Lawmaker’s bid for RFS compromise starts with plea for ending ‘RINsanity’

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, September 18, 2013

A cohesive plan of action has so far eluded members of a House task force chosen to examine reform of the federal biofuel mandate, but the group’s leader thinks there may be room for compromise in the shadowy world of ethanol credit trading.

Rep. John Shimkus (R-Ill.) said yesterday that he believes boosting the openness of the credit trading market, where deals are made between refiners without any transparency, could possibly help pave the way for an agreement on the renewable fuel standard.

“The question is, what of the challenges of the RFS can people agree to address?” Shimkus said yesterday at a Platts Energy Podium event in Washington, D.C. “There’ll be things that both sides can’t come to reconciliation on, but are there some things that we all say, yeah, that would be helpful?”

Shimkus is leading four House Energy and Commerce lawmakers who are weighing different options for reforming the renewable fuel standard (RFS), which requires refiners to blend 36 billion gallons of conventional ethanol and advanced biofuels into the nation’s fuel supply a year by 2022.

Over the past year, prices for ethanol credits that are used by refiners to show compliance with the standard — known as renewable identification numbers, or RINs — have been one of the major issues raised by refiners in arguments to repeal the standard. Prices jumped from a few cents to $1.44 in July before falling to their current level, about 70 cents. Oil trade groups have warned that the volatility would raise gas prices and cause fuel importers to turn to other markets.

The spike in prices has earned its own Beltway nickname, RINsanity, and was the major focus of hearings on the RFS before the congressional recess. Oil industry trade groups say it’s a signal that the country is reaching the blend wall, or the point where the RFS requires refiners to blend more ethanol into fuel than is feasible in the market.

But the RIN market remains shrouded in mystery, with biofuel producers arguing that speculation is playing a role in the volatile prices. Ethanol groups have pointed to the fact that prices dipped as soon as Congress left Washington, D.C., for its August work break, suggesting that they are more politically motivated than market driven.

Shimkus, whose district includes both refiners and ethanol producers, has maintained that the volatility of RINs is his biggest concern with the renewable fuel standard. He’s also emerged as a Capitol Hill mediator in the debate over the RFS, consistently chiding stakeholders for failing to come to the table and work out a compromise.

RINs may be one area where that could actually occur, he said yesterday.

“Could we agree to some openness and transparency, and is that something that both sides would support?” he said. “I think I’m kind of hoping that will be the case.”

The committee’s actions, though, will hinge on what U.S. EPA does with its renewable fuel targets for next year, Shimkus said.

EPA is required by statute to set each year’s targets for conventional ethanol, advanced biofuels, biodiesel and cellulosic biofuel. A proposal by the agency is currently at the White House Office of Management and Budget for next year, but there is no timeline for its release.

Shimkus said he thinks that if the agency adequately proposes to reduce its overall renewable fuel targets and those for advanced biofuels next year, legislation may not even be necessary. But he said he thinks EPA has performed poorly in previous years by falling behind schedule and overshooting cellulosic biofuel production.

“If they were more realistic, the numbers that could be very, very helpful,” Shimkus said. “If EPA had the strength of mind to really get a handle on this, and we may see with the 2014 numbers, the timing that they come out with and if they are realistic projections, that could be very helpful.”

Ad war

One option that Energy and Commerce Committee members are weighing is a short-term freeze in the annual targets at their current levels.

But Shimkus warned that such a freeze could send the wrong market signal to investors that have poured billions of dollars into building up the next generation of biofuels on the basis that the RFS would be in place and steadily increasing for the next decade.

“You just can’t walk away from that,” he said. “You just can’t say, ‘Ha, you spent $2 billion — forget it. You’re out of luck. You shouldn’t trust the government.’ It would be really unfair.”

At a hearing in July, Shimkus implored the two sides in the debate, represented by the American Petroleum Institute and ethanol trade groups, to come to the table and work toward a compromise. Yesterday, he also downplayed the importance of the Republican task force chosen by Energy and Commerce Chairman Fred Upton (R-Mich.) to examine the standard, saying he hoped it would be a bipartisan effort where all sides could come together.

But in recent weeks, both API and members of Fuels America, a coalition of biofuels supporters, have launched national ad campaigns to promote either repeal of the standard — in API’s case — or no changes whatsoever, in the biofuels industry’s case.

Growth Energy, an ethanol trade group, had its members come to Washington last week to knock on lawmakers’ doors, and tomorrow, API is flying in eight executives of refining companies to meet with members of both the House and the Senate.

“Ultimately, we still feel and are telling the members of the House Energy and Commerce Committee that repeal is the best option,” Bob Greco, API’s director of downstream activities, said yesterday. He added, “Clearly, there’s interest in the Hill. Some members want to repeal it, some members want to reform it. Nobody’s out there saying it’s fine the way it is, don’t change it.”

The National Council of Chain Restaurants is also holding a meeting tomorrow to educate its members on “Feed Food Fairness,” a separate campaign to repeal the standard.

“With all my proclamations and my emotive ability, obviously I didn’t move the needle too far,” Shimkus said, laughing. “I guess my disappointment is the battle ads that are running across not [only] here but also in some parts of the country, which does not make for good negotiations.”

He added, “I’d like for them to play better in the sandbox — but they’re not yet.”