Petroleum and ethanol industries take issue with new volume obligations
By Ed Burke, Dennis K. Burke Inc.
In June, the U.S. Environmental Protection Agency (EPA) began taking comments on its recent Renewable Fuel Standard (RFS) proposal covering the years 2014, 2015 and 2016, with the final standards to be issued by the end of November.
While the Agency has taken some serious heat for releasing its proposal behind schedule, its new plan does provide some positive changes for the industry. Since the proposal was delayed, the EPA used the actual amounts of biofuels blended in 2014 as the required renewable volume obligations (RVOs).
EPA’s proposed cuts are more than 4 billion gallons per year lower than the 2007 legislation called for. The proposed total renewable fuel volumes are 15.93 billion gallons for 2014, 16.3 billion gallons for 2015, and 17.4 billion gallons for 2016.
EPA slashed the cellulosic biofuels volume requirements to 2014 actual production volumes, which were about one sixth of the amount mandated in the 2007 RFS legislation. Cellulosic biofuels proposed volumes are 33 million gallons for 2014, 106 million gallons for 2015, and 206 million gallons for 2016.
Janet McCabe, the EPA’s acting assistant administrator for the office of Air and Radiation, said that the proposal sets blend volumes at an “ambitious but responsible rate,” and added that EPA “recognizes the successes of the program so far, but also must recognize real-world limitations to growth in the near future.”
Announcing the proposal, EPA acknowledged the so-called blend wall (the inability of most vehicles to use gasoline with more than 10 percent ethanol), and the lack of infrastructure to deliver fuel containing higher amounts of renewable fuels. EPA said that these realities are the reason the RFS volume obligations were lower than what Congress called for in the 2007 legislation.
“EPA is committed to implementing the Renewable Fuel Standard in a way that responsibly pushes forward and grows the use of biofuels over time,” said McCabe. “We believe these proposed volume requirements will provide a strong incentive for continued investment and growth in biofuels.”
But, as you might expect, not all of the major stakeholders are pleased.
“Consumers’ interest should come ahead of ethanol interests,” notes Jack Gerard, American Petroleum Institute (API) President and CEO in a statement. “EPA assumes growing demand for high-ethanol fuel blends that are not compatible with most cars on the road today, potentially putting American consumers, their vehicles and our economy at risk.” With that said, API would like to see the RFS repealed outright.
The American Fuel & Petrochemical Manufacturers (AFPM) said they support the EPA using its statutory waiver authority to reduce mandated biofuel volumes in recognition of the blend wall and in its proposed RVOs. However, they believe the Agency has overestimated how much ethanol consumers will purchase and how much the fuel supply can handle.
API and AFPM filed a lawsuit against EPA in March of this year to compel the Agency to issue the overdue rules implementing the RFS. They negotiated a consent decree that required the Agency to propose the 2015 RVOs by June 1, and finalize the volume standards for 2014, and 2015 by November 30.
According to folks in the biofuels industry, the uncertainty over the RFS mandates has stalled nearly $14 billion in investments needed to expand capacity, with the heaviest impact on the cellulosic biofuel developers.
“This proposal is a significant step in the right direction,” said Joe Jobe, National Biodiesel Board (NBB) CEO. “It is not perfect, but it will get the U.S. biodiesel industry growing again and put people back to work.” Jobe said there is more that can be done, and NBB will be working with the administration during the comment period to strengthen biodiesel volumes for 2016 and 2017.
EPA’s proposal certainly didn’t please the corn industry. “Once again, the EPA has chosen to ignore the law by cutting the corn ethanol obligation 3.75 billion gallons from 2014 to 2016,” said Chip Bowling, president of the National Corn Growers Association. “The only beneficiary of the EPA’s decision is Big Oil, which has continuously sought to undermine the development of clean, renewable fuels. Unfortunately, the EPA’s gift to Big Oil comes at the expense of family farmers, American consumers, and the air we breathe.” The association announced intentions to pursue legal action to block the RFS volume reductions.
Hitting the Reset Button
So, beyond the moaning and groaning, is EPA getting the RFS back on track? First, the Agency avoided breaching the blend wall for at least a while, kicking the can down the road for at least a year or two. EPA would also base future RFS volume obligations on actual 2014 blend volumes, rather than the flawed projections from 2007. Addressing a major contention with refiners, EPA has also significantly reduced cellulosic biofuel volume requirements based on actual production and availability of the biofuel.
And with some of the uncertainty in the RFS resolved, those stalled biofuels investment dollars should find their way back too. These are all good indicators that EPA is moving in the right direction.