Don’t Change Horses in the Middle of the River

August 21, 2017 |

By Brent Erickson, Executive Vice President, Head of Industrial Biotechnology section, Biotechnology Innovation Organization

Special to The Digest

We were disappointed, but not surprised, to see Mike McAdams and his members come out in support of changes to the Renewable Fuel Standard in Biofuels Digest (July 26 – The Time Has Come for RFS Reform).

Unfortunately, McAdams’ op-ed incorrectly claims that because the first generation of biofuels have come online ahead of second generation biofuels, the RFS is irreparably damaged and needs legislative reforms. This denies all the realities the biofuels industry has dealt with in the last ten years and utilizes the oil industry’s tactic of dividing the biofuels industry instead of working together to gain greater space in the transportation fuel sector. Rather than subject the RFS to attempts at legislative reforms in an uncertain political environment, we should instead push EPA for correct and timely implementation of the RFS, a strategy with which we have seen success.

The biggest impediments to advanced and cellulosic biofuels coming to commercial scale and reaching consumers are tied to the previous administration’s vacillation and poor handling of implementation of the RFS, as well as the oil industry’s unwillingness to utilize alternatives to petroleum. The 2014-16 RFS Renewable Volume Obligations (RVO) forced conventional and advanced biofuel producers to compete for limited shares of the transportation fuel market, discouraging investment in new technology. EPA’s delays and methodology —which unlawfully equated the oil industry’s distribution of biofuels with “supply” – led to a $22.4 billion shortfall in the investment in advanced biofuels.

This approach was inconsistent with the law and inconsistent with Congressional intent. However, instead of calling for Congress to change the RFS, which had been working to bring investment in our space, BIO and allied trade associations worked with members of Congress to put pressure on the administration and the EPA to properly implement the RFS.

As a result of these efforts, EPA set the 2017 RFS volumes at the appropriate levels, sending a signal to investors that there would be market space of advanced and cellulosic biofuels. The recent U.S. Court of Appeals for the District of Columbia Circuit opinion siding with those in the biofuels industry who challenged EPA’s rule setting in the 2014-16 RFS validated that the problem is not with the RFS, but rather, that EPA had diverted from how the law is to be administered.

Which brings us to the second issue impacting the RFS and the investment in and development of advanced and cellulosic biofuels. Since the enactment of the RFS in 2007, the biggest impediment to the law being consistently implemented has been the oil industry. Whether through litigation, petitions to change the rules, or lobbying efforts, the oil industry has tried every tactic to avoid complying with the RFS and utilizing higher biofuel volumes.

That’s why we find it curious that the first example Mike McAdams cites of a member company struggling with the RFS is BP. BP emphasized its policy split from American Petroleum Institute in 2013 by not calling for full repeal of the RFS; however, representatives from BP have stated in recent meetings on Capitol Hill that they now would prefer to just see the RFS repealed. The reform they support is based off legislation by Representatives Bill Flores (R-TX) and Peter Welch (D-VT) to limit biofuel volumes to 9.7 percent. This sort of pseudo “reform” hardly sends the signal to investors that there will be market space for advanced and cellulosic biofuels producers. We need to be building more cellulosic biofuels plants – not capping ethanol production.

While there are members of Congress reviewing the RFS and discussing changes to the law, this is largely being driven by champions of the oil industry. Their goal is not to improve markets for biofuels, but to roll back the gains we have already made. Given the makeup of this Congress, it would be a mistake to believe they would move to enable greater alternatives to oil. One needs only to look at the recent efforts in the Senate Environment and Public Works Committee to move a simple technical bill addressing the limitations on Reid vapor pressure. The amount of opposition brought to bear by the oil industry to stop this legislation’s progress pales in comparison to what a fight to reform the RFS would look like.

Rather than open up the RFS and subject the industry to the uncertainty of legislating in this political environment, a more prudent and effective course is to work to ensure the new administration properly implements the law to bring advanced and cellulosic biofuel gallons online. Of course, we need drop-in fuels and additives as well. EPA already has the authority to include additional biofuels and feedstocks in the program; expedite RFS pathway approvals; and expedite RFS pathway approvals. If EPA does a better job and we can avoid disruption, there is room for all biofuel options to have adequate market share over time. EPA must remove uncertainty about the future of the program by rejecting proposals to change the point of obligation; rejecting its 2018 RFS RVOs proposal to limit future market space for cellulosic biofuels based on past production performance; providing proper RIN transparency; and rejecting burdensome regulations on biofuel producers. As for concerns about the RFS beyond 2022, the 36 billion gallons of annual biofuel blending are protected by existing law, and EPA, the Department of Energy, and U.S. Department of Agriculture have the authority to continue facilitating renewable fuel blending post-2022.

EPA can and should do more to bring cellulosic biofuels and drop-in advanced biofuels online through the existing laws. Growing up in Wyoming I often heard the old timers say “don’t change horses in the middle of the river”. Subjecting the RFS to legislative reforms at this point in time puts the entire program at risk in this political environment, and it will undermine the key market driver that has brought investment to these technologies. It is important to point out that weakening the RFS legislatively will not make the oil industry any more willing to use a drop-in advanced biofuel — it is still a competing product. Instead it would inject greater uncertainty into a volatile market.

The biofuels sector needs to be unified and to insist that Congress exercise oversight authority over EPA and that EPA work to administer the RFS as the law intended, in order to bring advanced and cellulosic biofuels to market. With proper Congressional oversight and the necessary resources given to EPA, the RFS will enable these new technologies to be brought online. This will give investors and developers of these technologies the certainty that there will be a market for their fuels in the future.

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