Bipartisan Policy Center and it’s “Fix the RFS” recipe, or lack thereof

After a year-long talk fest, the BPC emerges with a report on RFS reform, and lays an egg.

Was the process doomed from the start by an insistence of “RFS reform” as a topic for discussion, instead of RFS enforcement? The Digest investigates.

In Washington, the Bipartisan Policy Center has issued its high-awaited 61-page report on reform of the Renewable Fuel Standard.

The respected organization was founded in 2007 by former Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole, and George Mitchell; it’s a nonprofit organization that drives principled solutions through rigorous analysis, reasoned negotiation, and respectful dialogue.

As the BRC relates in the preamble to its report:

“In 2013, BPC’s Strategic Energy Policy Initiative released its final report, America’s Energy Resurgence: Sustaining Success, Confronting Challenges. That report was the result of a consensus recommendation process chaired by former Senators Byron Dorgan (D-ND) and Trent Lott (R-MS), former National Security Director General Jim Jones, and former U.S. Environmental Protection Agency (EPA) Administrator William Reilly, and included an 18-member, high-level diverse stakeholder group.

“Among its 50 recommendations, the report provided a high-level recommendation related specifically to the RFS:

“While we have diverse views regarding the Renewable Fuel Standard (RFS) provisions for conventional renewable fuels, we uniformly believe the nation should continue to develop advanced renewable fuels, and we support the role that the RFS can play in promoting these fuels. … However, a review of the RFS may be warranted after allowing some time to gain operating experience from the advanced biofuels refineries that have recently begun or are close to beginning production.

“Building on this recommendation and in light of ongoing developments, BPC decided to take a deeper dive into the issue.

“After nearly a decade of experience with the RFS and its implementation, it is increasingly possible to discern which aspects of the program have worked well and which could use improvement. For example, one particular area of focus is the process by which the annual, mandated biofuel volumes are adjusted. This process has frequently stretched beyond the yearly deadline required by law— in fact, volumes have often been announced well into the applicable compliance year or even later— creating significant uncertainty for all stakeholders involved in the program. In addition, issues surrounding the quality and price volatility of the program’s Renewable Identification Numbers  (RINs), which are used both as tradable credits and for compliance, have also been of particular concern.

“However, experience with the program has not led to a consensus on what, if anything, should be done to improve the performance of the RFS program. On one hand, there are strong advocates in support of holding firm on the existing requirements. On the other, calls for outright repeal have grown louder.

With the laudable aim of stimulating useful discussion of real solutions, the BRC assembled a stakeholder group, and dove into its topic. The best way we can describe the result is to ask you to imagine a recipe for chocolate chip cookies that looks like this:

Eggs

Butter

Sugar

Vanilla

Axle grease

Rubber galoshes

That’s pretty much what we have here. You have a shopping list. No quantities, no cost, no instructions on how any of these ingredients work together to make a cookie, no useful picture or diagram.  And some of the ideas sound downright weird.

The reform imperative

As the report points out:

“Statutory language in the Clean Air Act (42 U.S.C. §7545) states that EPA must make longterm adjustments beginning in 2016 if EPA has waived at least 20 percent of a volume requirement for two consecutive years or at least 50 percent of a volume requirement for a single year. If one or both of these criteria are triggered, EPA must undertake a public comment and rulemaking process to establish new RFS volume mandate levels for any applicable category for all subsequent years through 2022. In adjusting the volumes, EPA must account for six criteria described in the statute. EPA must finalize rules establishing RFS volumes no later than 14 months before the first year for which the changes will apply.”

So, with the EPA playing around with numbers owing to what it feels are blend-wall related issues, there is real possibility that the RFS might be waived down 20 percent in a given year as soon as 2016 — and almost certainly would trigger this clause by the late 2010s if cellulosic biofuels do not ramp up as quickly as once hoped and expected.

The inclusiveness problem

The report to some extent feels like it has the same legitimacy that the National Football League had during the referees strike. There was no one in the 23-person group working full-time in the ethanol industry or the biodiesel industry or any company making flex-fuel vehicles — or any biofuels trade association representative. The biofuels industry was represented by Amyris, KiOR, and Neste Oil.

Now, Neste is a major player in renewable diesel and Amyris is an admired US-based company — but we have to note that there’s not one gallon of US-based production in there, representing the industry for a review of legislation designed to increase US energy security by promoting domestic production of biofuels.

The substantive shortcoming

First of all, the report presents 40 different “policy ideas” which are described, along with their “advantages” and “disadvantages” — but there is no sense of hierarchy here, or hard data on the impact on fuel volumes. There’s an awful lot of “may result” in the “advantages” and “disadvantages” part — and all the equivocation results in one giant, big, call to inaction.

In all, it’s presented as an “an inventory of regulatory and/or legislative policy actions to improve the RFS, though they do not represent the consensus of the advisory group.”

The process shortcoming

The Advanced Ethanol Council and BIO said that the study was flawed from the beginning because “participants were required to stipulate to a predetermined outcome sought by the oil industry – that the RFS is not working and needs to be reformed by Congress”.

Both organizations went on to state that “Key leaders in the advanced biofuel sector sat out the process” because of this stipulation, although statting that “BIO and the AEC are more than willing to engage in honest discussions about the Renewable Fuel Standard…With the report’s recommendations now in hand, the oil industry’s influence over the process is even clearer.”

BIO and AEC, in a joint statement, observed:

“Almost all of the legislative modifications put forth by BPC were those sought by the oil industry in 2005, then again in 2007, when the RFS was first legislated and amended. Unfortunately, this report is yet another veiled attempt by the oil industry to get a redo in Congress on critical RFS debates they lost the first and second time. While the report includes some separate policies that would expedite the commercial deployment of advanced biofuels, the core legislative recommendations would give the oil industry control over the trajectory of the RFS. It is discouraging that the BPC seems to think that allowing the oil industry to control the discussion and the policy itself will somehow create a better investment environment for the commercial deployment of advanced biofuels. Just the opposite is true.”

The “inventory of policy options”

It’s a real jumble, for sure. Here they are.

Create equivalence values based on factors beyond energy density, such as rural development and greenhouse gas performance.

Create additional Renewable Identification Number sub-categories that divide existing categories.

Use a neutral third-party reviewer for technology pathway approvals.

Allow companies to conduct a self-assessment of their technology pathway against a set of predefined criteria and then submit the pathway and supporting information to EPA for final approval.

Conduct only a small-scale review for each new technology pathway until that industry reaches a certain scale, at which time a full review with more complete data would be performed.

Standardize the technology pathway approval process to better align with the current processes in other locations, such as Canada and the European Union.

Expand the definition of cellulosic biofuel, such as by including wastes and residues.

Specify a volume of E0 to be available for legacy equipment.

Create a longer-term period and increased amount of Renewable Identification Numbers for banking and borrowing.

Allow exports of biofuels to meaningfully contribute to the RFS program.

Modify the land accounting and documentation approach for domestic and/or foreign feedstock producers.

Recalculate the lifecycle greenhouse gas emissions assessments, possibly using a modified assessment methodology.

Modify the cellulosic waiver credit mechanism.

Start with mandate levels that more gradually slope to 20-21 billion gallons by 2022, and then consider additional volumes after that.

Create slight “stretch” goal of mandate levels.

Flatten all mandate volumes at their current levels for some period of time and then bump the mandates up to a higher set of levels at another point in time.

Flatten the total renewable fuel mandate at its current level going forward, but continue to increase the three advanced categories.

Remove the total renewable fuel mandate and only maintain the three advanced biofuel categories.

Convert all mandated volumes to percentage mandates.

Create a mandate for ethanol based on percentage of consumption, in addition to the volumetric RFS mandate categories.

Implement automatic consequences if EPA fails to meet statutory deadlines, especially for setting the annual volumes.

Increase funding for EPA to enhance regulatory capacity.

Change the definition of obligated parties.

Establish explicit methodologies for setting the annual volumes.

Create an explicit methodology for discretionary use of waiver authority, possibly including quantitative definitions of severe economic harm.

Create a clear methodology and criteria for linking waivers across RFS mandate categories.

Separate the Renewable Volume Obligation calculations for gasoline and diesel.

Create a mechanism to ensure that obligated parties are not purchasing invalid Renewable Identification Numbers.

Limit the participants in the Renewable Identification Number market.

Increase data availability, such as that related to volumes, prices, trades, and fuel blends.

Give the Department of Defense longer-term procurement ability.

Create an education campaign to inform consumers about new fuels, flex-fuel stations, and which engines can handle which blends.

Create/expand incentive programs—such as government R&D, grants, loan guarantees, or tax incentives—for biofuels consumption infrastructure, with long-term stability that phases out slowly.

Provide a 1.0 Reid Vapor Pressure exception for ethanol blends above 10 percent and for other biofuels, as is in place for blends of up to 10 percent ethanol.

Remove the Federal Trade Commission labeling requirement for infrastructure-compatible drop-in fuels if they meet the petroleum specification.

Mandate that all vehicles are created as flex-fuel vehicles.

Evaluate the costs of, benefits of, and obstacles to introducing into commerce higher-octane gasoline blends.

Address warranty issues related to misfueling in older vehicles and equipment.

Fully fund and enforce agricultural conservation programs.

What’s needed next?

For sure, an “inventory of policy options” is a good idea if a) a broader stakeholder group is convened and b) the options are ranked and scored based on i) stakeholder acceptance and ii) impact towards the stated goal of increasing production.

To pick on one “policy option” at random (Fully fund and enforce agricultural conservation programs), there’s absolutely no sense in this report if this option reflects broad consensus or is simply on the wish list of a single participant in these proceedings. Plus, we have absolutely no idea what the impact might be, in a hard data sense, on the RFS.

The report comments only on advantages “  This approach could reduce the cost of environmental compliance with the RFS”, and “This could create additional efficiencies for agricultural production outside of the RFS.”

No idea how the second advantage applies in a discussion of the RFS, and there’s no sense here of how “the cost of environmental compliance” is a barrier to RFS in any way that “fully funding conservation programs” would address.

Meanwhile, the report summarizes the disadvantages, “This option would pose an increased cost in the form of additional government spending, which may create difficulties due to political considerations.” and “This option may not necessarily increase biofuels production or consumption.”

The second “disadvantage” – well, it really says it all; but the first “disadvantage” isn’t scored in any way – is this a million dollar problem or a billion dollar problem?

The Bottom Line

As a grab-bag of ideas, this could have probably been assembled by email over a couple of days. There’s essentially no consensus and no program here — just a loose shopping list that have not been subjected to anything approaching a rigorous review in terms of outcomes and support. And, there’s almost nothing new here, almost all of these ideas have been raised and discussed elsewhere.

So, we expect that readers will give this report a miss, and Congress probably will too, except to the extent that many of these ideas will surface elsewhere as the protagonists in the RFS2 battle continue to do the haka in front of each other, as they prep for continuation of the war.

Download the complete report here.