Industry upbeat about elections but girds for ‘bumpy’ year

Source: Amanda Peterka, E&E reporter • Posted: Friday, November 9, 2012

Proponents of the renewable fuel standard are girding for a tough year ahead despite scoring what they characterize as victories in the elections this week.

They expect there will be congressional attempts to reform, if not outright repeal, the standard, which mandates certain levels of both traditional ethanol and advanced biofuels be blended into the fuel supply each year. The RFS could rise to the No. 1 energy issue in Congress next year, some industry observers predict.

The biofuels industry has already taken a beating this year as opponents have used the drought as a talking point, blaming ethanol for driving up corn prices.

“This has by all accounts been a really challenging year, and 2013 is shaping up to be pretty bumpy as well,” Jim Collins, president of DuPont Industrial Biosciences, said last week at the advanced biofuels industry’s annual conference in San Francisco.

Yet the industry says it scored a few victories Tuesday, beginning with the re-election of President Obama.

While both Obama and Republican presidential nominee Mitt Romney expressed support for the RFS during their campaigns, the Obama administration has a track record of supporting ethanol, said Renewable Fuels Association President and CEO Bob Dinneen.

“I do see it as a good night for ethanol,” Dinneen said of the election. “We were in the enviable position where both candidates expressed support. The Obama administration has been very supportive of ethanol throughout its administration.”

Dinneen and other leaders in the biofuels industry said they were also encouraged by several Senate elections where opponents of the RFS were defeated.

“I think in terms of the RFS and the ethanol industry, we clearly strengthened our hand,” said Tom Buis, president of Growth Energy, the other major ethanol trade group.

In Indiana, Rep. Joe Donnelly (D) defeated Richard Mourdock (R), a tea party-supported candidate who had vocally opposed the renewable fuel standard in his campaign. In Wisconsin, voters elected Rep. Tammy Baldwin (D), who has long been a supporter of renewable energy.

Incumbent RFS supporters were also re-elected in Senate races in Missouri, Florida, Minnesota and Ohio, among others.

“It was a clearly hard-fought, bitter campaign. Clean energy solutions were a focal point for debate, and unfortunately they were attacked on many occasion. The bottom line for us is that the attacks on clean energy really didn’t work,” said Ernie Shea, project coordinator at the 25x’25 Alliance. “It’s not that the arguments and the debates are going to be any easier going forward, but we passed a significant milestone.”

The oil industry, which has led opposition to the RFS and the introduction of increased levels of ethanol in gasoline, also saw gains in the Senate, said Stephen Brown, a lobbyist for Tesoro Corp.

Brown counted Donnelly as “approachable” on general oil and gas issues and said that newly elected North Dakota Sen. Heidi Heitkamp (D) would be “strong, if not stronger” than Republican Rep. Rick Berg, whom Heitkamp defeated.

Along with Democratic Sens. Mark Begich of Alaska, Mary Landrieu of Louisiana, Joe Manchin of West Virginia, Mark Pryor of Arkansas and Max Baucus of Montana, Donnelly and Heitkamp make up seven votes that Republican supporters of the oil industry can add to their numbers, Brown said.

It is not clear how that would play out with RFS-related issues, especially with Donnelly, but the election results give the oil and gas industry a sense of optimism despite Romney’s loss at the top of the ticket, Brown said.

“The oil and gas caucus surprisingly got bigger last night,” Brown said yesterday.

Eye on EPA

Before the congressional battles begin next year, U.S. EPA is expected to issue several biofuels-related rules that became backed up in the regulatory pipeline as the elections neared. First among those is a decision on whether to waive the renewable fuel standard for up to a year in response to the drought and high corn prices.

EPA is expected to announce a decision any day now, most likely next week. Proponents and opponents of the waiver alike expect the agency will deny the requests for the waiver, which were made by livestock-state governors at the end of the summer.

In the next few months, EPA is also expected to issue targets for next year under the renewable fuel standard. Every year, the agency sets requirements for how much traditional ethanol and advanced biofuels, including biodiesel, needs to be blended into the gasoline supply.

The targets for cellulosic biofuel in particular will likely trigger a backlash from the oil industry, which says that the requirements until now have been unrealistic given the small amount of cellulosic biofuel currently produced in the country. This past year, EPA has required refiners to blend 8.65 million gallons of cellulosic biofuel into gasoline, compared with the 20,000 gallons that has been produced and recorded under the RFS this year.

The biofuels industry says that aggressive targets are needed to help grow the nascent advanced industry, which will use feedstocks such as grasses and agricultural residue rather than corn. Oil industry groups, several of which have filed lawsuits against EPA on the targets, say that the agency has penalized them for not blending what they call “phantom fuels.”

“EPA again is going to come out with a large number most likely for the cellulosic ethanol standard for next year that will be impossible to meet, given their track record,” said Dan Simmons, director of regulatory and state affairs at the Institute for Energy Research.

EPA is also working on several pathways for fuels to be available for credit under the renewable fuel standard. Among them is the politically charged feedstock palm oil, which environmentalists say has spurred deforestation in Southeast Asia. Also in EPA’s queue are decisions on Arundo donax, camelina, energy cane, napiergrass and renewable jet fuel.

Biofuels organizations and companies that plan to use the feedstocks say that the new pathways are critical to growing the cellulosic ethanol and other advanced biofuel industries.

And the agency is expected to release a proposed rule before the end of the year on addressing fraud in the renewable fuel credit market, prompted by a string of fraud cases in the biodiesel industry in the past year (Greenwire, Nov. 1)

EPA’s decision on the one-year waiver especially will drive the conversation going forward, said Michal Rosenoer, biofuels policy campaigner at Friends of the Earth, an environmental group that wants to see the renewable fuel standard repealed.

“More so than what EPA and the administration is going to do, it’ll be interesting what interest groups do,” Rosenoer said. “The EPA’s decision on whether or not to grant a waiver will definitely produce a pivot point to start talking about RFS reform in a real way. If the EPA fails to act on skyrocketing food prices, it’s going to put the pressure on Congress to take that reform into their own hands.”

Next year, biofuels organizations and opponents alike expect to see hearings in the House Energy and Commerce Committee on the renewable fuel standard. While opponents say they want a full repeal of the RFS, they expect to have more success pushing for smaller changes, said Brown of Tesoro.

“The RFS will be challenging but not impossible to get out of the House. An RFS reform bill will get out of the House. Depending on how reasonable it is, I would say the chances of better reception now in the Senate are enhanced,” Brown said. “Something less than outright repeal — legitimate reform, not repeal. That’s not to say that we won’t make a pitch for repeal and that repeal makes the most sense.”

Another priority is dealing with the outstanding issue of liability for any damages that occur from vehicles using E15, or gasoline blended with 15 percent ethanol, Brown said. Rep. John Shimkus (R-Ill.) introduced a measure this past year that would protect refiners from liability for blending E15, which opponents say will damage car engines, but it did not get past committee.

Simmons said he expects to also see legislative action next year on the cellulosic biofuel targets, depending on the outcomes of the various lawsuits filed by oil industry groups. This year, Rep. Jeff Flake (R-Ariz.) introduced the “Phantom Fuel Reform Act” to require EPA to tie yearly cellulosic biofuel targets to actual production instead of estimated gallons, but it did not go anywhere.

Simmons said it would also be somewhat of an uphill battle next year but that there may be some room for middle ground.

“With a divided Congress and a substantial number of Republicans that favor biofuels, it will be very difficult to roll back the mandate,” Simmons said. “It might be possible to make the mandate so that it’s much closer to reality.”

Biofuels groups are against any changes to the RFS, worried that they would prompt amendments and cascade to an outright repeal.

“A lot of things they are suggesting sound pretty reasonable. ‘We’ll do a little definition change here, we’ll do a little definition change there,'” Brooke Coleman, executive director of the Advanced Ethanol Council, said in San Francisco last week. The problem “is not that those things are unreasonable. The problem is that if you cut a little square in the chicken wire in the chicken coop, it’s not the first guy through the hole. It’s the other guys that pour in there and go after this thing, and all of a sudden we’re talking about up-or-down floor votes on the RFS.”

API enters the messaging war

Regardless of what happens in Congress, the messaging tug of war between the oil and biofuels industries is likely to continue next year.

Jack Gerard, CEO of the American Petroleum Institute, today said that he thinks the renewable fuel standard would be a “hot topic” next year and that API plans to “participate in that debate in a very aggressive way.”

“I think fundamentally this is going to be a serious part of the energy debate,” Gerard said, “and we will be major players in it and are working through precisely what we’d like to see in the outcome, but the renewable fuel standard as currently constituted needs to be reworked.”

Biofuels, agricultural and national security groups recently formed a new coalition, Fuels America, to specifically push for the renewable fuel standard and to counter claims by the oil industry and livestock and environmental groups (Greenwire, Sept. 27).

“In the months to come, you can expect this coalition to do its utmost to reset the national conversation on renewable fuels,” said Collins of DuPont, which is one of about 20 entities in the group.

The American Coalition for Ethanol, a trade group that is also part of Fuels America, plans to focus in the coming year on shoring up support in the Senate, said Brian Jennings, the group’s executive director. Members of the group will be in town in March for their annual fly-in.

“We’re not going to ignore the House, but I think for our 2013 fly-in, there will be heavy emphasis on ensuring there are 41 votes in the Senate on our side at a minimum,” Jennings said. “We feel like we can and should have more. … If we don’t proactively go to the Hill through our fly-in and other efforts and tell the story of why the RFS is still important and why it’s working, then I don’t think we’re going to like the consequences.”

The groups think they have allies in Obama and Agriculture Secretary Tom Vilsack, who has not shown any signs of leaving next year.

“There’s always a chance that the [opposition] groups are successful. So far Congress has been reluctant to move a bill to change the RFS. You sort of have to have the blessing of the president to have parties move on something like this,” Coleman said. “I think the threat is still there anytime the oil industry is involved. We have to fight it just as strongly as before the election.”