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46857

EPA Punts RFS into 2015

The Environmental Protection Agency announced today that it won't issue a final 2014 rule for blending ethanol into gasoline until next year. The agency sounded as if it were admitting its original proposal announced almost a year ago was flawed.

“The proposal has generated significant comment and controversy, particularly about how volumes should be set in light of lower gasoline consumption than had been forecast at the time that the Energy Independence and Security Act was enacted, and whether and on what basis the statutory volumes should be waived,” EPA’s announcement on Friday said. “Most notably, commenters expressed concerns regarding the proposal’s ability to ensure continued progress toward achieving the volumes of renewable fuel targeted by the statute.”

Last year’s proposal for implementing the renewable fuel standard (RFS) used the so-called blend wall against ethanol blends above 10% to justify cutting mandates below the the 2007 energy law’s targets and slightly below 2013 use of ethanol made from corn. EPA said, in essence, that the blend wall was reducing the supply of biofuels, an interpretation of the law that surprised ethanol and biodiesel groups. Ethanol trade groups said at the time that the original law was intended to force biofuels into the marketplace even if the oil industry claimed it couldn’t find room for them. Several ethanol industry leaders have said that if EPA continued to use the blend wall justification that EPA would face litigation.

Friday, the EPA seemed to acknowledge some of those legal issues.

“EPA has been evaluating these issues in light of the purposes of the statute and the administration’s commitment to the goals of the statute to increase the use of renewable fuels, particularly cellulosic biofuels, which will reduce the greenhouse gases emitted from the consumption of transportation fuels and diversify the nation’s fuel supply,” the agency said.

Scott Irwin, a University of Illinois economist who follows the ethanol industry and EPA’s blending rules, sees the announcement as a major turning point.

“Conventional wisdom up to this week was that the 2014 RVOs [renewable volume obligations] for the RFS would be only slightly modified from the levels proposed by the EPA and Obama administration in the preliminary rulemaking last November. We can throw that conventional wisdom out the window. Clearly, some kind of major rethinking is going on, otherwise the 2014 rulemaking that was already internally reviewed, leaked, and sent to the OMB [White House Office of Management and Budget] would have been released,” Irwin said in an email message to Agriculture.com. 

“The exact nature of the rethinking underway is anyone’s guess, but it is hard not to see this as a major victory for biofuels interests,” Irwin added. “It would not surprise me if the EPA and the Obama administration came full circle and eventually went back to the full statutory levels for the 2014 and 2015 RVOs.  I think they realize that a court case regarding their imaginative interpretation of ‘inadequate domestic supply’ is stacked against them, and with the Republican victory in the Senate, important ethanol supporters will be even more powerful. By the way, this was also fully anticipated by the RINs market earlier this week. On Tuesday, D6 ethanol RINs rose by more than 10% after being flat for months. Coincidence? I think not. One more example of the very leaky decision-making process at the EPA regarding the RFS.”

The RFS works through a trading scheme where blenders who don’t meet their obligations can buy RINs, or renewable identification numbers. Friday’s announcement leaves the exact number of obligations for blenders up in the air. 

Brian Jennings, executive vice president of the American Coalition for Ethanol in Sioux Falls, South Dakota, said he can only speculate at this point, but he expects EPA to tally up the RINs traded for corn ethanol, for biodiesel, and for cellulosic ethanol in 2014 and make that the requirement. 

“Whatever the oil companies use is what we’re going to finalize,” Jennings told Agriculture.com. 

In spite of that uncertainty, Jennings agrees with Irwin that the announcement looks like good news for ethanol. When asked if the EPA was admitting they were wrong last year, he replied, “That’s precisely how this should be read between the lines.”

A year ago, Jennings’ group was more concerned about last year’s rationale for lowering the RFS mandate than the exact numbers.

“We were all led to believe they (the EPA) were on the verge of completely rewriting the RFS,” Jennings said.

By last fall it was obvious that the nation had used less gasoline that Congress expected after it passed the energy law in 2007, partly because of declining demand from the Great Recession and from improved fuel efficiency in newer cars. Currently, about 13 billion gallons of ethanol are blended into the nation’s motor fuel supply each year, slightly more than 10%. Under the original targets of the law, more than 14 billion gallons would have been mandated in 2014 and by next year, the mandate that is implied for corn ethanol in the RFS would have topped out at 15 billion gallons. The oil industry has been resisting adding fuel pumps with 15% ethanol (E15), which EPA has approved for cars made in 2001 or later. Continuing to ramp up ethanol use would have cut into the oil industry’s market share for gasoline sales.

“Just because life gets a little uncomfortable for the oil companies…doesn’t mean the oil companies and the EPA can rewrite the law,” Jennings told Agriculture.com. 

While the industry was pleased that EPA signaled it might be backing off its earlier goals, some didn’t welcome the lack of blending numbers yet for 2014.

The latest EPA announcement “continues the atmosphere of uncertainty for the advanced biofuel industry,” the Biotechnology Industry Organization (BIO) said.

“Unfortunately, the delay in this year’s rule already has chilled investment and financing of future projects, even as first-of-a-kind cellulosic biofuel plants are right now starting up operations, said BIO CEO Jim Greenwood. “The industry needs a final rule that is legally appropriate and continues to support our efforts.”

Representative Collin Peterson of Minnesota, the ranking Democrat on the House Agriculture Committee, also decried further delay.

“Today's announcement leaves the future of ethanol, biodiesel, and other advanced biofuels up in the air,” he said in a statement. “The RFS has played a major role in keeping the rural economy strong, and continued inaction could put that in jeopardy. Our farms, rural communities, and the economy as a whole could all feel the impact.

“The proposed reductions to the RFS were unacceptable and, while the uncertainty created by today's announcement is not helpful, I hope that it will give the EPA the time needed to do the right thing,” Peterson added.

Iowa Secretary of Agriculture Bill Northey saw some good in the announcement. 

“It is good news that the EPA has withdrawn the misguided rule they proposed last year and responded to the thousands of public comments opposing their efforts to undermine the RFS. Unfortunately, the ongoing uncertainty continues to hurt the entire renewable fuels industry,” Northey said in a statement.

Chip Bowling, a Maryland farmer who heads the National Corn Growers Association, promised that his group will keep the pressure on EPA.

“Congress created the RFS to help reduce our dependence on foreign oil and to provide cleaner fuel choices for consumers,” Bowling said. “We will continue working to defend the interests of corn farmers and consumers by holding EPA accountable for implementing the law as enacted by Congress.

“Corn farmers have produced a second record crop in two years –resulting in corn prices that have fallen below the cost of production in many parts of the country. Our members have been frustrated by the uncertainty and delays surrounding the RFS. When the time came for them to speak up, they did so – loudly and forcefully. Our growers and allies sent the EPA a clear signal when this proposal was first issued, with nearly 200,000 people responding to the public comment opportunity in opposition to the reduction. Nearly 10,000 farmers called the White House directly. We have never before seen so much grassroots interest in a particular issue. Our farmers will continue to raise our voices as necessary in defense of this important policy.”

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