CBO report roils debate over renewable standard

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, July 2, 2014

A report last week by the Congressional Budget Office linking the federal biofuel mandate to higher gas prices is stoking the fire in the debate over the policy’s future.

Opponents of the mandate say the report released Thursday confirms the argument they’ve been making that the renewable fuel standard is broken. CBO found that complying with the renewable fuel volumes that Congress laid out in the 2007 RFS would raise diesel prices by up to 14 percent by 2017, while gasoline containing 10 percent ethanol would rise by up to 9 percent.

But biofuels supporters have dismissed the report as “simply not worth reading” and “outlandish.” They say the budget office based its most “doomsday” conclusions on an unrealistic scenario.

The renewable fuel standard approved by Congress in 2007 mandated U.S. EPA to set yearly volume requirements for renewable fuel use in gasoline and diesel, with the overall goal of reaching 36 billion gallons of ethanol and advanced biofuel by 2022.

House Energy and Commerce Chairman Fred Upton (R-Mich.) requested the CBO report. It comes as EPA is in the final stages of weighing a proposal to lower the mandates this year for ethanol and advanced biofuels for the first time since the RFS was put in place; the November proposal calls for a 16 percent reduction compared with the 2007 statute.

CBO examined three scenarios: keeping the mandates for total renewable fuels and advanced biofuels at their full yearly levels set by statute, lowering the mandates as EPA has proposed for 2014, and repealing the RFS entirely.

Prices for transportation fuels would likely be the same under both the repeal and 2014 scenarios, according to CBO, because fuel suppliers would be likely to blend about 10 percent ethanol into gasoline in either case. But meeting the standard’s total volume mandates in 2017 as they are written into the RFS would raise gasoline and diesel prices, CBO said (Greenwire, June 27).

“For us, it’s a validation of what we’ve been saying,” said Charles Drevna, president of American Fuel & Petrochemical Manufacturers. “If the administration goes back on what their proposal was for 2014 renewable volume obligations that refiners and importers have to comply with, the cost of producing gasoline and diesel goes up, to the detriment of American consumers.”

Though CBO found that the effect on food prices would be minimal under the RFS, livestock producers are also pointing to its conclusion that corn prices will rise 6 percent by 2017 if the standard is kept at its full volumes.

Livestock producers, which feed corn grain to their animals, say their bottom lines have already been hurt by expanded production of corn ethanol driven by the RFS. For example, turkey producers say that from 2006 to 2013, they’ve seen an increase of 125 percent in feed costs.

“Congress has set this up. Congress needs to go back in and change this mandate where it is causing such an extra artificial drag on our economy,” said Keith Williams, vice president for communications and marketing at the National Turkey Federation, in response to the CBO report.

But biofuels producers say the report adds nothing to the current debate in Washington, D.C., over the RFS.

The Renewable Fuels Assocation said focusing analysis on the statutory volumes scenario “improperly assumes” that EPA would not use its authority to lower volumes to reflect the production of lower-than-expected amounts of cellulosic biofuel, an advanced biofuel made from plant-based materials like switch grass, agricultural residue and municipal solid waste.

CBO also projected that meeting higher targets would increase the price of the credits traded by refiners to show compliance with the standard each year. Higher credit prices would mean higher gas prices, according to the report.

RFA noted that other reports have tied ethanol to lower gas prices at the pump.

“The report’s doomsday findings about the potential economic effects of the RFS are contrary to the conclusions from respected economists who have conducted more detailed and comprehensive analysis,” Geoff Cooper, senior vice president at RFA, wrote in a response to the report.

Other biofuels groups also argued that the target of 36 billion gallons by 2022 is not a relevant benchmark anymore.

Jeremy Martin, senior scientist at the clean vehicles program at the Union of Concerned Scientists, said CBO should have chosen a 2017 renewable fuel volume to analyze somewhere between the level set by the 2007 statute and EPA’s proposal.

Martin has advocated for requiring 20 billion gallons of renewable fuel by 2022 — the statutory requirement for all but cellulosic biofuels — plus whatever cellulosic biofuel gallons are feasible. Such an approach would allow growth in the industry in advanced biofuels as well as long-term predictability and stability, he said.

“I don’t know why they wouldn’t evaluate that,” he said.

Drevna of American Fuel & Petrochemical Manufacturers pushed back at the arguments that the 36-billion-gallon target is off the table, noting that it still is contained in the law. If the consensus is that 36 billion gallons is no longer feasible, Congress should change the law, he said.

“You, Congress, have to get off your collective behinds and do something, because we can’t go year to year with EPA figuring out what the volumes should be,” he said.

According to ClearView Energy Partners LLC, the report is a signal that congressional reform efforts could pick up after the midterm elections. But while the report gives more fodder to RFS opponents by quantifying fuel price impacts, it reduces the case for repeal if EPA holds fast to its proposal to lower the mandates.

Still, bipartisan congressional opponents of the RFS have already used the report to push for legislation that would both repeal and reform the standard.

“The report underscores the hardship that full implementation of the RFS would have on everyday Americans and the unfeasibility of reaching the full mandate by 2022,” said Reps. Bob Goodlatte (R-Va.), Jim Costa (D-Calif.), Peter Welch (D-Vt.) and Steve Womack (R-Ark.).