Fuels battle heats up as Congress mulls law change

Source: Written by CHRISTOPHER DOERING, Des Moines Register • Posted: Monday, April 22, 2013

Several bills have been introduced to scale back or repeal the Renewable Fuel Standard

WASHINGTON — The battle between U.S. ethanol producers and oil companies has reached a turning point, with the winners poised to gain an advantage over the future of the country’s energy mix and the losers forced to cede profits and jobs to their bitter rival.

Ground zero of the battle is the country’s Renewable Fuel Standard — an 8-year-old law that requires refiners to produce alternative fuels from corn, soybeans and other products in an effort to reduce the country’s dependence on foreign oil.

The drop in corn production caused by last summer’s drought pushed the mandate into the spotlight. Critics complained the requirement led to higher corn prices and more expensive feed costs for livestock producers while forcing consumers to pay more for meat at the supermarket. In an unusual alliance, representatives from the livestock industry and consumer and other groups joined forces with the powerful oil and gas industry to attack the embattled policy.

In recent months, the public relations push and all-out lobbying blitz on Washington lawmakers has intensified following the introduction of legislation that would scale back or end the controversial mandate. The American Petroleum Institute, the trade group that represents 500 oil and natural gas companies, including ExxonMobil and ConocoPhillips, has targeted the Renewable Fuel Standard as a top priority in its lobbying efforts in 2013.

If last year was any indication, ethanol advocates and other proponents of renewable fuels will be significantly outspent. The oil and gas industry doled out $140 million on lobbying Congress and federal regulators on a variety of issues in 2012, compared with about $4.2 million from the major ethanol trade groups and companies, according to financial disclosures analyzed by the Center for Responsive Politics.

“It’s almost any attack a day, an incoming attack a day by oil, and we see it from them and from their allies. This is a desperation move … to try to get Congress to repeal the Renewable Fuel Standard,” said Tom Buis, chief executive of Growth Energy, an ethanol trade group. “I’m confident that we’ll be able to beat back the attempt by the API.

“When we educate policymakers, they get it and they understand it. This year is a very critical time” for us, he said.

Adding more ethanol draws fire

The steadily growing Renewable Fuel Standard requires the blending of advanced biofuels, cellulosic biofuel and ethanol made from corn. By 2022, 36 billion gallons of renewable fuels are required to be part of the nation’s fuel supply. While most gasoline contains E10 — a mix of 10 percent ethanol and 90 percent gasoline — the government has approved a blend with 15 percent ethanol (E15) in newer vehicles, but it has been slow to be adopted by fueling stations.

Not surprisingly, the bills to change or repeal the Renewable Fuel Standard have come from lawmakers representing states with little agriculture or parts of the Midwest where ethanol is not as big a part of the farm economy.

Legislation introduced this month would essentially eliminate the Renewable Fuel Standard. It would end corn-based ethanol targets requiring a specific number of gallons made from the crop to be included in the fuel supply. The amount of the renewable fuel allowed in gasoline also would be capped at 10 percent — rather than the 15 percent now allowed — and annual targets for cellulosic ethanol use would have to be set at a level reflecting what the market can realistically produce. The Environmental Protection Agency has been criticized for being too aggressive in setting production levels for the nascent industry in an effort to foster growth. Another bill would order the EPA to withdraw its approval of the 15 percent ethanol blend.

Any success in significantly altering the Renewable Fuel Standard would likely thwart the ethanol industry’s long-term plan of expanding the use of its fuel in gasoline and diesel. More important, it would likely stymie the rollout of the next wave of renewable fuels known as cellulosic ethanol, which is made with crop residue, grasses, wood chips and other materials. Cellulosic fuels have advanced more slowly than envisioned, but they are viewed by the industry as a critical source of growth.

“If we don’t allow the RFS to stand, if we don’t move to higher blends of ethanol, we’re not going to see cellulosic ethanol become a reality in this country,” said Jeff Lautt, chief executive of ethanol producer Poet. The company, based in Sioux Falls, S.D., is working with Dutch-based DSM Advanced Biofuels on a cellulosic facility adjacent to Poet’s corn-fed ethanol plant in Emmetsburg, Ia.

‘Blend wall’ halts growth of renewable fuels

The oil industry claims it has hit the “blend wall,” a threshold where refiners are reluctant to blend gasoline with more than 10 percent ethanol because most automakers say their cars are not equipped to handle the higher blend rate.

Big Oil has been reluctant to back a 15 percent ethanol blend approved by the EPA for cars built since 2001, citing a lack of demand from the public and concern from gas station operators and refiners who are fearful they could be held liable if the fuel damages automobile engines.

As the Renewable Fuel Standard requires increasingly more gallons of ethanol to be blended into the fuel supply, the failure of E15 to gain traction has made it difficult for refiners to meet the government mandate.

Refiners can purchase special credits known as renewable identification numbers in exchange for not blending the ethanol. As concern over the blend wall intensified, RIN prices soared to above $1 in March from a few cents earlier in the year. Ethanol backers have downplayed those concerns and said any problems refiners are having with the blend wall and high RIN prices are self-made.

Bob Greco, API’s downstream director, said the spate of legislation being introduced is the result of the growing concern and frustration over the many problems of the Renewable Fuel Standard.

“What you are starting to see is people taking the next step and saying, ‘Look, this whole act is irretrievably broken and needs to be repealed,’ ” he said. “We do see this as a crisis in the making, and we want Congress to address this as quickly as possible.”

In the coming weeks, Greco said API will work to “educate” members of Congress on why the Renewable Fuel Standard should be repealed.

He also will be closely watching for action from the EPA, the government branch charged with overseeing the mandate. In January, the EPA proposed the production of 2.75 billion gallons of advanced biofuels as part of a broader output of 16.55 billion gallons of renewable fuels in 2013. The hope, Greco said, is that the EPA lowers the advanced fuel component in the final rule, pushing the overall renewable fuel volume lower and getting the mandate below the closely watched blend wall.

As the oil industry tussles with the renewable fuels industry, it also has been challenged by gasoline consumption, which peaked in 2007. Since then, fuel demand has declined as motorists drive less and fuel standards in cars and trucks improve. As a result, Big Oil has been forced to fight even harder to defend its turf and prevent further inroads on its lucrative market share from ethanol.

Can agriculture bloc stop bills to change RFS?

Iowa State University economics professor Bruce Babcock said it will be difficult for ethanol opponents in Congress, especially in the Senate, to gather enough support to usher in meaningful change.

“It only takes 41 senators to block anything. I think you probably have 41 (agriculture) senators. This is really important to agriculture,” he said. “Plus, the RFS has been the law of the land for a long time, since George Bush signed it, so it’s going to be an uphill struggle to get Congress” to act. Most of the important actions in the Senate require the support of at least 60 of its 100 members to proceed.

“Once the facts are made abundantly clear, I’m hopeful that efforts to undermine the Renewable Fuel Standard will fail,” said Sen. Chuck Grassley, R-Ia., who vowed to continue educating his colleagues in Congress about the importance of the policy. Fellow Iowa Sen. Tom Harkin, a Democrat, vowed to “fight any efforts to overturn or roll back the RFS.”

Proponents of renewable fuels promote the economic benefits of ethanol on the rural landscape and tout the money people save when filling up their cars. They also highlight its impact in helping the environment and reducing the country’s dependence on foreign oil — now 41 percent, down from 62 percent in early 2009.

“You always want to be open to ways in which you can improve the program, and we shouldn’t forestall or shut that process off, but it is important to say that this program has worked,” Agriculture Secretary Tom Vilsack said in an interview.

“I would sincerely hope that Congress understands the benefits of this program and does not take precipitous action because one industry feels competitively threatened by it.”