Purdue economists say EPA must lower requirements to ‘rescue’ RFS

Source: Amanda Peterka, E&E reporter • Posted: Tuesday, August 20, 2013

U.S. EPA can “rescue” the federal biofuel mandate by lowering requirements by 2.3 billion gallons next year, two Purdue University economists said in a paper last week.

Lowering the requirements by that amount could alleviate many of the issues with the renewable fuel standard and reduce pressure to repeal the standard on Capitol Hill, the economists said. A 15.85-billion-gallon overall biofuel target next year — as opposed to the standard’s current 18.15-billion-gallon target — would create a “reasonable” approach that could be met through a combination of conventional ethanol, cellulosic biofuel, biodiesel and Brazilian sugar cane ethanol imports, according to the economists.

“The RFS moves from being unworkable to quite manageable,” said Wally Tyner and Lois Ackerman, both professors of agricultural economics who specialize in renewable fuel issues. “Thus, EPA has taken a preemptive strike to make the RFS continue to work in promoting renewable fuels without imposing undue costs on producers or consumers.”

As written, the RFS requires refiners to blend 36 billion gallons of conventional ethanol and advanced biofuel a year into the nation’s fuel supply by 2022. The standard has come under increasing heat in the past several months from oil and livestock interests, largely due to last year’s drought and rising ethanol credit prices — a sign that refiners are hitting the technically feasible amount of ethanol that can be blended into most of today’s fueling infrastructure.

EPA indicated recently that it is considering lowering the standard’s overall requirements for the first time in 2014 due to the “blend wall” and a short supply of commercially available cellulosic biofuel, or fuel made from plant-based materials like agricultural residues, perennial grasses and municipal solid waste. Oil industry groups last week proposed that the agency lower the standard to below 10 percent of the nation’s motor fuel supply (E&ENews PM, Aug. 13).

EPA hasn’t revealed details on what levels it may propose for 2014, but Tyner and Ackerman say it should consider lowering both the overall target by dipping into both the requirements for corn-based ethanol and those for advanced biofuels next year.

Along with lowering the overall target by 2.3 billion gallons, the economists recommend that EPA also lower its 2015 and 2016 targets to 16.58 billion gallons and 17.3 billion gallons, respectively. That would place the biofuel requirements about 5 billion gallons below what the renewable fuel standard originally targeted for 2016.

“The bottom line is that with these changes in the RFS, the targets can be met with reasonable assumptions on the corn ethanol blend wall, sugarcane ethanol, and biodiesel production,” the economists wrote in the paper “The Biofuels Renewable Fuel Standard: EPA to the Rescue” for PennEnergy, an Oklahoma-based energy market research service.

Under the RFS’s current standards, refiners will not be able to meet the levels even with carry-over credits available from previous years that are known in the industry as Renewable Identification Numbers (RINs), they say. Refiners accumulate those credits throughout the year for blending biofuels into fuel and can trade them to meet EPA’s obligations.

“For 2014, with pretty extreme assumptions on sugarcane ethanol imports plus biodiesel production and using all carryforward RINs, it is barely possible to meet the RFS,” Tyner and Ackerman wrote. “In 2015 and 2016, we cannot even come close to meeting the RFS.”

By statute, EPA has until Nov. 30 to finalize its renewable fuel targets for the following year, though it has consistently been behind schedule. Before the targets become final, it’s likely that Congress will continue to consider legislative changes to the standard, including complete repeal. Even if EPA does lower its requirements for renewable fuel next year, oil industry groups have vowed to continue fighting it on Capitol Hill.

“We’re in this year-by-year rule where we have to get EPA to do a stopgap measure every year just to prevent things from getting worse,” said Bob Greco, the American Petroleum Institute’s director of downstream activities. “That’s not a sustainable approach to managing this.”