Evidence Refuting RFS Cutback Proposals Is Growing

EPA has been under considerable criticism from the biofuels industry since November when the agency released its proposal to reduced blending requirements in 2014 under the federal Renewable Fuel Standard (RFS). However, an analysis of documents released this week that detail the administration’s thinking in developing these proposals shows that it was concerns raised by analysts in the White House of Office of Management and Budget (OMB) that were the principal drivers behind EPA’s decision to seek a reduction in the biofuel mandates.

As it happens, two studies released over the last seven days, not to mention reports from the DOE’s Energy Information Administration (EIA) that show a steady increase in the demand for gasoline in the United States, would bring into question the concerns raised by OMB and the extent to which the blending requirements would be reduced under the EPA proposal.

The proposal would require refiners to blend 15.21 billion gallons of renewable fuels into petroleum-based gasoline and diesel next year, a reduction of 2.94 billion gallons from the target set by the Energy Independence and Security Act (EISA) in 2007 and less than the total required in 2013. A lion’s share of the proposed reduction would come from the corn ethanol requirement, which would drop from 14.4 billion gallons to a little more than 13 billion gallons, an amount even less than the 13.8 billion gallons required last year. And it would keep this year’s biodiesel requirement at about the same 1.28 billion gallons called for last year, despite the fact that U.S. producers were on track to generate 1.7 billion gallons by the end of 2013.

The reductions were proposed after OMB officials last summer raised fears that higher biofuel production would have economic repercussions. The oil industry contends that U.S. demand for gasoline has dropped to the point that there is insufficient supply to meet the mandatory ethanol blending requirement, creating a “blend wall” that will force prices higher. And Big Oil contends that the squeeze to meet RFS requirements forced up the price of Renewable Identification Numbers (RINs), the credits traded among oil companies to certify compliance with the RFS.

OMB apparently agreed, noting in its analysis of the RFS that “if volumes are too low, no harm, no foul. If volumes are too high, then the prices of RINs will be high and we will face a real problem.”

However, according to a new analysis released last week by Iowa State University’s Center for Agricultural and Rural Development (CARD). The 16-page report shows that 2014 statutory RFS requirements could be easily met with no new investment in refueling infrastructure, and 2015 requirements could be achieved with only modest infrastructure investments. CARD economists Bruce Babcock and Sebastien Pouliot say “the assumption by EPA that a 14.4 billion gallon ethanol mandate in 2014 was not feasible is not correct,” and that, in fact, “meeting a 14.4 billion gallon ethanol mandate is feasible in 2014 with no new stations, modestly lower E85 prices, and judicious use of available carryover RINs.”

The study shows that adding more E85 pumps beyond the 2,500 stations across the country (about two percent) that currently offer the higher ethanol blend not only would bring the cost of meeting the RFS mandates down, but more importantly, it would allow EPA to increase mandates in the future, ultimately reaching the 36-billion-gallon mandate in 2022 as called for in EISA. In other words, the RFS serves as a principal driver of building new infrastructure that can accommodate more cleaner-burning biofuels and the economic, security and environmental benefits they provide.

Another study, which came this week from agribusiness consulting firm Informa Economics Inc., showed that there was no causal link between the spike in gasoline prices last summer and the surge in RIN prices, which grew from around 7 cents in January 2013 to $1.44 per credit six months later. (Shortly after a congressional hearing on the RFS and RINs in July 2013, RIN prices plummeted and allegations arose charging that Wall Street manipulation of RINs helped push prices up, prompting the Commodity Futures Trading Commission to announce that it would investigate inappropriate speculation in the market.)

This week, the EIA raised its forecast for U.S. gasoline demand in 2014 for the fourth straight month. It is not a long walk from the point where consumers are buying more gasoline to the point where any perceived need to reduce the RFS blending requirements, due to what is alleged to be lower gas consumption, can be dismissed.

The proposed RFS cuts would hurt the biofuels industry not just this year, but in the years to follow because cuts in 2014 would chill the production of renewable fuels over the next several years. They would jeopardize thousands of jobs. Any reductions would stymie billions of dollars in investments made in the development and manufacturing of next-generation biofuels. Consumers would be hurt by a reduction in renewable fuels, which is cheaper than petroleum-based fuels and helps keep prices at the gas pump down.

With EPA taking public comment on the RFS 2014 proposals through Jan. 28, renewable energy advocates have the obligation to stress to regulators the impact any reductions would have on an industry built on the commitment made by Congress in 2007. The ammunition needed to refute the call for any cut in blending requirements is available. Make your stand.

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