EPA to change RFS

Opinion
Aug 9, 2013

All of a sudden, the Environmental Protection Agency (EPA) has come to their senses about the Renewable Fuel Standard (RFS) mandate and finally realized that cellulosic ethanol won’t be a big contributor to the ethanol mix for a while. However, that means that growing ethanol mandates will be on the back of the corn market for much longer than anticipated. EPA has lowered their mandate of a billion gallons of cellulosic ethanol to be blended into petroleumbased fuels to just six hundred million gallons in 2013.

 

EPA finally seems to realize that cellulosic ethanol isn’t going to help them reach their 2022 goal of blending 36 billion gallons of ethanol into gasoline. The Obama administration announced that they would lower the target for how much ethanol would be needed to blend into gasoline in 2014, which would give oil refiners some relief on RFS compliance costs.

The oil industry has warned the administration about the “blend wall,” a threshold where refiners are struggling to blend enough ethanol into the U.S. fuel mix to comply with the mandate. Consumers have cut back on driving and cars have become more fuel efficient. Gasoline demand has declined, therefore using less fuel with the required 10 percent ethanol blends, making it difficult for refiners to meet volume levels required by law.

Ironic that when the oil industry starts complaining about ethanol, we start getting some attention from this administration’s EPA. Last fall when livestock producers were complaining about feed costs and asked EPA for a waiver on ethanol blends, it was, for the most part, ignored. This was during a period when livestock producers were enduring record high feed costs and record losses on meat production.

Fuel blenders have been having a big problem securing enough bio-fuel credits, known as RINs, to produce the fuel. Prices for RINs were just a few cents in January and have jumped to $1.50, adding huge costs to secure ethanol. Valero Energy and CVR Refining are anticipating their RIN costs to be over 1.5 billion dollars. Refiners are concerned that EPA won’t issue enough RINs in 2014, adding pressure to this little known market.

Hopefully, the administration has realized that using corn-based ethanol to reach target levels of the RFS is unrealistic, and perhaps the cellulosic ethanol is too. It was anticipated by now that the cellulosic ethanol industry would be up and running and taking the pressure off of corn-based ethanol. But that segment of the industry has had an extremely difficult time developing the technology. Last year, the industry only produced 20,000 gallons of ethanol, a far cry from the tens of billions of gallons that are required by the RFS. Only two plants are expected to be in operation in 2014.

Another interesting twist came from Iowa State University when a professor of economics said that, “Everything EPA is doing thus far is to try to make sure that the RFS stays as flexible as possible. When it’s just not feasible, the RFS is adjusted. The EPA is allowed to do this.”

They could have, and should have, come to the rescue of livestock producers who were losing millions of dollars trying to produce the nation’s meat supplies and costing consumers much more at the grocery store and at the pump.

EPA just came out with the 2013 blending mandate, eight months late, and are just now starting the blending mandates for 2014 but won’t be planning on adding much cellulosic ethanol to the 18.15 billion gallons of ethanol required, which looks like more pressure on the corn market to me.

The Union of Concerned Scientists said that EPA should revisit the overall mandate structure and set reasonable targets for the duration of the program, not just one year’s worth, to ensure we are meeting that responsibility.

Markets for corn, sugar and vegetable oil are tight and any expansion of mandates for food-based biofuels will put pressure on food prices, forcing the expansion of agriculture land into forested areas. EPA has the authority to do what is right and prevent accelerating the expansion of food-based biofuels.Cellulosic fuels still offer the best bet for replacing large amounts of oil without disrupting our food supplies.

It is ironic how the petroleum blenders, food producers and university professors all see a different EPA. A flexible EPA isn’t the one I’ve been seeing over the past several years. But it’s getting hard to see much of anything from the administration and the agencies they are to administer. — PETE CROW

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