding that Congress "repeal" the law that requires ethanol to be blended with gasoline. It's a complicated formula but the end result is that gasoline in Canada and the United States contains 5 to 10 per cent ethanol. There's talk about increasing it to 15 per cent and the oil industry has absolutely no intention of losing another 5 points of market share.

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It's a battle worth fighting because the gasoline market is shrinking as Americans are driving less and doing so in more fuel-efficient vehicles. At the same time, more aggressive drilling and fracking is resulting in more domestic hydrocarbon supply than ever.

Ethanol has its critics largely because it is made from corn, giving rise to the "food for fuel" debate. Corn-based ethanol is certainly making farmers happy but it is also making a considerable contribution in reducing tailpipe emissions. There's no shortage of corn and corn prices are way down from last year, making the ethanol price advantage even greater; ethanol is now about one U.S. dollar cheaper per gallon than gasoline.

But what the oil industry really fears is cellulosic ethanol. That's ethanol made from waste. Who wouldn't rather see municipal garbage, sewage sludge, agricultural and forest waste converted into fuel – either alcohol (ethanol) or bio-diesel. Plants are being built to do just that, and these will impact the need for rail cars of crude oil rolling through your town or additional pipelines.

But let's get back to the battle in Congress. In hearings of the House Energy and Commerce Committee, the oil industry has declared it wants the Renewable Fuels Standard abolished. The Environmental Protection Agency created the RFS program in 2005 and established the country's first renewable fuel volume mandate in order to open the door to less expensive and cleaner home-grown fuel.

The American Petroleum Institute has launched a print, radio and television advertising campaign designed to generate public support for repealing the federal Renewable Fuel Standard. "The new ads are the first in a series designed to educate American consumers on why we must end this unworkable mandate," said Robert Greco, an API Director.

The oil industry was furious when, earlier this year, the Environmental Protection Agency approved the use of gasoline containing 15 per cent ethanol – E15 – for vehicles made in 2001 and later. It claimed that this blend can harm engine components although flex-fuel vehicles can safely use E85 and all cars in Brazil have been running on E20 for decades.

API says it has mobilized its grassroots network of more than 15 million concerned citizens.

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"Thousands of Americans have been calling the White House and contacting Congress every week," Greco said. "These ads will encourage more Americans to tell the White House to fix the problem before it's too late, while urging Congress to completely repeal the RFS."

It is shaping up to be a historic battle between the oil industry and the renewables. The Obama administration has been squarely on the side of the renewables in the last several years but this is now in the arena of down-and-dirty politics. Anything could happen.

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