2 economists propose RFS freeze

Source: Amanda Peterka, E&E reporter • Posted: Friday, April 12, 2013

As the tug of war over biofuels continues on Capitol Hill, a pair of agricultural economists are calling for a two-year freeze in the renewable fuel standard’s requirements.

Scott Irwin and Darrel Good of the University of Illinois say a freeze would let policymakers figure out how to address the various RFS issues and allow for modest growth in the market for gasoline containing 15 percent ethanol, E15.

“We believe our proposal to freeze [renewable fuel standard] mandates in 2014 and 2015 at 2013 levels represents a pragmatic way forward,” Irwin and Good wrote this week in Farmdoc Daily, an online University of Illinois agriculture publication.

The RFS requires refiners and other parties to blend 13.8 billion gallons of ethanol into the nation’s motor fuel supply this year. In the following two years, the standard increases that level to 18.15 billion gallons and 20.5 billion gallons.

EPA’s proposed standard for advanced biofuels this year is 2.75 billion ethanol-equivalent gallons, which includes 14 million gallons of cellulosic biofuel, or fuel made from plant-based materials like agricultural residues, switchgrass and municipal solid waste.

Supporters say the targets are spurring investments in advanced biofuel production and are helping reduce U.S. greenhouse gas emissions and reliance on foreign oil.

But targets have been criticized on all sides from livestock producers and food groups that complain ethanol has driven up corn prices to oil companies that say the standard is technically not feasible. This week, Rep. Bob Goodlatte (R-Va.) introduced a pair of bills that would both gut the standard and repeal it (E&E Daily, April 11).

Good and Irwin, who have previously analyzed the effects of the RFS on conventional ethanol and advanced biofuel production, say freezing requirements at 2013 levels would still stimulate the ethanol market without forcing the rapid introduction of E15 or E85, gasoline containing 85 percent ethanol that is used in flex-fuel cars.

“This is particularly important since it is by no means clear whether the infrastructure investments necessary for widespread E15 or E85 adoption could actually be made in this time frame,” Irwin and Good wrote.

They also said freezing the RFS levels would not force the expansion of biodiesel — diesel made from soybean oil, animal fats or used cooking grease — beyond what it feasible.

The proposal, the economists said, would still spur domestic ethanol production over the next two years and require refiners to modestly incorporate 15 percent ethanol in their gasoline because the 2013 levels as written are above the 10 percent saturation level of the market. Gasoline containing 10 percent ethanol, or E10, is currently the standard on the road today.

EPA has approved E15 for use in cars with model years 2001 and newer, but the ethanol blend has been slow to penetrate the fuel market. Only a handful of gas stations are selling it across the country.

“The proposal would maintain a high rate of use of ethanol production capacity and would provide for modest growth in the large demand base for corn,” Irwin and Good wrote. “An increasing percentage of the domestic biodiesel capacity would be utilized without straining that capacity. Similarly, requirements for biodiesel feedstock would grow, but the growth would not overwhelm those markets.”

A two-year delay in the expansion of the federal biofuel mandates would give some policymakers some breathing room and allow them to develop a biofuels policy that is “mutually agreeable” to the various industry groups involved, Irwin and Good said.

“We believe the proposal is realistic because it balances the competing interests of various parties in the policy process,” they wrote, “and allows some additional time for regulators, legislators, and industry participants to consider any adjustments to RFS2 that might be needed in the longer-run.”