Obama Messes with the RFS

by Jim Lane (Biofuels Digest) In Washington, the EPA released its 2014 proposed standards and volumes for renewable fuels. The volumes, as widely expected, include substantial reductions from the statutory standards in the original Energy Independence & Security Act.
The announced proposed volumes met with united outcry from biofuels trade associations, and sniping criticism over the continued existence of the Renewable Fuel Standard from food and oil industry groups. Oil refiners were remarkably silent on a day which handed them a significant regulatory victory.
As analysts began to pore over the detail, the EPA’s proposal won support from Jason Bordoff, former Special Assistant to President Obama and Senior Director for Energy and Climate Change at the National Security Council — and senior Piper Jaffray equities analyst Mike Ritzenthaler wrote that producers would find work-arounds or alternative markets to maintain revenues and cash-flow.
In today’s Digest, we have a complete wrap-up of reaction, plus as look at the proposed rule, the EPA’s rationale, the advanced biofuels vs corn ethanol dilemma, the options to change EPA’s proposal in the comment period, and the industry’s short-term and long-term options should the rule be finalized as proposed.
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Overall, the reductions from statutory volumes are:
Advanced biofuels vs statute: -41.33%
Corn ethanol vs statute: -9.7%
Comparing the advanced portion to the overall proposed rule
Gallons of advanced biofuels above the biodiesel mandate: 280 million gallons (ethanol equivalent)
Translated into gallons of renewable diesel: 164 million gallons
Current US renewable diesel capacity at Diamond Green Diesel and Dynamic Fuels: 210 million gallons.
The EPA’s rationale
EPA writes: “The proposal seeks to put the RFS program on a steady path forward – ensuring the continued growth of renewable fuels while recognizing the practical limits on ethanol blending, called the ethanol blend wall.”
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In its own way, the EPA is signaling that it believes that the original mandates were set, as volumetric rather than percentage standards, at a time when it was believed that the overall gasoline market would be much larger. Lower gasoline volumes — which in their own way reduce emissions – in the EPA’s view bring on issues such as blend walls faster and more intensively, and require regulatory relief.
On a more speculative basis, we see here an Obama Administration very much on the defensive over its legislative program. In deep trouble on Obamacare, the White House appears to have opted to capitulate on energy policy, so as to preserve political capital.
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Why is industry freaking out?
RFS2 is based in production targeting, but it is ultimately about requiring distribution. The renewable fuels industry is taking the view that the E10 blendwall issue was well understood, at a technical level, by Congress when they passed the EISA Act — and that the law places the onus on the conventional fuel industry to develop distribution solutions, so long as the production is there.
Well, the production is there. The conventional fuels industry did not develop the distribution solutions, and the EPA is waiving the obligation. To the renewable fuels industry, it looks like rewarding the oil industry for doing nothing. And stranding renewable fuels capacity that was built in reliance on Congress and RFS2 to provide a market.
So, it’s a distribution war. Conventional fuels are protecting their production by protecting their distribution. Renewable fuels haven’t built any, hardly, to speak of. Congress gave every indication that they would force conventional fuels, via mandate, to find distribution solutions are face exploding RIN costs — as certain RINs became attractive to predatory trading — and perhaps even self-serving trading.
When RIN costs exploded, the oil industry correctly foresaw that by waving the flag of “exploding prices at the pump,” they could count on the White House and Congress to cave in.
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Economic Analysis
Mike Ritzenthaler & Michael Cox, senior energy analysts, Piper Jaffray ... "Current favorable fundamentals in ethanol, where forward curves suggest a strong discount between ethanol and gasoline through 2014, will support higher discretionary blending and strong ethanol margins despite the lower mandate."
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Policy analysis
Jason Bordoff, Director of Columbia University’s Center on Global Energy Policy and former Special Assistant to President Obama and Senior Director for Energy and Climate Change at the National Security Council. ... “The proposed rule included an aggressive target for cellulosic ethanol, reflecting a judgment that if there is a breakthrough there, it would be a game changer for ethanol both economically and environmentally that could justify expanding our ethanol fueling infrastructure. Moreover, if the EPA hadn’t acted to ease the mandate, it is possible that Congress would have gotten rid of the mandate altogether, which would have eliminated the possibility that such a breakthrough might actually happen one day.”
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Bob Dinneen, CEO, Renewable Fuels Association ... However, the EPA does not have the statutory authority to lower the total requirement by more than the total reduction in advanced and cellulosic. In addition, the so-called “blend wall” does not qualify under the law as grounds for a “general waiver” of the RFS volumes. The specific conditions needed to effectuate a “general waiver”—severe economic harm or inadequate domestic supply of renewable fuel—are not present.

READ MORE and MORE (The Washington Post editorial) and MORE (The Washington Post Plum Line) and MORE (The Washington Post) and MORE (The Washington Post) and MORE (The Washington Post) and MORE (The Washington Post) and MORE (The Hill E2Wire) and MORE (The Hill RegWire includes video) and MORE (New York Times) and MORE (Bloomberg) and MORE (Agri-Pulse) and MORE (Renewable Fuels Association includes audio) and MORE (Brownfield Ag News) and MORE (SeattlePI) and MORE (DesMoines Register) and MORE (Ethanol Producer Magazine) and MORE (Hoosier Ag Today) and MORE (25 x '25/Biofuels Journal) and MORE, MORE, MORE, MORE, MORE, MORE, MORE and MORE (DomesticFuels.com; including audio) and MORE, MORE, MORE (Ethanol Producer Magazine)

Excerpt from The Washington Post editorial: ...Indeed, the only flaw we can see in the EPA’s announcement is that it doesn’t go far enough. ... More efficient fuel-conservation measures, such as a gas-tax increase, would let broad incentives, not politics, determine the best way to move cars and trucks while meeting energy security and environmental goals. READ MORE

Excerpt from The Hill E2Wire: Senate Agriculture Committee Chairwoman Debbie Stabenow (D-Mich.) on Friday vehemently opposed a move by the administration to scale back the Renewable Fuel Standard (RFS). ... "The so-called blend wall is a crisis manufactured by the oil industry, which is interested in eliminating the competition so they can continue reaping even greater windfall profits," Stabenow said in a statement on Friday. READ MORE
Excerpt from 25 x '25/Biofuels Journal: The reduction is a step back from the path forward to the nation's achievement of a diversified array of energy resources. The ethanol cutback also penalizes America's corn producers who are on the verge of harvesting a record crop, yet prices are down to lows not seen since the RFS was reauthorized in 2007 and falling below the cost of production. EPA slashing the corn ethanol requirement rewards an oil industry that refuses to use any of its record profits to develop infrastructure and market opportunities to facilitate the increased consumption of cleaner burning renewable fuels. Also, diminishing the role of first-generation biofuels in our nation's fuel supplies will be have a chilling effect on the billions of investment dollars at stake in the development of even cleaner second- and third-generation biofuels.
We urge all renewable energy stakeholders to be heard during the 60-day public comment period being held on the proposals and to let EPA know that now is not the time to stray from the course towards a clean energy future. The benefits of the RFS as envisioned by a bipartisan Congress in 2007 are now being realized. To take the steps proposed today by EPA kills the momentum that has driven this nation to a position of strength and independence in the global energy economy. READ MORE