Industry claims EPA memo verifies RFS won’t worsen consumer fuel costs

Source: Niina Heikkinen, E&E reporter • Posted: Monday, June 15, 2015

Biofuel industry leaders say U.S. EPA’s own research supports what they have argued for the past few years: The renewable fuel standard does not have an impact on transportation fuel costs for consumers.

In a press call yesterday afternoon, leaders of the Renewable Fuel Association and Growth Energy lauded the findings of an EPA memo that said when renewable identification number (RIN) prices peaked in 2013, the substantial price increase had a negligible impact on prices on retail transportation fuel with 10 percent ethanol (E10 fuel). For higher fuel blends like E85 or E15, the high prices even drove down costs to consumers.

“It struck us as noteworthy that the EPA is finally openly acknowledging something that we think is very important,” said Geoff Cooper, senior vice president of the Renewable Fuels Association, on the call. “These are not new ideas. In this case, the messenger is as important as the message.”

RIN credits are created by renewable fuel producers or importers and are bought along with renewable fuel by “obligated parties” under the RFS — gasoline or diesel fuel refiners or importers. Once the renewable fuel is purchased, renewable fuel RINs (D6) can be bought and sold separately until they are retired to meet renewable fuel standard requirements. The system was designed to give flexibility to the fossil fuel industry so that industry members do not have to blend renewable fuels to meet standards.

In 2013, D6 RIN prices went from a few cents to more than $1 by the summer. According to an initial analysis by EPA’s Office of Transportation and Air Quality, the jump in price occurred after the renewable fuel standard set volumes that were higher than what could be achieved by blending just 10 percent ethanol into transportation fuel.

EPA’s Dallas Burkholder, the memo’s author, linked the increase in RIN price primarily to E85 fuel and other blends but not to the fuel used by the majority of Americans, E10. He also found no connection between increased RIN prices and biofuel scarcity.

“While RIN prices were significantly higher in 2013 than in previous years, we did not see, nor would we expect to see, a corresponding net increase in the overall retail price of transportation fuels across the entire fuel pool,” Burkholder wrote.

‘Get the RFS back on track’

The reason why consumers do not see any additional cost is because RINs represent a transfer payment that provides a benefit to the seller and a cost to the buyer but doesn’t trickle down to the consumer, said Cooper.

High RIN prices can enable biofuel producers to discount renewable fuels, effectively offsetting the higher petroleum prices that also result from the pricier RINs, according to the memo.

To biofuel industry leaders, the memo also offered further proof that EPA was undermining the intent of the renewable fuel standard by proposing renewable fuel volumes that were below statutory levels and maintaining what they considered to be an artificial blend wall (Greenwire, June 3).

“The evidence is pretty clear, the proposal by EPA certainly does not go forward as called for in the RFS,” said Tom Buis the CEO of Growth Energy, referring to raising renewable fuel volume requirements. “A lot of the hullabaloo that we’ve heard out here over the last few years is ‘Oh my gosh, it will drive RIN prices through the roof, raise consumers’ price.’ It was just rhetoric by those obligated parties who don’t want to live up to their obligation in the renewable fuel standard.”

Under the Energy Independence and Security Act of 2007, the amount of renewable fuel blended into transportation fuel would have to reach 36 billion gallons in the next seven years. EPA’s current proposed volumes for 2016 equal 17.4 billion gallons, slightly less than half the 2022 target.

According to Renewable Fuels Association President and CEO Bob Dinneen, the biofuel industry would be able to break through the blend wall with a strong RIN credit market, since higher RIN prices could incentivize expansion of the industry.

Instead, by limiting the amount of ethanol blended into fuel to 10 percent, EPA was artificially creating a surplus of RINs that was driving down their price and hurting the future of the industry, Dinneen said.

“The EPA needs to scrap this proposal and get the RFS back on track,” he said.

EPA declined to comment for this story.