Comment: The 2014 RFS Rule Left Out in the Cold

Source: By Brent Erickson, Biofuels Digest • Posted: Tuesday, November 25, 2014

EPA’s November surprise is as big a shock to the system as this year’s early arrival of cold weather. The decision not to finalize a 2014 rule for the Renewable Fuel Standard (RFS) merely compounds the damage done to the advanced biofuel industry by EPA’s proposed rule last November.

The non-decision issued by EPA on November 21 does not go far enough to reverse the disastrous misinterpretation of the RFS methodology. With the program frozen in bureaucracy all year and no resolution in sight, the investments needed to complete new projects and build out commercial capacity have chilled to an almost frozen level within the United States – many companies and projects have already sought warmer investment climates in other countries.

EPA should formally withdraw the proposed rule and issue a final rule as soon as possible, fully correcting their misinterpretation of waiver authority and methodology for setting the annual renewable fuel volumes. Setting renewable volume obligations according to the biofuel industry’s ability to produce is not only what Congress intended, but also the only way to encourage companies to make new investments in the growth of advanced and cellulosic biofuels in the United States.

The RFS was designed to increase advanced biofuel production and use – not to preserve the status quo of oil’s domination of the transportation fuel supply. If the volumes are based on gasoline consumption rather than biofuel production, it will fundamentally undermine the RFS’s policy support for advanced biofuel commercialization and put the program on a flat trajectory that only benefits oil refiners.

By limiting renewable fuels to 10 percent of gasoline consumption as it proposed a year ago, EPA will force advanced biofuels to compete for market space with conventional biofuels. It seems the refining industry has cried wolf so many times that EPA and OMB may have become confused and lost sight of the intent of the underlying statute.

Discouragement to advanced biofuels

Advanced biofuel companies are also being discouraged from taking market risks by EPA’s unnecessary delays in approving new biofuel pathways. This year, EPA approved a new cellulosic biofuel pathway for producing compressed or liquefied natural gas. It took an entire year for the rule to be approved, but it immediately opened a floodgate of new cellulosic biofuels. From August to October this year, nearly 17.7 million gallons of cellulosic fuel have been produced under this new pathway.

And yet, more than 30 new advanced and cellulosic pathway petitions are awaiting action from EPA. On average, companies filing these petitions have already waited nearly two full years for EPA to take action – and the agency hasn’t even begun the rulemaking process for these petitions. EPA’s delays are becoming one of the biggest barriers to advanced biofuel commercialization.

Wrong time for delay

The ongoing delay comes just as the first wave of large-scale cellulosic biofuel plants are starting up. Over the first five years of the RFS program, the advanced biofuel industry has made tremendous progress. Companies have invested more than $6 billion dollars to reach the stage of commissioning first-of-a-kind biorefineries and demonstrating the potential for this innovative new technology. And they have created more than 8,000 permanent jobs in the process.

EPA’s inexplicable reversal of the RFS methodology that supported this progress threw an unneeded chill on the industry. Now, some of these companies are looking overseas to build their next projects. Instability in the federal RFS program makes investment in the technology overseas more attractive by comparison.

We hear a lot about reducing U.S. carbon emissions from coal-fired power plants. But without consistency in the RFS program for the future, the United States will lose the opportunity to reduce carbon emissions in the transportation sector and meet the President’s stated climate goals. The so-called blend wall has been a red herring; transportation fuel use is about 2.5 billion gallons higher than projected when EPA formulated the disastrous proposed rule last year.

US adding petroleum instead of alternatives 

Cutting back on use of biofuels this year has meant that the United States is increasing its use of petroleum in the transportation sector, which automatically generates additional carbon emissions – as much as 21 million metric tons this year. It’s the same as putting 4.4 million more cars on the road in one year or opening 5 new coal-fired power plants. It comes close to completely reversing the President’s progress on battling transportation carbon emissions through fuel efficiency standards. If EPA permanently changes the methodology of the RFS, the United States will miss out on nearly 1 billion metric tons of cumulative carbon emission reductions by 2022.

Another factor the administration may not have considered is that if EPA does not correct course on the RFS methodology and continue to encourage investment in advanced biofuels, it will also seriously undercut efforts by states to combat climate change.

Governors ask EPA for action

Democratic Governors Jay Inslee of Washington, Jerry Brown of California, and John Kitzhaber of Oregon recently wrote to the White House to point out that undermining the federal RFS collaterally undercuts their states’ low carbon fuel standards.

They strongly urged EPA to return to the successful methodology that has encouraged companies to build the commercial capacity for advanced biofuels, which their states need to cut carbon emissions in the transportation sector. If the methodology is not corrected in the RFS rule the EPA will be shooting itself in the foot and undermining forward-leaning states as well.

EPA’s announcement last week does provide a small ray of warmth and the potential for positive action to renew growth in the advanced biofuel sector. EPA should now withdraw and bury the proposed rule and its flawed methodology. The agency can then issue a final rule for 2014 that reestablishes the successful course for growth and ongoing commercialization of advanced biofuel technology.

BIO and other associations will continue to make our voices heard as this rulemaking saga continues. The United States has been a global leader in advanced biofuels commercialization and still has an opportunity to retain its leadership in advanced biofuel development.

Let’s hope EPA does not become the Grinch who stole Christmas and instead sparks a Santa Claus rally in advanced biofuels.

 Brent Erickson, Executive VP, BIO; Head, Industrial & Environmental Section