Governors' Biofuels Coalition

Once again we are seeing ethanol and the RFS being blamed for the high cost of gasoline and diesel, despite real world facts that document just the opposite.  Oil refiners continue to claim hardship in meeting their obligations to use renewable fuels and have used that argument to extract concessions from Congress and the EPA in the form of waivers.

As the fight to allow an additional, voluntary increase in ethanol volume by 5% drags on,  Senate Majority Leader John Thune conceded in recent interviews that the reality of politics makes it necessary for ethanol interests to work with oil interests if we are to get this done.

Putting aside the frustration that this never should have been an issue in the first place, E15 not only doesn’t increase vapor pressure (RVP), but it actually lowers it.  Moreover, the oil industry seeking concessions dealing with the Renewable Fuel Standard (RFS) has nothing to do with E15.  Many have erroneously portrayed E15 as a mandate or an increase in the RFS but it is neither. It is a voluntary measure that raises octane, lowers costs, reduces carbon, and expands the market for our corn at a time of great uncertainty in all of agriculture.

To the extent that the RFS comes into play at all is that E15 and higher blends can address the compliance problems refiners claim they are faced with.  And, I can’t believe I am saying this, but they may have a legitimate gripe, although less with ethanol and more with biodiesel.

The RFS created three basic categories of renewable fuel—Conventional, Advanced, and Cellulosic.  Each had its own requirements and/or limitations regarding feedstocks but more importantly, each has its own requirement for reducing greenhouse gas (ghg) emissions.

Corn ethanol is assumed to produce a 20% ghg reduction and corn as a feedstock is capped at 15 billion gallons.  The advanced category, which is where bio and renewable diesel fall under, must meet a 50% reduction, even more for cellulosic ethanol.

In what now seems like an overly aggressive volume obligation, the EPA has established a requirement for Advanced Biofuels that is proving to be difficult to meet. The way refiners or other obligated parties meet these requirements is accumulating credits, or RINS, and turning them into the EPA.  There simply is not enough advanced biofuel production for the required volume which results in rising RIN prices and a mad scramble to find them.  Small refiners are allowed to seek an exemption from RFS requirements if they can demonstrate economic hardship, and high RIN prices open that door for them. Recent waivers granted by EPA skew the demand picture and actually increased RIN prices as EPA promises to add waived volumes to 2027 requirements!

But what is an “advanced” biofuel?  By definition it must meet a 50% ghg reduction and cannot be produced from corn starch.  During RFS deliberations many of us argued it was a mistake to tell us what the required reduction was and also tell us how to get there.  Due to varying processes and efficiencies, corn ethanol was given an across- the- board assumption of a 20% reduction, too low then and woefully inaccurate now.  Modern ethanol plants are easily capable of meeting a 50% reduction and combined with efficient farming, a net zero reduction on ghg’s is within reach.

So how does this break the stalemate of E15 and the RIN challenge?  Easy—allow the D6 corn ethanol RINS to qualify as an advanced biofuel.  All it takes is eliminating the arbitrary cap on corn eligibility for the advance category.  An ethanol producer would of course have to demonstrate it meets the 50% requirement—easily done for many plants.

This would incentivize increased and efficient ethanol production through higher blends that would provide higher and cleaner octane.   It would be in the interest of the petroleum industry to use higher blends given ethanol’s lower cost but now it would also create excess RINS to meet both the conventional and advanced categories.  Keep in mind that under the conventional fuel category 15 billion RINs are required but ethanol production and use above that amount continues to generate RINS!

 Senator Thune is not only on the Agriculture Committee and key to the Farm Bill negotiations, but he is also the Senate Majority Leader!! Let’s flex those muscles and use that authority to add a provision in the so called E15 legislation striking the “corn starch” cap.  The increase in RINs addresses everyone’s needs—small refiners would have options to meet the RFS requirements, large, integrated refiners would be incentivized to use more ethanol and make money off extra RINS, farmers benefit from increased demand, and the overarching purpose of the RFS would be met which was to reduce emissions.