The People of America's Oil and Natural Gas Indusry

Temporary Relief on RFS' Ethanol Mandates, Not a Solution

Mark Green

Mark Green
Posted October 25, 2013

Despite indications EPA may lower its 2014 requirement for ethanol use under the Renewable Fuel Standard (RFS) – acknowledging the existence of the refining “blend wall” – volumetric levels the agency reportedly is discussing don’t go far enough, and larger concern over the dysfunctional, irreparably damaged RFS would remain.

API Downstream Group Director Bob Greco talked about what EPA might do with next year’s requirements, which could be unveiled soon, during a conference call with reporters. Key points:

  • Fuel cost increases and fuel supply disruptions resulting from RFS ethanol mandates could cause a $770 billion decrease in U.S. GDP and a $580 billion decrease in American workers’ take-home pay by 2015, according to a study by NERA Economic Consulting.
  • Though EPA reportedly could lower the ethanol requirement to 13 billion gallons for 2014 (from 13.8 billion this year), that reduction doesn’t go far enough and suggests the agency still believes it can set use levels that really ought to be established by energy markets.
  • While waiving down parts of the RFS ethanol mandate for 2014 – as API has recommended – would offer temporary relief from effects of the blend wall, the RFS remains unworkable and should be repealed.

Greco:

If reports are accurate “it suggests that EPA is moving in the right direction. It would be an acknowledgement that the blend wall is a reality and in fact should be a major factor in setting the RFS mandates. However, we don’t think EPA has gone far enough … We think EPA needs to go lower. They haven’t quite hit the mark and in order to preserve the ability of our industry to provide fuels that consumers want, like ethanol-free gasoline. We need some wiggle room.”

Industry has asked EPA to set next year’s total ethanol requirement at or below 9.7 percent of projected U.S. gasoline demand, which, according to the latest forecast by the U.S. Energy Information Administration, would mean lowering the mandate to, at most, 12.9 billion gallons. Greco:

"This would help us avoid the blend wall for now while also preserving the availability of E0 – ethanol free gasoline – for consumers who demand it, especially boaters and owners of older vehicles and motorcycles.” 

Industry also has asked that EPA set a reasonable volume requirement for cellulosic fuels. So far this year only about 140,000 gallons have been produced for commercial use – well short of the 23 million gallons EPA may require for 2014. This ignores reality – and a recent order from a federal court directing EPA to not let “its aspirations for a self-fulfilling prophecy divert it from a neutral methodology” when setting cellulosic mandates.

In other words, EPA should not have its thumb on the scale when it sets the requirement for cellulosic fuels. Though much has been said about the cellulosic fuels sector coming online and meeting expectations, that has yet to happen. Greco:

“We support renewable fuels. Some of our members are some of the biggest investors in these cellulosic biofuels. But the fact is they haven’t been shown to be commercially available yet, and mandates have proven to not be a driver to get them to market. … We think cellulosic should be based on actual production. It should not be based on aspirational goals, it should not be based on press statements. Let’s get the products in the market and make a decision based on what’s sustainable, what can be produced and base the mandate on that.”

Underlying it all is the reality that the RFS is an unworkable program whose founding purpose has been largely superseded by dynamic growth in domestic energy production, reducing imports. Greco:

“The RFS is a relic of a bygone era of energy scarcity for our nation. The policy goal of the law that created the RFS, the Energy Independence and Security Act of 2007, was energy security, which is being met through the energy-from-shale revolution that has, in fact, made this nation the number one oil and natural gas producer. When coupled with the fact that demand for gasoline is down significantly, it is clear that the rigid mandates of the RFS have no place in today’s energy market.”

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.