Leaked RFS proposal discussed in letter to White House

By Erin Voegele | October 29, 2013

The Biotechnology Industry Organization and the Advanced Ethanol Council, along with 37 of their member companies, issued a letter to the White House on Oct. 29, expressing concerns over a draft proposal for the 2014 renewable fuel standard (RFS) that was leaked earlier this month. The letter encourages the U.S. EPA to continue to follow the data-driven approach it has used to date to set yearly volume requirements.

If officially published as a proposed rule, the EPA’s leaked draft would aim to set the yearly volume requirement at 23 million ethanol-equivalent gallons of for cellulosic biofuel, 2.21 billion ethanol-equivalent gallons of advanced biofuel, 15.1 billion ethanol-equivalent gallons of renewable fuel, and 1.28 billion gallons of biomass-based diesel. This would be a significant departure from RFS’s stated long-term goals of reducing greenhouse gas (GHG) emissions through the use of renewable fuels, reducing imported petroleum and encouraging the development and expansion of our nation’s renewable fuels sector, as the 2014 volume mandates for the two largest pools of renewable fuels would be set below those enacted for 2013. The 2014 requirements in the leaked proposal are also significantly lower than the statutory blend levels set  in the Energy Independence and Security Act of 2007, which established the current RFS program.

The EPA finalized a 2.75 billion gallon standard for advanced biofuel for 2013, which is 540 million gallons higher than 2.21 billion 2014 volume contained in the leaked proposal. The cut to the renewable fuel pool would be even more drastic, from 16.55 billion gallons in 2013 to 15.1 million gallons in 2014, representing a 1.45 billion reduction. The rulemaking for the current RFS program, which was finalized in 2010, called for the EPA to set the 2014 requirement for advanced biofuel at 3.75 billion gallons, ramping up to 21 billion gallons by 2022. Similarly, the total renewable fuel volume for 2014 was to be set at 18.15 billion gallons, ramping up to 36 billion gallons by 2022.

The U.S. EPA has offered comment on the leaked proposal, stressing that no final decisions have yet been made. “The Obama Administration remains firmly committed to furthering the development of all biofuels – including corn-based ethanol, cellulosic biofuel, and advanced biofuel – as part of the President’s commitment to developing a clean energy economy. Biofuels are a critical part of the President’s all of the above energy strategy that is reducing America’s dependence on oil and creating jobs across the country. At this point, EPA is only developing a draft proposal. The agency has made no final decision on the proposed renewable fuel standards for 2014. And no decisions will be made on the final standards without a full opportunity for all stakeholders to comment on the EPA’s proposed 2014 renewable fuel standards and be heard on how to best foster a growing biofuels industry that takes into account infrastructure- and market-related factors,” said the agency in a comment provided to Biomass Magazine.

The letter issued by BIO, AEC and their member companies highlight the fact that the biofuels industry has stepped up to provide legislatively-required volumes for both conventional and advanced biofuel categories through 2012. “More specifically, the ethanol industry has produced more than enough fuel to meet the conventional standard, and administrative flexibility in the advanced pool has allowed other types of advanced biofuels to make up for the shortfall in the cellulosic biofuel pool through 2012. We also expect to provide sufficient volumes of biofuel in 2013 to meet the originally legislated RFS targets. Simply put, this is a tremendous accomplishment during very difficult economic times,” said the group in the letter.

The letter also expresses concern that taking the oil industry’s preferred path to base the RFS volumes on gallons of fuel produced to-date would allow the RFS to reflect, rather than drive, the marketplace. This is a problem, said the biofuel groups, because the oil industry controls offtake of biofuels, giving them unreasonable leverage to determine how quickly the biofuels industry grows. The letter also stresses that the RFS must maintain pressure on the marketplace in order to work. Specifically, the letter addresses Big Oil’s claims with regard to renewable identification number (RIN) prices and the blend wall. “The RFS is actually well-engineered to address the blend wall on its own, without consumer cost. That is, when an oil company refuses to blend more liquid biofuel, they can buy a RIN instead. If intransigent oil companies refuse to blend liquid gallons, RIN trading and values will increase as a result of their affirmative non-compliance, which in turn provides further incentive for other oil companies to actually blend liquid gallons at a savings to consumers. Higher RIN prices are not costing consumers money for two primary reasons: (1) higher D6 RIN values are incenting the increased use of a fuel that is up to $1 cheaper than gasoline, which cut consumer spending by $700 billion to $2.6 trillion in 2013, according to an oil economist; and, (2) many oil companies are now admitting to shareholders on earnings calls that they are the ones profiting from higher RIN values, which is why it is untruthful to claim that RIN prices are an unavoidable cost of compliance with the RFS,” wrote the group in the letter.

BIO and AEC are not the only organizations that have weighed in on the matter. Earlier this month, the American Coalition for Ethanol sent a letter to the EPA, noting that “oil company intransigence towards the higher blends of ethanol called for under the RFS is why [ACE is] concerned with leaks about how the administration might set the 2014 RVO as a result of ongoing cellulosic biofuel shortfalls.”

“The biofuels industry continues to work in good faith to provide EPA accurate information on the industry, highlight the path forward to further lessening petroleum's grasp on Americans’ wallets, and help meet the Administration's desire to improve the greenhouse gas  footprint of our transportation fleet. Meanwhile, the oil industry is dragging their feet to allow  consumer access to blends above ten percent ethanol and creating a subterfuge designed to question  the Administration’s continued commitment to alternatives to petroleum in a way that threatens  investment in advanced and cellulosic biofuels,” said Brian Jennings, executive vice president for ACE, in the letter.

In a Oct. 10 blog posting, Bob Dinneen, president and CEO of the Renewable Fuels Association, noting that the “blend wall” and perceived “market-based limitations” are not among the statutory criteria identified in federal law for EPA to consider in adjusting the 2014 RVO. “EPA’s authority to waive the total renewable fuel volume by an amount greater than the reduction of cellulosic biofuels is limited to circumstances where it determines there is ‘inadequate domestic supply’ of renewable fuel, or that enforcement of the statutory volumes would result in ‘severe harm’ to the economy or environment,” he wrote in the post. Dinneen also noted that the existing vehicle fleet and current refueling infrastructure can easily absorb at least 14.4 billion gallons of ethanol in 2014.

Growth Energy also weighed in on the issue earlier this month. Tom Buis, CEO of Growth Energy, released a statement on Oct. 11 noting that the 2014 RVO rulemaking process is not final and his organization is not going to comment on an unverified draft documents. “Obviously, someone was irresponsible in leaking such market sensitive information.  Because of the dramatic economic impact on commodity markets there should by an immediate investigation by the Justice Department, and the Commodity Futures Trading Commission to determine if this was an attempt to manipulate markets such as corn futures, ethanol futures and/or RINS markets,” he said.

According to the statutes establishing the RFS, the EPA is supposed to issue a notice of proposed rulemaking each spring and issue a final rule for the following year’s volume requirements by Nov. 30. The agency proposed the 2013 rule in January and finalized it in August, approximately nine months after the statutory deadline. The American Petroleum Institute, which is fighting to repeal the RFS, has indicated it will file a lawsuit against the EPA if the agency misses the Nov. 30 deadline for the 2014 volume requirements.