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Oil could gain billions from freezing RFS

Representatives of two companies that are among the first to commercialize cellulosic ethanol production said Wednesday that an oil-industry goal of freezing renewable fuel mandates at or below current levels could destroy this nation's global lead in biofuel technology and likely shift investment to Brazil and other nations.

At a press conference organized by the Renewable Fuels Association, that assessment came from representatives of Abengoa, a Spanish company set to begin producting 25 million gallons of cellulosic ethanol early next year, and DuPont, which has started construction of a 30-million gallon capacity cellulosic plant in Iowa.

"We believe this will effectively kill any additional investment in advanced biofuels," said Chris Standlee, Executive Vice President of Abengoa Bioenergy. The company, which has invested $1 billion on cellulosic ethanol over the past decade, said "we've started to re-evaluate our own strategy."

Industries that are developing advanced biofuels are now likely to look elsewhere beyond the U.S. to invest, he said. One country that still welcomes that investment is Brazil, he said.

Advanced fuel makers, along with the much larger corn ethanol industry, feels threatened by reports last month that the EPA is considering lowering its 2014 mandate, known as renewable volume obligations (RVOs) to about 13 billion gallons ore less--smaller than this year's 13.8 billion gallon level and far short of the 15 billion gallon goal set for 2015 in the 2007 energy law, the Energy Independence and Security Act.

Oil companies are predicting economic disaster if the Environmental Protection Agency continues to ramp up mandates, as the law requires unless there is a production shortfall or harm to the economy.

Geoff Cooper, who heads research and analysis for RFA, repeated his group's assertion that EPA has no legal authority to simply stop future mandates because the oil industry hit what's called the blend wall--where nearly all of the gasoline sold in the U.S. has 10% ethanol. Cooper cited new reports from Iowa State University's Center for Agricultural and Rural Development that a relatively modest investment of about $300 million in new E85 pumps would provide enough demand for added ethanol sales to exceed the blend wall.

Cooper said that if EPA freezes the Renewable Fuel Standard, it will allow the oil industry to avoid investing in infrastructure needed to grow biofuels.

"When you peel back the onion, this all boils down to money," he said. The oil industry just doesn't want to give up more market share to biofuels.

Cooper released his analysis of potential gains for the oil industry, and the savings on E85 investment is small compared to other gains from purchasing less ethanol, which saves at least $2 billion, and added revenue of at least $2.3 billion from selling more gasoline. The shift away from ethanol would also generate at least $6.8 billion in added gasoline sales, increasing the retail cost to consumers by at least 5 cents a gallon. Altogether, the oil industry stands to gain at least $9 billion more in revenue or savings next year if the EPA trims the ethanol mandate, Cooper estimates.

Cooper has already estimated the impact of a lower RFS next year on the corn industry, with demand lowered by about 500 million bushels.

Jan Koninckx, DuPont's global business director for biorefineries, said that DuPont is in biofuel production for the long haul, even with the potential setback if the EPA goes ahead with a lower mandate for 2014.

"We know how to do this and we know that this will be a very good technology," he said. He described the leaked EPA RVOs as "very surprising and, frankly, disappointing."

"I certainly have a lot of confidence in the professionalism of the people at the EPA," he said. "In fact, that's why we're so surprised by these leaked volumes."

He described the U.S. liquid fuels industry as "just a typical market that's under resistance from a powerful incumbent." Some in the oil industry don't want to accept more use of biofuels, even though it's economically viable, he said.

"I'm quite convinced that we will be successful," he said. "We will get this technology to commercialization."

For more reading, here are the latest ethanol policy briefs from CARD at Iowa State University:

RFS Compliance: Death Spiral or Investment in E85?

The Economic Role of RIN Prices

How Much E85 Can Be Consumed in the United States?

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