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How much can the RFS be cut?
U.S. Environmental Protection Agency (EPA) officials' recent announcement of intentions to pare back the Renewable Fuel Standard (RFS) has been met by massive opposition in the crops and biofuels sector. Cutting the eight-year-old RFS as much as federal officials have proposed would essentially remove a big piece of the demand side for U.S. corn, and the depth of the cut should be reconsidered, says one longtime ag economist and farm/energy policy expert.
Officials with EPA have proposed lowering the ethanol mandate from its current 14.4 billion-gallon level to 13.01 billion gallons, something Purdue University's Wally Tyner says is "a mistake" that would "destroy the incentive," according to a university report. The reason for EPA's potential action: Lower gasoline demand has ethanol use nearing its "blend wall," the point at which no more of the renewable fuel can be used in current engines.
Tyner says ethanol demand can be maintained and trimming the mandate can still be done, just not at as steep a level; he suggests cutting the corn ethanol requirement from 14.4 billion gallons to 13.9 billion, a level he says would not likely affect corn prices.
Biodiesel and cellulosic ethanol are parts of the equation, too, just on much smaller levels. Tyner says 1.6 billion gallons of biodiesel will be produced this year, above the current mandate of 1.28 billion. Increasing that mandate to 1.5 billion gallons would be a prudent move for that sector of renewables, he says.
When it comes to cellulosic ethanol, there's more room to give. That industry is yet to meet earlier expectations. Tyner recommends EPA raise the cellulosic fuel mandate from 17 million to 30 million gallons, well below the current 2014 mandate of 1.75 billion.
"Essentially, all the cellulosic category must be waived because the product simply does not exist," he says. "The basic change since the RFS was passed is that we have not achieved the cellulosic biofuels production desired. Thus, it makes sense to reduce the RFS by no more than the level of the cellulosic category."