Obama: (Un)intentionally Reengineering the RFS for Big Oil?

October 28, 2014 |

Brooke_Coleman_headshot2By Brooke Coleman, Executive Director, Advanced Ethanol Council

As the renewable fuels industry awaits U.S. EPAs final decision on the 2014 Renewable Volume Obligation (RVO), it is extraordinary to think that President Obama still appears committed to adopting a methodological change to the Renewable Fuel Standard (RFS) pioneered by the biofuel industry’s most ardent foes.

It is doubtful that anyone on the Obama energy team regards themselves as having anything in common with someone like Senator Jim Inhofe (R-OK), who has declared climate change a hoax. Senator Inhofe is one of the fossil fuel industrys greatest champions. He is also one of the biofuel industrys greatest antagonists, and believes the RFS should be repealed. But when it comes to the new path proposed by the President for the RFS, there is really no difference between Obama and Inhofe.

The Advanced Ethanol Council (AEC) has made no secret of its concerns about the Obama Administrations new proposal to allow U.S. EPA to waive the RFS for, in their own words, “the full range of constraints that could result in an inadequate supply of renewable fuel to the ultimate consumers, including fuel infrastructure and other constraints.” To us, this means that obligated parties may not be obligated anymore, because oil companies largely control the distribution of renewable fuel to consumers.

A number of Administration officials argue that allowing for this type of waiver is reasonable, and will not weaken the RFS to the degree claimed by the AEC and others. But if that’s the case, then the oil industry’s identical proposal to modify the RFS in 2005 was a good idea too.

When it was clear that the RFS had the political support necessary to become law in 2005, Senator Inhofe sponsored and passed a bill (S. 606) on a party-line vote out of the Committee on Environment and Public Works (EPW) that added “distribution capacity” as a third waiver allowance under  the RFS. In Inhofe’s view, the RFS should be waived in cases of severe economic/environmental harm or inadequate domestic supply – the two waiver scenarios allowed today – as well as in response to challenges related to the distribution of the fuel to the consumer – the very thing President Obama is proposing to add administratively.

The oil industrys attempt to hobble the RFS via “distribution capacity” (i.e. something it could control) was not isolated to the Senate. Louisiana Congressman Billy Tauzin and House Majority Leader Tom DeLay – two outspoken critics of policy support for renewable fuels but huge champions of the same for the oil industry – ushered identical language into the final House version of the RFS in the same year.

A diverse coalition supporting a domestic renewable fuel industry fought this language and won in 2005 when the RFS was initially enacted into law. The conference committee formed to reconcile the House and Senate energy packages (ultimately, as the Energy Policy Act of 2005) rejected the “distribution capacity” language advanced by both House and Senate oil-state Republicans. It was well understood at the time that Clean Air Act (CAA) regulations that rely on the whims of obligated parties cannot work.

The “waiver methodology” battle

Incredibly, there are still those who regard the “waiver methodology” battle being waged today as an ethanol fight. It is true that the Obama Administration sought out this misguided approach in response to concerns – largely political in nature – about RIN prices in the RFS conventional biofuel pool. But mistaking cause and effect is the first of Friedrich Nietzsches “Four Great Errors” for a reason. The cause of the Obama Administration’s flinch on the RFS is not something unique about ethanol; it’s the absence of political will to trust how the program and RIN prices work to drive change when powerful incumbent industries puff up their chest and attempt to draw a line in the sand.

What the oil industry calls the “blend wall” is nothing more than a new name for the same type of regulatory recalcitrance that we have seen from incumbent energy industries for decades. The oil industry can use more renewable fuel of all types. The problem is they do not want to. The biofuel industry knew that adding a “distribution capacity” waiver allowance to the RFS in 2005 was nothing more than an invitation for oil companies to lie down on the program. In a non-competitive marketplace, that’s a pretty big deal for advanced biofuel investors.

If you are wondering how it is possible that President Obama is trying to do something administratively to the RFS in 2014 that the oil industry could not get done legislatively in 2005, you are not alone. It may be that Obama’s energy advisors do not hold the RFS in high esteem, and view its weakening as collateral damage in their higher moral imperative to curb carbon emissions from coal-fired power plants. But investors in innovation do not look at the world through myopic political lenses.

Advanced biofuel companies, scientists, investors and engineers invested billions

When RFS2 was passed in 2007, advanced biofuel companies, scientists, investors and engineers went to work to develop the technologies and build the manufacturing facilities needed to meet the standards set forth by Congress. Billions of dollars were invested in the United States and the return on investment is just beginning to come in as new advanced biofuel plants and technologies come online.

What investors will see if President Obama keeps the Inhofe waiver allowance is yet another example of incumbent industries scaring policymakers into changing the rules in the middle of the game with age old political tactics that always seem to work in the absence of political courage. That’s not the way you “hammer into place the foundations for a new clean-energy era,” to quote the President when he announced his carbon rules on power plants; it’s how you erode them.

While it is unclear whether the President is wittingly or unwittingly undercutting the billions of dollars and years invested toward the realization of the RFS, the proposal is still only a proposal. President Obama has presided over critical support for the development of cellulosic biofuels for years, and there is time to get the RFS back on track. The advanced biofuel industry will prevail, if not in this country then in another one, and if not with this President then the next one. Perhaps the President has already realized that gutting this cornerstone policy will greatly impact what he says he cares about most – innovation and carbon – both directly and indirectly.

But if the Obama Administration decides to hold on to their “new” and legally dubious interpretation of U.S. EPA’s waiver authority, it’s going to be hard for those trying to make the case for the Obama legacy to talk around the fact that the innovation/climate President adopted the Inhofe plan on the RFS.

Learn more about the Advanced Ethanol Council here.

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Category: Thought Leadership, Top Stories

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