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EPA Picks Winners and Losers in Released RVO Rule

Advanced Biofuels Association President Michael McAdams discusses potential impacts of the U.S. EPA's proposed rule for the 2014 renewable fuels obligations.
By Michael McAdams | December 25, 2013

The U.S. EPA recently released its proposed rule for the 2014 renewable fuels obligations (RVO). Unfortunately, it essentially mirrored the leaked document, which has tormented biofuels renewable identification number (RIN) markets since it was first reported.   

If a picture is worth a thousand words the chart speaks volumes (pun intended).  Clearly, this is a dramatic cut not only from what was delivered last year, but also a significant cut from what the Congress intended in the 2007 statute.  

EPA’s proposed methodology for setting upcoming RFS targets looks backward at the average of historical data, rather than forward to future production levels. For our evolving industry, such a policy will ensure a continuous oversupply of advanced biofuels. This imbalance will, in turn, crater the value of RINs. RIN prices are instrumental to financing the development of future advanced and cellulosic biofuel facilities, and the agency cannot support the emergence of a low-carbon, innovative industry by looking through the rearview mirror. Simply put, EPA’s Monte Carlo model will always roll snake eyes for the advanced and cellulosic biofuels industry. 

The proposed RVO numbers represent a 20 percent reduction from the 2013 advanced biofuels targets and a 40 percent reduction from the statutory mandates. Although we will easily exceed the 2013 volumes, EPA believes we will see a significant reduction in the number of gallons of biomass-based diesel moving forward given a range of political issues, such as the tax credits.  In addition, by lowering the advanced number it appears there is an attempt to squeeze out Brazilian ethanol without consideration to the use of it to meet the Low Carbon Fuels Standard in California. These actions suggest a lack of understanding of how lowering the numbers will destroy markets and have downward pressure on RIN values across their board. 

This rule, without question, will have a chilling effect on the financial community.  Anyone seeking financing to build a new facility, which was the intent of this law, will have major challenges as a result of this proposed rule. 

The irony here is that the federal courts chastised EPA in December 2012 for trying to put their thumb on the scale for pushing for the development of cellulosic fuels by overestimating the volume for that category and ordered them to vacate the numbers. With this rule, they have apparently done a 180, as this set of numbers is not only a reduction below the actual gallons of biofuels currently being produced but also it sets a process in place that means fuels that are produced will essentially have to wait a year to be reflected in the mandated RVO numbers. So rather than a thumb on the scale, it’s a thumb in the eye for our industry.  

This is the most serious threat to the future of advanced biofuels in the past seven years.  Anyone who is involved in this industry must send comments expressing their concerns to the EPA before the 60-day deadline expires on Jan. 28.

Author: Michael McAdams
President, Advanced Biofuels Association
michael.mcadams@hklaw.com 
www.advancedbiofuelsassociation.com 

 

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