Ethanol’s backers come out swinging to defend industry

Source: Written by CHRISTOPHER DOERING, Gannett Washington Bureau, Des Moines Register • Posted: Monday, November 25, 2013

Supporters launch an attack against a plan to trim the fuel mandate

U.S. Rep. Steve King, R-Ia., speaks Friday at the Iowa RFS Coalition’s ‘Defend the RFS’ event held at Lincolnway Energy in Nevada, Ia. / Andrea Melendez/The Register

WASHINGTON, D.C. — Ethanol supporters are mounting an all-out lobbying blitz they hope will persuade the White House to backtrack on its decision to reduce the amount of the renewable fuel required to be mixed into the country’s gasoline supply next year.

Backers of ethanol face a daunting task trying to roll back the Environmental Protection Agency’s proposal, however. Those who follow the ethanol debate say it will be hard to convince the EPA to reverse course after the agency has said for months that the law is not working as well as expected. The ethanol industry also must rebuff a powerful lobbying campaign from the oil industry and a push from some Washington lawmakers who want to change or end the mandate.

“We know what we are up against,” said Tom Buis, chief executive of Growth Energy, a group that represents ethanol producers. “We will try to … turn around the EPA’s thinking on how to move forward with the” ethanol requirement.

Just over a week ago, the EPA proposed cutting the fuel requirement in 2014 to 15.2 billion gallons of ethanol and other biofuels, 3 billion gallons less than Congress required in a 2007 law. Traditional biofuels, composed mostly of corn, would be reduced to 13 billion gallons from 14.4 billion.

The White House has made renewable fuels a focal point of its energy agenda. The decline would mark the first time the administration has scaled back the blend level. It also would deal a blow to ethanol producers and put the White House in the unusual position of being aligned with the oil industry.

Ethanol backers see difficult road ahead

With billions of dollars of potential profit on the line, ethanol producers, corn growers and other groups know they have a tough road ahead and a limited window in which to change the thinking of the EPA and White House officials overseeing the mandate, known as the Renewable Fuel Standard. The law requires refiners to buy alternative fuels made from corn, soybeans and other products. The EPA proposal will be open to a 60-day comment period; the agency is expected to finalize the rule in the spring of 2014.

Biofuel producers have wasted little time trying to get their message through to the Obama administration. On Wednesday, just five days after the measure was made public, representatives of Growth Energy, the Renewable Fuels Association, ethanol maker Poet, the National Corn Growers Association and others met with Secretary of Agriculture Tom Vilsack, White House staff and EPA officials. The industry representatives underscored the damaging impact the proposal would have on the future of biofuels.

Vilsack said administration officials told the biofuels industry they remain committed to the renewable fuels requirement and “understand the importance of it” for offering consumer choice, creating jobs, reducing the country’s dependence on foreign energy and saving motorists money at the pump. The former Iowa governor said more needs to be done to expand consumer access to higher-grade ethanol blends such as E85, which includes 85 percent of the corn-based fuel.

Critics of the EPA proposal contend they must act to prevent a permanent shift in the way blend levels are determined. In the past, the EPA largely followed the annual level requirements put in place by Congress, helping to drive new markets and spur demand for the renewable fuel. The proposed reduction — a move even some in the oil industry have called substantive — would shift the process to one that sets the requirements based on expected market demand.

Industry considers lawsuit to stop cut

The ethanol industry is expected to push ahead with more meetings with White House officials, publish its own remarks during the EPA’s comment period, and pepper the television airwaves and print media with advertisements touting the benefits of its product.

Bob Dinneen, president of the Renewable Fuels Association, said the EPA overstepped its authority under the law. He raised the specter of a legal challenge if the agency does not reverse course in the final rule.

“We are hopeful that in the comment period the agency evaluates this issue with a little more thought and ultimately modifies its proposal,” Dinneen said. “If they don’t, we are going to evaluate our options from there, and we do think the legal underpinning, their existing reasoning, is highly vulnerable to a legal challenge.” If a lawsuit did occur, he said, it would be after the EPA finalized the rule.

While much of the ethanol backers’ attention will focus on the EPA, they also will need to watch Capitol Hill, where some lawmakers have shown a willingness to consider changing the Renewable Fuel Standard through legislation. It’s not clear whether the move by the EPA will go far enough to appease those in Congress, or whether they will move ahead with efforts to roll back or repeal the mandate.

“In the meantime, you’ll have this political process ongoing on the Hill and sort of intense interest to see what form the final rule will take. Does the proposal go far enough, or are permanent fixes to the program necessary?” said Salo Zelermyer, a senior counsel with Bracewell & Giuliani who focuses on energy and environmental policy. The firm represents a number of clients in the petroleum refining sector.

Bruce Babcock, an Iowa State University economist, said despite the pleas from the ethanol industry, the EPA is “unlikely” to change the 2014 benchmark after listening to all the comments. “EPA, I’m sure, was fully aware of the arguments pro and against pushing through the blend wall, and they chose not to do it,” Babcock said. “This is a major policy reversal.”

10 percent ethanol forms a ‘blend wall’

The blend wall is at the center of the ethanol argument. When Congress updated the Renewable Fuel Standard in 2007, it expected consumer demand for fuel to keep increasing. That is why the law required annual increases in the blending level through 2022.

But as consumers have driven less and automobiles have become more efficient, the need for fuel has dropped, making it harder for the annual ethanol requirements to be met as refiners hit the so-called blend wall. Most fuel today contains 10 percent ethanol. Higher-grade blends, such as E15 or E85, have not grown fast enough to absorb more ethanol to meet the congressional mandate. The EPA has said there are not enough pumps and other infrastructure now in place to absorb more than 10 percent ethanol.

The combination of greater efficiency and limited infrastructure has kept demand lower than it otherwise might have been, leading to the bump against the blend wall — a factor the agency cited in its proposal.

Among the ethanol lobby’s possible legal arguments: Congress did not include infrastructure as a factor in setting the blend levels, Dinneen said. By including the blend wall and infrastructure challenges into the process, that “is the minute you turn the RFS over to the oil companies, because they are the ones that get to control that, how much infrastructure is used and whether they want to provide the market access of our fuel to the consumer,” he said. “History has demonstrated time and time again that they would do everything in their power to prevent that from happening.”

For their part, opponents of the Renewable Fuel Standard, led by the American Petroleum Institute, have said the policy is outdated and demand for the higher blend levels has not materialized. API, which represents more than 500 oil and gas companies, called the EPA proposal a good first step

“For the first time, EPA has acknowledged that the blend wall is a dangerous reality and that breaching it would (have) serious impacts on America’s fuel supply and would be harmful for American consumers,” said Jack Gerard, head of the API. “Ultimately, Congress must protect consumers by repealing this outdated and unworkable program once and for all.”

“Certainly this proposed rule sends a mixed message to all areas of the market,” said Jeff Lautt, CEO of Poet. “I think it will stymie growth in all facets, whether it’s biodiesel, corn ethanol and clearly cellulosic. You wouldn’t want to invest and build out additional capacity when we’re going to put a box around the potential production limitations around the industry.”