The RFS in 2017: A Brave New World
The first few weeks of President Trump in office have created both a new fascination with Washington, D.C., and uncertainty surrounding the renewable fuel standard (RFS) program. If uncertainty is a bad word for business and a good word for traders, we will have plenty of both unhappy and happy people, respectively, with the state of the renewable fuels sector.
Given this state, I would like to provide an overview of the outstanding issues confronting the industry writ large, in hopes of honing in on the true priorities for the industry over the next six months. First, we must finalize the 2017 renewable volume obligation (RVO) rule for the RFS program. Second, we must push for the 2018 mandates to be published before the Nov. 30 deadline to send a strong signal for next year. Third, we must support the U.S. EPA’s denial of the petitions to move the point of obligation under the RFS. Finally, we must engage on tax reform proposals, as alterations to tax policy have the potential to help or hinder the development of our industry, particularly biodiesel and advanced cellulosic fuels.
The 2017 RVO rule, finalized in November, was caught in the melee of the new administration’s regulatory reform efforts, which froze all regulations issued by the Obama administration between Oct. 30 and Jan. 20. If the new administration chooses to, it could tinker with the final numbers by engaging in a process to review the current mandates, propose an alternative, and solicit comments on the revisions. It goes without saying that the annual RVO rule is the bedrock of the RFS program, and the EPA’s timely publication of the mandates for ethanol, biomass-based diesel, and cellulosic fuels is essential. Although I believe chances are low that the new administration will attempt to alter the 2017 RVO rule, it is incumbent upon all parties in the renewable fuels sector to encourage the new administrator to finalize the existing rule, as proposed, without delay.
Second, the new administration will have to hit the ground running to propose the 2018 RVO rule for public comment by early June. We should work with the EPA to keep the process on schedule, for we all remember vividly how strong the negative impact was when it took the EPA three years to publish the RVOs for 2013, 2014 and 2015. The industry—and particularly the advanced industry—cannot stand to be left in suspended animation for more time if we are going to support the RFS program’s growth.
Third, moving the point of obligation is a Trojan horse. Doing so would lead to the demise of the RFS by fundamentally shifting the power at the fuels distribution rack, and raising overall prices for both sellers and consumers of fuels across the country. Ironically, the very people who chose not to invest in compliance with the RFS program would be the ones rewarded with market power. Parties that had worked toward compliance would be left paying the bill. Therefore, we must comment in support of the EPA’s published denial of the petitions to move the point of obligation.
Fourth, tax reform is on the agenda, and we must come to the table to participate in this effort. On the offense, we have an opportunity to extend the biodiesel blenders credit and the second-generation and alternative fuels credits. On the defense, the industry stands to be affected by the border adjustment tax, as it may impact many of our customers. These are complex and weighty issues, but we must remain informed and actively participate in these negotiations to protect our markets, our sellers, and our end users. The current proposal on the border adjustment tax would shift over a trillion dollars in the economy, a risky move without a firm understanding of the winners and losers in such a shift.
A final note: As always, we must continue to support the budget and rulemakings in the various agencies that we rely on for permits and pathway approvals under the RFS program. Let’s be careful not to throw the baby out with the bathwater.
This year is shaping up to be a most fluid and challenging year. Mark some dates on your calendar to visit Washington, D.C., in the coming months. As we engage with the Congress and the administration in this brave new world, our industry’s engagement will be imperative.
Author: Michael McAdams
President, Advanced Biofuels Association