The US Renewable Fuel Standard and Repeal, Reform: The Digest’s 5 Minute-Guide

July 24, 2013

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by Isabel Lane (Biofuels Digest) Yesterday in DC, the House Energy & Commerce committee convened a major hearing on the US Renewable Fuel Standard — primarily on the short-term impacts of the ethanol blend wall and the impact on RIN prices.
The testimony included a number of far-ranging which included appearances by the American Petroleum Institute, American Fuel & Petrochemical Manufacturers, Renewable Fuels Association, Advanced Biofuels Association, Union of Concerned Scientists Clean Vehicles Program, Growth Energy, The Alliance of Automobile Manufacturers, Briggs & Stratton Corporation, AAA, Society of Independent Gasoline Marketers of America and National Association of Convenience Stores, National Biodiesel Board, National Corn Growers Association, National Chicken Council, National Council of Chain Restaurants, Environmental Working Group, and Professor Chris Hurt from Purdue’s Department of Agricultural Economics.
...Links to full testimony here.
In Washington, five veteran Renewable Fuels Standard warriors faced off yesterday in front of the House Committee on Energy & Commerce in a hearing on stakeholder opinions of the RFS. The hot-button issue was the “blend wall”: the gap between the number of RFS-mandated ethanol gallons and the number of gallons demanded for E10 blends in the United States.
The Face-Off on the Hill
By Isabel Lane
Digest assistant editor
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So, if the blend wall exists, does the RFS face repeal?
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The Great Compromise
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In order to get House Republicans onboard, the biofuel industry may need to make some legislative concessions that would fundamentally alter the number of gallons required by the RFS. Rep. Jerry McNerney, (D-CA) suggested reducing then overall 36-billion gallon requirement to a 20-billion-plus requirement, with built-in flexibility to raise that number if supply exceeds expectation.
Particularly in the cellulosic pool, Congress is eager to reduce the number of mandated gallons to a level that is achievable by 2022. While Dr. Jeremy Martin asserted that “based on our analysis, the 16-billion gallon target for cellulosic biofuels in the RFS is definitely achievable,” other members of the panel were less enthusiastic, saying that that number might not be realistic until closer to 2030.
Additionally, several representatives including Rep. Steve Scalise (R-LA) called for more transparency in the RIN market. There is currently no transparency in the trading process, and the market has attracted non-oil-producing entities to hold RINs as an investment while they accrue value.
In the meantime, Michael McAdams was the only panelist to offer the Committee a direct action to relieve pressure on the cellulosic requirements:
“The Committee should, in a bipartisan way, send a letter to the EPA and call on them to immediately release the 2013 RVO. I think you’ll be surprised and you’ll see a decrease in the cellulosic number from the preproposed rule. And, you should ask [the EPA] whether they can do the 2014 and 2015 framework by November 31st.”
While cellulosic requirements through 2012 were unattainably high (deemed “phantom fuel”), the court decision handed down in favor of API and AFPM essentially prohibited the EPA from “thumbing down on the scale,” or raising the requirements artificially to stimulate production. McAdams predicted that the 2013 RVOs would be reflective of this change, and would be within reach of current producers.
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The Blend Wall Issue
Joseph H. Petrowski, CEO, The Cumberland Gulf Group – On behalf of the Society of Independent Gasoline Marketers of America and the National Association of Convenience Stores.
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The RINs situation
Charles Drevna, American Fuel & Petrochemical Manufacturers
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Is the Blend Wall a RFS-buster?
Bob Dinneen, CEO, Renewable Fuels Association
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In creating a market for 36 billion gallons of renewable fuels, Members of Congress most certainly knew in 2007 that such a large volume of fuel could not be absorbed by the gasoline market expected in 2022 without changes to the vehicle fleet and fuel distribution infrastructure.
The RFS was intended to drive innovation in technology by fostering investment in cellulosic ethanol and other advanced biofuels…and innovation in the marketplace, with E85 and other blends providing consumers choice at the pump.
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Concerns about E15 ethanol
Robert L. Darbelnet, President and CEO, AAA
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After reviewing this research, along with other studies that have been conducted, AAA’s automotive experts have concerns about reduced engine life and fuel pump failure from E15 use — factors that DOE testing was not structured to measure.
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RFS impact on the food sector
Chris Hurt, Professor of Agricultural Economics Purdue University
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First, overall crop supplies in the U.S. and world are coming into better balance with heightened demand and this will allow farm commodity prices to moderate…The 2013 U.S. crops are expected to be closer to normal after three short production crops…World production capacity has been increasing as well.
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Demand growth may slow as well. Chinese demand for soybeans from the U.S. is expected to grow but at a slower rate than in recent years…Corn demand growth for ethanol may be limited due to constraints from the blending wall. [Overall], food inflation could drop back below the core inflation rate as it has already done this year.
...Crop farmers want to at least maintain current conventional ethanol levels and can, in a few years, increase production to meet the 15 billion gallon mandate if a way can be found around blend wall constraints.
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Diversifying the fuel supply
Joe Jobe, CEO, National Biodiesel Board
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Opponents of the RFS often try to assert that hydraulic fracturing and horizontal drilling technologies have provided access to domestic shale oil, and that these new domestic sources of oil will make us energy independent. Their argument is that we no longer need the RFS or to develop any alternative sources of transportation fuel because we are increasing domestic petroleum supply which will lead to cheap fuel prices for US consumers. This is a false argument because it assumes that crude oil is priced regionally rather than globally. The US is several years now into one of the largest domestic oil booms in decades, yet US consumer prices for gasoline and diesel fuel have remained high and unstable.
Canada is a net exporter of oil – completely energy independent. Yet Canadian consumers will be paying the same increased cost at the pump generated by [the] latest unrest in Egypt. The Canadian experience provides compelling evidence that as a country, you can be a net exporter of oil, but it will not insulate your citizens from paying whatever price the international market and OPEC decide they will pay.
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The real problems and immediate relief
Michael McAdams, Advanced Biofuels Association
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A way forward?
Chris Martin, the Union of Concerned Scientists
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In fact, a careful reading of the RFS reveals that it not really a 36 billion mandate for 2022 at all. It is more accurately described as a mandate for 20 billion gallons, plus whatever level of cellulosic biofuel production is actually achieved, up to a maximum of 16 billion gallons (call it a 20BG+ RFS for short). Of this, 15 billion gallons comes from conventional biofuels like corn ethanol, which is already built out and for the most part locked into fuel markets.
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Even with robust investment and steady growth, cellulosic biofuel production capacity in 2022 will probably be closer to 2 billion gallons than 16 BG. The RFS anticipated this possibility, and requires the EPA to adjust the mandates annually in line with projected capacity, a requirement reaffirmed in the recent court ruling. So in total the real minimum mandate for 2022 is likely to be closer to 22 billion gallons than 36, and it will be 2030 before we are likely to see a full 36 billion gallon mandate reached.
Because the lifecycle analysis process is time consuming and requires extensive input from stakeholders and experts, we suggest EPA conduct a thorough analysis and rulemaking in 2013 and 2014, and use that analysis as the basis for setting concrete criteria that would be used to decide on subsequent annual volume determinations in the 2016 to 2022 timeframe. Proving this type of forward looking guidance tied to measurable market factors (in agriculture, trade, fuel production and infrastructure) would provide all the stakeholders affected by the RFS more visibility to make their own plans. READ MORE and MORE (The Hill Congress Blog) and MORE (Biomass Magazine) and MORE (Biomass Magazine Day 1) and MORE (Biomass Magazine Day 2) and MORE (DomesticFuel.com) and MORE (DomesticFuel.com) and MORE (Ethanol Producer Magazine) and MORE (Times Republican) and MORE (GreenTechMedia) WATCH Video

Excerpt from Ethanol Producer Magazine (day 2): ... William Roenigk advocated against the RFS on behalf of the National Chicken Council. In his written testimony he said that the statute that established the current RFS program has outlived its usefulness. He pointed to ethanol production as the cause of higher feed prices and financial hardship in the chicken industry. Roenigk also claimed that this organization is not anti-ethanol, but that market forces along should be allowed to move the U.S. toward greater energy independence.
Roenigk also questioned whether or not corn grown with commercial nitrogen fertilizer can be considered renewable, a statement that was strongly disputed by Rep. Lee Terry, R-Neb., during the hearing’s question and answer segment. “I’ve never heard that argument before, that if you use fertilizer it’s not renewable corn,” he said. “I can’t tell you how adamantly I oppose that position. I think it’s just silly, frankly.”
Rep. Bruce Braley, D-Iowa, also disputed claims made by Roenigk that ethanol drove up corn prices, which prevented farmers from switching to the production of other food crops, such as green beans, therefore making those food crops more expensive as well. Braley called the example a “false choice.” Iowa farmers grew corn in the state 150 years before there were any ethanol because soil conditions and climate are conducive to growing corn in Iowa, he said. READ MORE