Biofuels group to Obama: 'Stay the course on the RFS'

By Holly Jessen | August 28, 2012

The newly formed Biofuels Producers Coordinating Council sent a letter to President Obama Aug. 27, cautioning against granting a waiver to the renewable fuel standard (RFS). The letter was signed by the leaders of the Advanced Biofuels Association, Advanced Ethanol Council, Algae Biomass Organization, American Coalition for Ethanol, Biotechnology Industry Organization, Growth Energy, National Biodiesel Board and Renewable Fuels Association.

The eight organizations said they have appreciated Obama’s ongoing support for the U.S. biofuel industry, the development of which has come about due to the RFS. “With the right market signals, the United States will emerge as the worldwide leader in the development of alternative fuels,” the letter said. Recent calls to suspend the RFS, while sometimes well-intended, are misguided and may actually worsen the consumer impacts of the drought. For this reason, we urge you to stay the course on the RFS, which is the cornerstone of our efforts to reduce foreign oil dependence and create jobs and economic growth across America.”

Although some believe that waiving the RFS would ease the impact of the drought, the groups pointed to four points they consider substantial evidence to the contrary. No. 1, the letter said, waiving the RFS would have very little downward impact on grain prices. Provisions are already built into the RFS for relief, such as the ability for refiners to meet obligations with credits accumulated in previous years, rather than requiring blending with ethanol this year. “Right now, there are more than 2 billion excess credits (provided on a per gallon basis) available in the marketplace, which in essence allows refiners to comply with the RFS without putting pressure on this year's grain crops or ethanol stocks,” the letter said, adding that refiners cannot immediately stop use of ethanol because it is critical for octane levels and compliance with the Clean Air Act. “It is highly misleading for proponents of an RFS waiver to suggest that such action will significantly change refiner behavior, and thus reduce corn prices, in the near term,” it said.

The group’s next point was that ethanol helps keeps gas prices down, pointing to a University of Wisconsin and Iowa State University analysis that concluded that ethanol reduced wholesale gas prices by $1.09 per gallon in 2011. “Several groups have tried to challenge the notion that the RFS has reduced gas prices, but it is hard to escape the reality that ethanol has enlarged gasoline supplies by 10 percent and has been, on average, 70 [cents] per gallon cheaper than gasoline in 2012,” they said, adding that higher fuel prices are a primary cause of higher grain prices and that waiving the RFS could actually worsen the effects of the drought.

The third point was that altering or waiving the RFS would have a chilling effect on investment in advanced biofuels. Although the second generation biofuel industry has produced more than 4.1 billion gallons since the RFS was created in 2005 and more biorefineries are under construction, it remains reliant on the RFS for demand predictability. This is thanks to OPEC’s distortion of the transportation fuel marketplace, which lacks free market principals. “Without a forcing mechanism to correct this dynamic, the risk/uncertainty metrics for most investors in the advanced biofuels space will be very high, and the development of these fuels will stall,” it said.

Finally, the groups wrote that an RFS waiver would destabilize a cornerstone of economic recovery. Despite challenging economic times the U.S. biofuel industry employs nearly 500,000 Americans and generates $53 billion in economic activity yearly. As advanced biofuels move toward commercialization the industry could add as many as 800,000 jobs and an additional $37 billion in annual economic activity while further reducing the nation’s dependence on foreign oil.

The letter from the Biofuels Producers Coordinating Council follows several state governors who have sent petitions or letters, asking the U.S. EPA to waive the RFS. On Aug. 24, Texas’s Gov. Rick Perry, who filed an unsuccessful RFS waiver request in 2008, added his name to the list.

Tom Buis, CEO of Growth Energy, called attempts to blame the ethanol industry for drought disingenuous and misplaced. “While the Environmental Protection Agency has the fiduciary duty to review the petitions filed by state governors, I felt it was critical that the industry communicated the importance of the RFS and how a waiver will not accomplish the goal of bringing down grain prices,” he said in a prepared statement.