Fuels America Coalition Speaks Out on RFS’s Future

Source: By: Kevin Adler, OPIS • Posted: Wednesday, November 26, 2014

Washington, D.C. — EPA’s announcement on Friday that it will delay its finalization of the 2014 RFS and combine it with rulemaking for the 2015 and 2016 program mandates is a relief for the biofuels industry, in the sense that the 2014 proposal “was highly problematic,” said one member of the Fuels America coalition today, but he added that the industry is far from complacent about what will be the outcome when the new rules are created.

Speaking in the Dirksen Senate Office Building today at a briefing for Senate staff members and reporters, Brooke Coleman, executive director of the Advanced Ethanol Council, joined three biofuels colleagues in giving a perspective on EPA’s unprecedented decision and the actions that stakeholders are likely to pursue in the next few months.

“The [Obama] administration got us into a box with its proposal, but the administration deserves some credit for trying to pull us out,” Coleman said. “EPA has continually said it supports the RFS and biofuels,” said Tom Buis, executive director of ethanol trade group Growth Energy. “This is a chance to show it [by] getting back on track with a regular schedule and proper methodology.”

“EPA would have irreparably harmed the RFS program” if it went ahead with the 2014 proposal that reduced, for the first time, the conventional ethanol Renewable Volume Obligation (RVO), said Bob Dinneen, president and CEO of the Renewable Fuels Association. “The blending level would have been determined by the oil companies.”

Dinneen was referring to EPA’s explanation that the 10% biofuels “blendwall” that concerns the oil industry would be a reason to place an annual RVO ceiling on ethanol. But that is not in the legislative or regulatory language, he said, and EPA is apparently having second thoughts. “I think it’s pretty clear that if EPA was comfortable with that methodology, it would not have pulled back the rule,” he said. “However, it’s not a given that they are willing to abandon the methodology in the rule next year. It’s our opportunity to work with them.”

Dinneen added that he considers EPA’s plan to conduct a multi-year rulemaking “to be a good sign. It will provide the certainty that we’ve lacked, due to late rulemakings and lawsuits,” he said.

Nonetheless, the biofuels industry will be challenged by the continued uncertainty that a delayed program generates, said Brent Erickson, executive vice president, Biotechnology Industry Organization. “It’s left the advanced biofuels industry at a bit of a disadvantage for 2015, 2016 and beyond,” he said. “I’m hopeful that EPA will reverse itself and get back on track. … Without greater certainty, there won’t be growth in advanced and cellulosic biofuels in this country.”

Erickson and Coleman said that the investments in cellulosic plants came online this year and are due online next year might not be followed by similar investments, unless lenders are confident that the RFS will continue to spur development of biofuels. “We will start to see capital flight from the U.S. if uncertainty remains,” said Erickson, noting that Enerkem announced that its first plant outside of Canada will be in China, not the U.S.

One issue on which the biofuels industry will continue to try to educate Obama administration members is how Renewable Identification Numbers (RINs) work, said Dinneen. This is a carryover from 2013, when RINs prices spiked above $1 for several months, and the oil industry complained loudly that it was raising gasoline prices. “I looked at rising RINs prices in 2013 as the market working, but White House bean counters saw it as linked to rising gasoline prices,” said Dinneen to the Senate staffers in the room. “They still don’t quite have their minds around that issue.”

The point is that rising RINs prices incentivize the expansion of biofuels use, as companies will install blend pumps for E15 and higher blends of ethanol, in order to generate more RINs. Those companies that do not wish to sell higher blends can buy the RINs, he and Buis explained.

However, oil companies are effective at shifting the discussion, said Dinneen, even though the net cost to the industry of RINs is negligible because they are traded among obligated parties. “There’s no economic harm here,” he said. Buis said that the biofuels industry will continue to remind EPA that “it’s all about market share — plain and simple. We took 10% of the market, and we’re on the cusp for more. Ethanol is the cheapest fuel in the world, and they [refiners] know it. So what they do is throw up roadblocks and hurdles.

“When the RFS [second RFS] was passed in 2007, everyone knew this day would come that higher blends would need to be used,” Buis continued.

That’s why the industry will emphasize that more than 70% of 2015 model year cars have warranties that explicitly say that E15 blends can be used, and why the biofuels industry will push for greater market use of E15, E85 and blends in between.

Finally, in response to several questions, none of the speakers said that they fear that the new Republican-controlled Congress will make reforming or repealing the RFS a priority. “The assumption that Republicans are going to turn on the RFS is wrong. It’s hard to be on the other side of the RFS,” said Coleman, given the importance that biofuels and agribusiness plays in so many parts of the country, and the number of jobs created by the emerging bioenergy industry.

“The RFS is a regional, non-partisan issue,” Dinneen added.