The People of America's Oil and Natural Gas Indusry

Changing Point of Obligation Not an RFS Solution

Sabrina Fang

Sabrina Fang
Posted September 13, 2016

As EPA works to finalize mandated ethanol volumes for 2017 under the Renewable Fuel Standard (RFS), API Downstream Group Director Frank Macchiarola briefed reporters on the need for repeal or major RFS reform. Macchiarola said changing the point of obligation, as some have suggested, diverts from the fundamental flaws in the RFS program. Macchiarola’s remarks as prepared for delivery:

In the remaining months of the 114th Congress and as the EPA works to finalize its 2017 Renewable Fuel Standard volumes, we want to remind policymakers that the RFS mandate is broken and needs to be repealed or significantly reformed.  Efforts to tinker with the RFS at the margins will simply not work and will continue to push consumers to use high ethanol blends that they don’t want and don’t need. We need fundamental change to the RFS, and the point of obligation question is a mere distraction from the real issue at hand.

Moving the point of obligation adds complexity to an already broken program and undermines efforts at real reform. In addition, the characterization of this issue as big oil companies vs. small refiners is overly simplistic. This issue includes adversaries of various sizes.  And, API represents a diverse membership within the industry.

Changing the point of obligation under the RFS will not fix the blend-wall problem or address vehicle compatibility. Nearly 90 percent of vehicles on the road today were not designed for higher ethanol blends, such as E15.  And many automakers say that using E15 could potentially void those car warranties. These higher ethanol blends threaten engines and fuel systems – potentially forcing drivers to pay for costly repairs, according to extensive testing done by the auto and oil and natural gas industries.  Moving the point of obligation does nothing to address this fuel incompatibility problem.

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Infrastructure constraints throughout the distribution system also inhibit greater use of E15 and E85. Simply put, moving the point of obligation will merely shift the compliance responsibility under the RFS from the current group to a different group of entities in the fuel supply chain.  Moving the point of obligation does nothing to solve infrastructure constraints.

EPA has already considered and re-considered this issue. In implementing the RFS, Congress directed EPA to promulgate regulations that “contain compliance provisions applicable to refineries, blenders, distributors, and importers, as appropriate.” Based on EPA’s consideration of numerous factors, EPA placed the point of RFS obligation where gasoline and diesel are refined or imported.

EPA recognized that some obligated parties, including merchant refiners, did not control the downstream blending of ethanol or other biofuels, and would need to have access to RINs. EPA addressed this concern by including provisions in the rule allowing obligated parties the unique ability to separate RINs for biofuels, and limited the amount of RINs that can be carried over, in part to make RINs more accessible in the market. EPA reconsidered the issue following the enactment of the Energy Independence and Security Act of 2007 (EISA), and purposefully decided to not change the point of obligation in the subsequent rulemaking.

The bottom line is no one should be obligated to enforce the defective RFS program, and Americans should not be forced to pay more at the pump because of it.  The Congressional Budget Office found that forcing ethanol consumption to statutory levels, mainly by using higher ethanol blends like E85, could cost consumers an additional 26 cents per gallon at the pump.  Moving the point of obligation does nothing to relieve potential pressure on consumers created by this mandate.

API is urging policymakers to put consumers first. It is time to get rid of the RFS. In the near term, ethanol levels should be set at no more than 9.7 percent of the fuel supply, to protect consumers – while ensuring ethanol-free gasoline remains available to the consumers who want it. Boaters, classic car owners and owners of small engines like lawnmowers often prefer to use ethanol-free gasoline. API has joined a chorus of voices sounding the alarm on the potential problems created by the burdensome ethanol mandate. From recreational boaters and motorcyclists to environmental groups and food groups, an ever-increasing number of Americans are saying “No More” to the ethanol mandate.

There is bipartisan agreement that this program is a failure. We are pleased at the support that the Flores-Welch RFS reform bill is getting in Congress, with a wide range of bipartisan co-sponsors now exceeding 100 members of the House.

Fixing the broken RFS bolsters our status as an energy superpower. As the world’s largest producer of oil and natural gas, we are leading the world in reducing carbon dioxide and other emissions. To continue on this path, we need to do everything we can to help consumers benefit from this energy renaissance.

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ABOUT THE AUTHOR

Sabrina Fang is an API media relations representative. Before joining API she worked for the Washington Humane Society and was a reporter for Tribune Broadcasting and covered the White House for seven years. Fang studied broadcast journalism at Syracuse University before starting her career. She enjoys reading, watching movies and spending time with family.