Oil, Ethanol Groups Ramp Up Attacks On EPA’s Proposed Multi-Year RFS

Source: By Stuart Parker, Inside EPA • Posted: Monday, August 3, 2015

Oil and ethanol groups are ramping up their competing attacks on EPA’s proposed multi-year renewable fuel standard (RFS) for 2014 through 2016, while lawmakers who criticize the program for setting overly ambitious targets for renewable fuel production continue to push legislation that would overhaul or fully repeal the RFS.

EPA took comment through July 27 on its proposal that would establish the fuel volumes for three years under the RFS, which aims to promote the use of fuels that emit fewer greenhouse gases (GHGs) than conventional gasoline. Immediately after the proposal’s release, oil industry officials said the fuel targets were too high while alternative fuel groups argued they were too low — and the comments filed on the rule largely echo those claims.

The oil sector, backed by various consumer groups and petroleum marketers, is warning that despite EPA’s acknowledgment in the rule of the “blend wall,” or the point at which no more ethanol can be blended into the fuel supply, the proposal still calls for more ethanol blending than the country can reasonably handle.

Ethanol groups continue to attack the proposal for setting ethanol volumes below levels mandated by Congress, denouncing the blend wall as an artifact resulting from the oil industry’s grip on fuel distribution infrastructure. They say EPA’s use of Clean Air Act waiver authority to lower the volumes from statutory levels is unlawful.

Some advanced biofuels producers, meanwhile, are attempting to pursue a middle course with their position on the proposed rule, arguing that reduction of renewable fuel mandates that are met largely through corn-based ethanol is necessary in order to allow cellulosic and advanced biofuels to gain market share, as intended by Congress.

The agency’s proposal would set the total renewable fuels volumes at 15.93 billion gallons (bn gal) in 2014 of ethanol-equivalent. This compares to 15.21 bn gal in EPA’s never-finalized original proposal for 2014, and a final 2013 number originally set at 16.55 bn gal — although volume requirements are sometimes adjusted through subsequent rulemakings. The new proposal would set a 16.3 bn gal mandate for 2015, and a 17.4 bn gal mandate for 2016. EPA also proposes substantially higher volumes for advanced biofuels, cellulosic biofuels and biomass-based diesel than it did in 2014. EPA must finalize the volumes by Nov. 30 under a consent decree deadline with industry.

‘Aggressive Projections’

In joint July 27 comments, the American Petroleum Institute (API) and the American Fuel and Petrochemical Manufacturers (AFPM), representing oil drillers and refiners, say that limitations on the amount of 15-percent ethanol (E15) and eighty-five percent ethanol (E85) fuel that the market can consume still mean that EPA’s methodology for the RFS is flawed. While these blends are approved by EPA, E85 can only be used by flex-fuel vehicles that amount to a very small number of cars on the road, and E10 remains the dominant fuel blend.

“We do not support the proposed volumes of biomass based diesel, nor do we support EPA’s aggressive projections of E85 consumption and cellulosic biofuel production. To fully address the problems with the ethanol blendwall, EPA should finalize the 2014 and 2015 percentage standards proposed (except biomass based diesel), and further reduce the final 2016 standards to reflect market realities,” the oil industry groups say.

They also call on EPA to expand the legal grounds for its waiver reducing fuel volumes from statutory levels. EPA has cited a lack of fuel distribution infrastructure to justify its volumes, but pro-ethanol groups say this is illegal because it is not the same as “inadequate domestic supply,” which is the waiver language in the Clean Air Act.

To counter this argument, API and AFPM say EPA should also cite likely severe economic harm — another air law basis for a waiver — that they say will result from excessive RFS fuel volumes.

The groups are supported by the Petroleum Marketers Association of America (PMAA), which insists that most gas stations in the country are independently run, contradicting ethanol supporters who claim the oil industry limits ethanol distribution infrastructure through its contractual relationships with gas stations. “PMAA firmly maintains there are too many infrastructure, liability and marketplace issues related to E15 that prevent significant expansion of national ethanol blending volumes in the short run. Neither existing fueling infrastructure nor consumer demand and acceptance are compatible with the introduction of E15 at this time,” the group’s July 27 comments say.

‘Unprecedented Evolution’

Ethanol and farm groups, meanwhile, continue to argue that EPA is flouting the law and harming the economy and the environment by proposing multi-year renewable fuel volumes below statutory levels.

The Renewable Fuels Association (RFA), representing producers of renewable fuels, in its July 27 comments says, “By adopting the narrative of the oil industry with regard to how much ethanol can be blended into gasoline, EPA has unnecessarily and illegally curtailed the unprecedented evolution occurring in the transportation fuels market that was delivering technology innovation, carbon reduction and consumer savings.”

Pro-ethanol groups claim the fuel is cheaper than gasoline, and results in lower greenhouse gas (GHG) emissions. Oil industry groups and some environmentalists contest ethanol’s GHG benefits, however.

Growth Energy, another major pro-ethanol group, says in its July 27 comments, “The proposed volume requirements fall far short of the Nation’s current supply of renewable fuel,” and EPA’s waiver based on inadequate supply is therefore unlawful.

The Advanced Biofuels Association (ABFA), representing many manufacturers of advanced and cellulosic biofuels, takes a more supportive approach, welcoming EPA’s effort to balance a Congressional directive to increase biofuels use with the reality of declining gasoline demand — something not foreseen by Congress when establishing the RFS.

The proposal “represents a significant improvement over the original 2014 document,” say ABFA’s July 27 comments. The group says Congress’ intent under the 2007 Energy Independence and Security Act — which expanded the RFS — “was to encourage the development of an advanced and cellulosic biofuels industry. This concept was embodied in the statute when it called for 21 billion gallons of advanced and cellulosic biofuels to be produced and consumed by 2022. The original statute specifically capped corn based ethanol at 15 billion gallons in 2015.”

The group again makes a novel argument for EPA to set annual renewable fuel volumes retrospectively, rather than in advance as required by the current law. EPA will set 2014 volumes in 2015, years after the Nov. 30, 2013, deadline. EPA took this approach for 2014 volumes after loud criticism of its original 2014 proposal — which also recognized the blend wall — prompted a long delay and ultimately re-proposal of the volumes for that year.

“We would urge the Agency to move the deadline of setting the annual [fuel volumes] to March 1st of each calendar year after actual use of renewable fuels is publicly known,” ABFA says, claiming that this approach would eliminate arguments over what volumes of any given fuel are likely to be.

Pending Legislation

Lawmakers critical of the RFS continue to pursue legislative options to either overhaul or scrap the program. For example, Rep. James Sensenbrenner (R-WI) introduced a bill July 27, H.R. 3228, that would limit cellulosic volumes to actual production capacity pending the result of a National Academies study on the cellulosic sector. Critics of the RFS have long complained that EPA has set cellulosic volumes far in excess of actual cellulosic production.

EPA has said that its RFS fuel blending targets for cellulosic ethanol will be revised substantially downward from 2017 onward under a “reset” provision in the program, which will likely prompt further fights over the RFS targets that the oil sector says are unreasonably high and alternative fuels groups say are too low.

In April, Sen. Jeff Flake (R-AZ) introduced a bill that aims to reduce the RFS production target for cellulosic biofuels by requiring the goal to be based on actual biofuels production, which the senator says will end the problem of EPA proposing unachievable goals based on “phantom” aspirational production.

Other bills introduced by GOP lawmakers, some with bipartisan support, aim to eliminate what critics say is the “implied” conventional corn ethanol mandate under the RFS, or scrap the RFS program altogether.