Oil, ethanol industries square off to preserve or drop RFS

Mar 22, 2013
by DTN

The first shots were fired off last week in a war which could ultimately decide the fate of the Renewable Fuel Standard (RFS), heating up today between the oil and ethanol industries.

The American Petroleum Institute, an oil industry trade association, released a NERA study this morning showing RFS is “irretrievably broken,” according to Bob Greco, API downstream group director.

“That’s the conclusion of a study we commissioned from NERA Economic Consulting, an internationally respected economic analysis firm,” Greco said.

The study found that continued implementation of RFS from now to the year 2022 would include an $800 billion decrease in U.S. Gross Domestic Product, a $580 billion decrease in take-home pay for American workers, a 300 percent increase in the cost of manufacturing diesel and a 30 percent rise in the cost of making gasoline, “which could result in rationing and other disruptions in the transportation sector,” Greco said.

RFS, enacted by Congress in 2005 and later amended with increased volumes in 2007, mandates renewable fuels to be blended into pe troleum-based fuels at an increasing rate until they reach 36 billion gallons by 2022, estimated to be 20 percent of the petroleum fuel market. This year’s mandate, for example, requires that 13.8 billion gallons of ethanol be blended into gasoline.

Renewable Identification Numbers (RIN) are the credits used to show compliance with the volume mandates by refiners, blenders and importers, known as obligated parties.

The oil industry contends ethanol RIN prices have shot up because the ethanol mandates are more than 10 percent of the amount of gasoline to be consumed this year, referred to as the “blend wall.”

“The unrealistic volume projections and the law’s requirement that refiners purchase Renewable Identification Number credits to comply with the mandated, yet increasingly unattainable renewable fuel volume requirements may have caused the published price of RINs to increase by 1,400 percent, this year,” Greco contended.

He said rising RIN costs have increased refiner costs.

“For every dollar spent per gallon on the RINs market, the cost of making E10 gasoline rises 10 cents,” Greco explained.

Before the API news conference releasing the NERA report however, the ethanol industry countered that the API’s efforts are designed to stop renewable fuels from shrinking the market share for petroleum refined fuels.

“RINs are not something that is going to impact the consumer,” said Bob Dinneen, president of the Renewable Fuels Association, an ethanol industry trade association. He said that the oil industry obtains ethanol RINs with the ethanol fuel “at no cost.” RINs are later separated and traded as a commodity.

Dinneen pointed out that RFS obligated parties can “trade RINs gotten for free amongst themselves to cover their obligation.”

Tom Buis, CEO of Growth Energy, another ethanol association, said this is a “selfinflicted” issue for the oil industry.

“It’s about market share,” Buis said. “Blocking the blend wall gives them an excuse to say ‘look, why produce more when you can’t get more’ ethanol.”

The blend wall is central to the NERA report, saying exceeding blending above 10 percent in gasoline is “unsafe” for vehicles.

The ethanol industry contends 80 percent of the vehicles on the road today are approved for use of 15 percent ethanol by the EPA.

“Increasing ethanol blends to E15 for use in millions of cars currently on the road could damage vehicles, void engine warranties, and damage gasoline station infrastructure,” the NERA study said.

Ethanol advocates argue that the oil industry could be pushing E85, but the oil industry said there is no consumer demand for E85.

“E85 remains a specialty fuel, with low consumer demand, and infrastructure investments from gas station owners would be required to expand distribution,” NERA said.

Both sides say they would soon testify in Congressional hearings related to RFS.

Earlier this year, the API won a lawsuit requiring the Environmental Protection Agency, the agency that administers RFS, to vacate the volume mandate in 2012 for cellulosic biofuel because there was none available in the market.

“We urge Congress to repeal the RFS Mandate,” Greco said. “To help right now, EPA should reduce the 2013 renewable fuel volume requirements and waive the 2013 cellulosic requirement.”

Bob Dinneen was adamant that RFS will be preserved and not modified in any way.

“They are failing in that effort (to modify RFS),” he said. — DTN