EPA should address yearly RFS delays to help refiners — GAO

Source: Amanda Peterka, E&E reporter • Posted: Tuesday, April 15, 2014

The federal renewable fuel standard is one of the major changes facing the U.S. petroleum refining sector in recent years and has contributed to declining petroleum fuel consumption, as well as increased regulatory uncertainty and compliance costs for refiners, according to the government’s watchdog agency.The Government Accountability Office said in a report completed last month and released today that U.S. EPA should come up with a plan to address the delays in issuing yearly renewable fuel targets to help address some of the challenges with the biofuel mandate.”A late RFS contributes to industry uncertainty, which can increase costs because industry cannot plan and budget effectively, according to some stakeholders,” the watchdog said.

Republican Sens. David Vitter (La.) and Jim Inhofe (Okla.) asked GAO to conduct the study of the domestic petroleum sector and the market environment. Between November 2012 and March 2014, GAO reviewed studies and financial regulatory statements, as well as interviewed 32 stakeholders from refining companies, environmental groups, consultants and officials.

GAO concluded that two major issues facing refiners are increasing domestic production and declining fuel consumption. According to GAO, the renewable fuel standard through which EPA sets yearly targets for ethanol and advanced biofuel use is one of two key regulations facing the petroleum sector; the other is EPA’s fuel economy and greenhouse gas vehicle emissions standards.

Both the RFS and emission standards have reduced consumption of petroleum fuels, according to GAO’s review of literature and interview of stakeholders. The RFS has also increased compliance costs and investor uncertainty, largely because of EPA delays in issuing the yearly targets, stakeholders told GAO.

EPA, for example, issued the 2013 renewable fuel targets eight months later than the statutory deadline of Nov. 30. The agency has yet to finalize this year’s targets.

“When the RFS standards are issued late, the industry has less time to plan and budget effectively,” GAO said.

EPA, though, told GAO that it did not believe delays affected market participants. According to the report, the agency said that the delays in issuing the RFS have mostly been due to the regulatory process, which includes interagency reviews of public comment periods.

EPA should conduct a review of its experience issuing RFS regulations and better identify the underlying causes of the delays, GAO recommended.

The costs associated with the ethanol credits that are used to show compliance with the RFS vary for individual refiners, GAO also found. Credit prices spiked from a few cents at the beginning of last year to more than $1.40 in July and then fell again toward the end of the year.

One refiner told GAO that the cost of purchasing credits exceeded the company’s entire operating budget, including labor and electricity, for a period during 2013. An Exxon Mobil official, on the other hand, said that the RFS credit costs did not have a significant impact because the company blends its own renewable fuels.

In general, GAO said that the future of the U.S. refining sector depends on future U.S. consumption of petroleum products, the extent to which environmental regulations raise costs for refiners, and the ability of U.S. refiners to export and compete in international markets.