Final Lobbying Push on 2014 RFS Begins; Analysts Say Significant Increases Unlikely

Source: By: Ari Natter, Bloomberg BNA • Posted: Thursday, August 28, 2014

Aug. 26 (BNA) — White House review of the Environmental Protection Agency’s final 2014 renewable fuel standard has set off a lobbying frenzy by groups seeking last-minute changes, but analysts say significant increases in the proposed volume obligations are unlikely.

Only “marginal” increases are expected when the Office of Management and Budget wraps up its review of the EPA proposal, which would require petroleum importers and refiners to blend a total of 15.21 billion gallons of renewable fuels into their products, Timothy T. Cheung of ClearView Energy Partners told Bloomberg BNA. That’s nearly 3 billion gallons less than the 18.15 billion gallons required by the Energy Independence and Security Act of 2007 (Pub. L. No. 110-140).

“EPA is likely to stick with the proposed framework,” said Cheung, who serves as a vice president and research analyst for the Washington, D.C.-based consulting firm.

Although some farm state lawmakers such as Sen. Al Franken (D-Minn.), whose state is home to Minneapolis-based biodiesel producer Cargill Inc., have suggested the final RFS figures will be increased, any increase will probably be “modest,” said Rob Barnett, a Bloomberg Government energy analyst. Franken is up for reelection in November.

‘Modest’ Increases Possible

“If EPA acts too aggressively, I think the whole thing breaks down,” Barnett said in an e-mail. “My expectation is that the final requirements will be significantly below the 18.15 [gallon] legislated target and probably below 16 billion gallons.”

The 2014 proposal, released by the EPA in November 2013, included for the first time reductions in requirements for total advanced biofuels as well as a steep reduction in the amount of cellulosic biofuel required, angering renewable fuel supporters and drawing cheers from the oil industry, which could face fines as high as $32,500 per day of violation if unable to meet the standard .

Specifically, the proposal would reduce requirements for cellulosic biofuels from 1.75 billion gallons to 17 million gallons, the requirement for advanced biofuels from 3.75 billion gallons to 2.2 billion gallons and the cap on the amount of corn ethanol that may be used to meet the total requirement for renewable fuels from 14.4 billion gallons to 13 billion gallons.

While ClearView said the ethanol requirement may be increased to 13.6 billion gallons in the final rule, the biodiesel requirement is likely to remain at 1.28 billion gallons—the same level the EPA called for in the proposal.

“We cannot rule out, however, that political pressure could lead to marginal increases in some portions of the 2014 RFS,” the company said in an Aug. 22 research note, which laid out an “alternate scenario” under which he EPA would increase the cellulosic target from 17 million gallons to 25 million gallons and the biodiesel target to 1.39 billion gallons.

Publication Expected Before Election

While OMB technically has up to 90 days to complete its review of the rule—a scenario that would put its publication in the Federal Register after the early November midterm elections—most analysts said they expect it to be published in late September or October.

That leaves advocates on both sides of the issue with a narrow time frame to advocate for changes.

Among them is Rep. Bruce Braley (D-Iowa), who is in a tight election against Republican state Sen. Joni Ernst for an open Senate seat in the country’s largest biofuel-producing state.

“Those who have invested in the future of our nation’s energy independence based on the RFS deserve to know exactly what is taking place behind closed doors and influencing the future of our nation’s energy policy,” Braley wrote in an Aug. 25 letter to OMB Director Shaun Donovan. “I urge you to reject any Rule that cuts biofuels, recognizing that this would be detrimental to our nation’s energy supply and consumer choice at the pump.”

In comments submitted to the EPA earlier in August, the Biotechnology Industry Organization, which represents biofuel makers and related companies such as Novozymes and DuPont, said the 2014 renewable fuel standard as proposed “undercuts investment and impedes progress in advanced biofuels.”

“Advanced biofuel companies are deeply concerned that the 2014 proposed rule is a fundamental change in direction and sets a troubling precedent for the RFS in 2014 and beyond,” BIO wrote. “Stakeholders are making decisions now—based on EPA administration of the RFS—that will impact the types of renewable fuels produced and sold in future years.”

Ads, Letters, Comments

Other groups that urged the Obama administration to increase the 2014 renewable fuel standard volume obligations include the National Farmers Union and a coalition of companies including Monsanto Co., Archer Daniels Midland, Abengoa Bioenergy and Poet LLC, which placed an full-page open letter to President Barack Obama in the Martha’s Vineyard Gazette while the president was vacationing there.

“You have always been a strong champion of advanced biofuels and we know it is not your intent to undercut investment,” the Aug. 22 ad read. “It’s not too late to get the final rule right, so together we can make the United States the leader in producing the cleanest fuels in the world.”

The American Petroleum Institute, which represents Chevron Corp. and Exxon Mobil Corp. and which has called for the RFS to be repealed, urged the EPA to maintain its cut to the 2014 blending requirement.

“We urge the EPA to set the 2014 ethanol mandate to no higher than 9.7 percent of gasoline demand to avert the blend wall and the potentially severe economic damage that goes along with it, while preserving consumer choice at the pump for non-ethanol gasoline,” Bob Greco, the API’s downstream group director, said in an Aug. 26 statement e-mailed to Bloomberg BNA.

The blend wall—the point at which no more ethanol can be added to gasoline without compromising engine performance, typically 10 percent—was one of the factors the EPA cited in its decision to lower the proposed 2014 RFS.

“The RFS is a fatally flawed and grossly mismanaged program that has saddled consumers with higher prices and leaves the environment worse off, not better,” Thomas Pyle, the president of the Institute for Energy Research, a nonprofit with ties to the Koch Brothers and the oil industry, said in a statement provided to Bloomberg BNA. “The fact that the EPA was nearly nine months late in releasing this year’s requirements only reinforces the need to take Washington politics out of our nation’s fuel and farm policies.