Outlook 2016 Report: Doug Durante

Source: By Doug Durante, Clean Fuels Development Coalition • Posted: Monday, January 4, 2016

Now that the dust has settled on the RFS we can get on with our lives, right? Right? I’d like to tell you that is the case but the tortuous, painful process EPA put us through in finally issuing the volume obligations under the Renewable Fuel Standard (RFS) is unlikely to stabilize the biofuel ship and we may be in for an extended period of uncertainty.

The good news is that for some, the questions have been answered. For example, we now know how much corn ethanol is eligible for the RFS. For just about anything in life, if you got 96 percent of what you were hoping to get, that’s a pretty good deal. That is what has happened in the corn ethanol world — 14.5 billion gallons out of a maximum allowable volume of 15 billion are eligible to get a credit, or RIN (renewable identification number) under the RFS. Yes, it would be great if the missing 500 million gallons would be added back, but that is not going to determine the future health of the ethanol industry.

But, let’s do a quick recap of the EPA rule and the outlook for biofuels. As noted, for all practical purposes the corn portion of the RFS is done.

The RFS served its purpose in creating a true demand pull for conventional biofuel as corn plants quickly and quite easily ramped up production to current levels. While cellulosic ethanol could have been part of the early years of RFS, they could not compete with corn and to some extent waited in line for their turn. But even the token amounts required for cellulose were elusive and now we have a 4 billion gallon shortfall.

Despite the failure to make much progress in these early years, no one can argue that if cellulose-based ethanol is to succeed it must have the demand pull from the RFS. However, current economics now raise the question that was unthinkable a decade ago: Will oil be so cheap that it simply does not make sense to develop these alternatives?

Many economists and other experts think so, and requiring a fuel that no one seems to be able to develop is like putting a square peg in a round hole.

So EPA, after wrestling with this issue for years, looked at a myriad of factors and for 2016 established the following requirements, shown here in comparison with the Congressional targets in the law (in billions of gallons):

Target Actual

Total Renewable Fuel 22.500 18.11

Advanced Biofuels 7.250 3.61

Cellulosic (4.250) (.230)

Other Adv. (3.000) (3.380)

Conventional Biofuel (corn) 15.000 14.500

The advanced and cellulose interests rightfully argue that not only do they need the promised demand pull of the RFS but during this slow-to-get-going period they have made significant investments that represent billions of dollars. All of which is true and they need to make their case to EPA.

However, the ethanol industry, regardless of feedstock and the source of the ethanol, must have access to the market. If regulatory barriers were removed, an RFS becomes irrelevant to a certain degree. We need flex fuel vehicle incentives, revision of the EPA models that undervalue both the emissions and lifecycle of ethanol; removal of the vapor pressure restrictions, and a recognition of ethanol’s clean octane properties to replace toxics in gasoline. These are all within the purview of EPA to correct and could have an immediate and significant impact.

With these corrections, the result would be a market that allows competition and ethanol could do very well. The continuing march toward a broad, perhaps even nationwide low carbon fuel standard could be a new value pathway for ethanol. California, with a history of developing their own programs that other states adopt, is now becoming much more open to corn ethanol as a positive, carbon reducing fuel. Being able to generate credits when used to replace conventional gasoline could be a definite revenue source for ethanol, with a range of 15-80 cents or more per gallon.

The fact of the matter is that there are a lot of good things happening: increasing corn yields, plants becoming more efficient every day, new cars needing more octane without carbon, and ethanol being a key issue in presidential politics. Keep that in mind as in 2016 ethanol will continue to get beat up by the petroleum industry and their seemingly endless supply of money to create negative advertising.

But like Rocky Balboa, ethanol has shown it can take a tremendous beating and remain standing. Look for slow but steady progress as the market slowly opens up more. At the Clean Fuels Development Coalition, and with some of our partner organizations like the Urban Air Initiative, we are challenging EPA on these critical issues and hope to be able to report significant progress as the year unfolds.

For further information, visit www.cleanfuelsdc.org and www.urbanairinitiative.com

Doug Durante is executive director of the Clean Fuels Development Coalition, representing auto, ethanol, and agriculture interests.