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What’s Next for the RFS?

When the EPA announced today that it’s rolling the final blending mandate for 2014 into next year, it appeared to create more uncertainty for the industry and more political fodder for opponents and supporters of the renewable fuel standard (RFS) that requires the use of biofuels in gasoline and diesel fuel.

Yet, leaders of two of the nation’s largest ethanol lobbies expect the final blending mandate for 2014 to be slightly above the 13 billion gallon amount EPA originally proposed for 2014 a year ago. 

“I’m assuming the 2014 volume will be what’s actually been blended,” Tom Buis, CEO of Growth Energy, told Friday. 

“The EPA announced that the RINs generated in 2012, which expire this year, can be used through 2015,” he said. Those Renewable Identification Numbers represent batches of ethanol produced. Petroleum refiners who haven’t met their obligation to sell a certain amount of ethanol or biodiesel can buy RINs from others who have a surplus. 

Bob Dinneen, CEO of the Renewable Fuels Association, agreed. Extending the ability to trade unused RINs through 2015 will take pressure off refiners, he said. 

“It should be pretty clear that the EPA is not going to set an RVO [renewable volume obligation] for 2014 higher than what was used,” Dinneen said.

Dinneen said biorefineries will likely produce 14.2 billion gallons of ethanol this year and that about 13.4 billion to 13.5 billion of that will be blended in the U.S. market. 

Ethanol has been in demand for refiners, he said, “because ethanol for much of the year was 80 cents to a dollar cheaper than gasoline.” 

Both the biofuels industry and the petroleum industry will be watching closely to see how EPA mandates ethanol use in the future.

“This isn’t about 2014. This is about 2015 and 2016 and how you continue to grow the industry,” Dinneen said.

The original energy law passed in 2007 would have mandated up to 13.8 billion gallons of corn ethanol blending in 2013, 14.4 billion gallons this year and 15 billion gallons next year. In recent years, EPA has lowered the mandate slightly due to smaller-than-expected amounts of cellulosic ethanol production. Last year was the first time it proposed lowering the mandate because of the “blend wall” of 10% of the nation’s gasoline supply. Nearly all cars can use gasoline with 10% ethanol (E10) and most cars on the road, those made in 2001 or later, can use 15% ethanol, but the petroleum industry has resisted adding E15 pumps to dispense the higher ethanol blend.

Friday, the EPA appeared to be backing away from its use of the blend wall to justify lowering the mandate.

“That would have given the keys to the car to the oil industry,” Buis said.

After Friday’s announcement, “EPA is committed to getting the RFS back on track, which we certainly support,” Dinneen added. “Today, they took a big step toward getting it back on track by avoiding a train wreck.” 

Although many farm groups and ethanol supporters in Congress said they were disappointed with the continuing uncertainty over EPA’s final numbers for mandated blending, the reaction from the American Petroleum Institute (API) and other opponents of the RFS made the EPA announcement seem like more of a victory for biofuels.

“The rule is already a year overdue and the administration has no intention of finalizing this year's requirements before the year ends,” API CEO Jack Gerard said in a statement. “It is unacceptable to expect refiners to provide the fuels Americans need with so much regulatory uncertainty. This is an example of government at its worst.” 

“The Renewable Fuel Standard was flawed from the beginning, horribly mismanaged, and is now broken,” Gerard said. “The only real solution is for Congress to scrap the program and let consumers, not the federal government, choose the best fuel to put in their tanks. Failure to repeal could put millions of motorists at risk of higher fuel costs, damaged engines, and costly repairs.” 

The National Council of Chain Restaurants also urged Congress to repeal the RFS. 

“The federal RFS ethanol mandate is irrevocably broken and needs to be repealed immediately,” the group said. “It is time that Congress take the RFS ‘off the menu’ once and for all.”

Neither Buis nor Dinneen were surprised by that reaction from long-time opponents of the RFS.

“The refiners are going to do everything they possibly can to use today’s announcement to get Congress to repeal the program,” Dinneen said. “I don’t see that happening.”

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