The Renewable Fuels Farce

Mark Green
Posted October 2, 2014

Update: EPA waves white flag on 2014 RFS requirements.

The absurdity surrounding the Renewable Fuel Standard (RFS) continues:

Those Late 2014 Ethanol Requirements – EPA now is 10 months late with setting this year’s requirements for ethanol use. Under the RFS, the agency is required to tell obligated parties, like refiners, how much ethanol they’re required to use in a calendar year by November of the previous year. Thus, requirements for 2014 ethanol use were due in November, 2013.

As it is we’re getting closer to the point where the absurd becomes the ridiculous, with the growing possibility EPA could end up setting 2014’s requirements in 2015. It would be like something from one of the late, great Johnny Carson’s “Carnac the Magnificent” sketches: “Oh Unfortunate Ones, here’s how much ethanol you should have used …”

Below, our updated scoreboard on EPA’s tardiness in setting annual ethanol mandates:

Bob Greco, API’s downstream group director, talked about EPA’s lateness and other RFS-related issues during a conference call with reporters:

“… the White House is now in the last stages of finalizing the 2014 requirements after multiple delays that have become embarrassingly common when it comes to implementing the RFS under this administration. API will continue pressing the administration not to raise ethanol requirements. We’re giving the administration everything they need to make the right choice for consumers and for our economy. And we expect them to do just that.”

Applying Thumb to Scale – Greco pointed out that in the (very) late stages of EPA’s work on the 2014 ethanol requirements, the agency is changing definitions to boost cellulosic biofuel production numbers to justify a higher cellulosic mandate. This EPA is doing by saying that biogas and gas captured from landfills now count as a cellulosic biofuel, a definition that didn’t exist six months ago. Greco:

“The concern is that when EPA proposed 17 million gallons of cellulosic biofuel back in November of last year, those fuels (from landfills) weren’t part of the calculation. They weren’t part of EPA’s rationale. If you stick to EPA’s rationale, that gets you to about 75,000 gallons for the year. So our concern is that as (the process) gets later and later and more absurd how they do this, you start getting into situations now where EPA is recategorizing existing fuel that suddenly can be used to justify a mandate that wasn’t based on that fuel. It just points to the absurdity of how the RFS is being managed by this administration.”

Greco said there’s also concern the administration is thinking about increasing the biomass-based diesel standard for the 2014 compliance year – a change that’s prohibited by law. Greco:

“The Clean Air Act expressly compels EPA to provide a 14-month lead time when modifying the mandate. EPA was required to have finalized any increase to the 2014 biomass-based diesel mandate by October 31, 2012. Congress established the statutory deadline for a reason. It provides sufficient notice for refiners to make the necessary operational, logistical, and investment decisions to meet any increase in the biomass-based diesel mandate.”

More Greco on biodiesel:

“We are worried that the administration may view the clear statutory language as a speed bump and not as a road block. The language is clear on this, and we don’t want the administration to think there’s some way they can wiggle around by misinterpreting the clear language in the statute. Because of the politics involved here and the desire by this administration to do anything to push up these mandates, we made it very clear that they do not have the authority to raise the biodiesel mandate for 2014.”

Forget Consumers, Full Speed Ahead – Greco warned that higher ethanol use mandates could bring on a collision with the 10 percent ethanol blend wall – the point where refiners are required to use more ethanol than can be safely squeezed into gasoline. One possible impact is that refiners could be forced to stop selling E0 gasoline – fuel without ethanol – despite actual consumer demand for E0.

Greco said non-ethanol gasoline demand has recently grown to 5 percent of gasoline demand – even as demand for E85 fuel containing up to 85 percent ethanol is at just 0.15 percent of demand. Greco:

“That shouldn’t be surprising, because many consumers prefer non-ethanol gasoline for small engines and marine engines. … And consumers choose E0 because you can go farther on a gallon of gasoline without ethanol. For the sake of consumers, and for the sake of our economy, we call on the administration to keep ethanol mandates well below 10 percent of gasoline demand. That will temporarily fix the ethanol blend wall and allow retailers to carry some non-ethanol gasoline for farmers and other consumers who demand it.”

Greco noted that the most recent 2014 gasoline demand estimate from the U.S. Energy Information Administration (EIA) is for 135.2 billion gallons. The final total ethanol requirement for 2014 – whenever it’s finally issued – based on that latest EIA data, should be no more than 9.5 percent of demand or 12.84 billion gallons, he said. That will avoid the blend wall and keep E0 from being pushed out of the fuel mix. Greco:

EPA’s preliminary “proposal was a step in the right direction. The proposal recognized the limits of our ability to safely use the amount of ethanol that Congress mandated. So EPA was in effect exercising its waiver authority in the proposal. We think it should go a little lower (because) of what we just talked regarding the blend wall and E0 demand. But the signal, particularly the public ones coming out of the administration, is that they’re looking for ways to increase the ethanol mandate. The closer they come to the blend wall the greater the risk of supply and cost impacts. That’s why we urge EPA to recognize the demand for E0, build that into their final number and that will allow consumers to get the fuels they want – both with ethanol and without ethanol.”

The RFS is broken – and even more, it’s becoming politicized in this election year. Greco said the White House should not be signaling possible increases in the ethanol mandate to “give cover” to its preferred candidate in Iowa’s U.S. Senate race. Politics, changing definitions, tardy ethanol mandate setting – all seem to leave consumers behind. They’re the ones who would have to deal with potential damage to vehicle engines and fuel systems from higher ethanol-blend fuels and to power equipment and marine engines. More broadly, potential negative impacts to the economy would affect individual Americans as well.

There’s another choice: Repeal the RFS. In the meantime, EPA should issue this year’s ethanol requirements before it’s next year while tying them to real market realities and the fuels consumers want to buy.