Deal or No Deal– Either way we Need to Keep Moving

By Doug Durante, Executive Director, Clean Fuels Development Coalition

Special to The Digest

While the expression that the devil is in the details is trite and overused, it certainly fits when assessing the “Deal” supposedly reached this week on ethanol.

First of all the export RIN issue does raise trade questions but if RINS go back to pennies then it would be hard for anyone to consider it a subsidy.  And how do you get RINS to go back to pennies?  Put a lot more ethanol in the market.   How do you do that?  Make sure whatever final deal emerges from this process is not an RVP limit to E15.   The higher octane and carbon reduction value of ethanol is in blends of 20, 30 and even 40% and provides great margins along the way. As is well established by now, the vapor pressure goes down with volume so there is no logical justification to “cap” our access to the market at 15%. And with today’s pricing, ethanol blends save everyone–both refiners and consumers– money.

Secondly, the demand destruction of 1.3 billion gallons or more resulting from the EPA waivers is nothing less than a reversal of the Renewable Volume Obligations the industry fought so hard for every year to finally get to the maximum 15 billion gallons of conventional biofuel. For Senator Cruz to suggest that E15  is a new market of 700 million gallons is only half of what was just taken from the ethanol industry under the waiver nonsense. And Cruz is wrong–  the market isn’t 700 million gallons– its 140 Billiongallons– we just need access to it, access Cruz had promised to help provide by the way when he was conning his way through Iowa during the Presidential primary.

While not ideal, allowing exports to generate RINS is certainly preferable to the preposterous notion of a RIN Cap or fixed price.  Someone still has to buy the ethanol and export it, it reduces domestic use and demand but not overall demand.  If we had a true free market that wouldn’t matter, demand would be determined by value.

But what bothers me the most about that approach is the assumption that we do not seem to value that ethanol here, at home. People forget that the renewable fuel standard is an environmental program designed to reduce petroleum consumption. In so doing we reduce greenhouse gas emissions, reduce carcinogenic toxics in gasoline, and reduce a host of ozone precursors.   The point was to use it here, not ship it out.  The benefits to agriculture, energy security, and overall economic development are complimentary and equally important, and were universally recognized public policy objectives.  Every gallon we send away is a lost opportunity to replace a gallon of petroleum-based gasoline and the benefits I just noted.

We find ourselves at a time when even if the RFS was sailing along and everyone loved it, we are on the verge of a serious farm crisis and need to be looking to expand ethanol blends as much as possible–  not as little as possible which is what this oil crazed Administration seems to be doing.

And we also need to recognize the future of the RFS is unclear–  anyone who tells you what is going to happen after 2022 is dreaming– but what we do know, and what makes these refinery waivers so debilitating is that if the cut essentially becomes the baseline, that will stay in place for the remainder of the current authority to 2022. Scott Pruitt,and the Oklahoma cabal of his staff, seem to be working hard to find ways to not help ethanol, and in fact take it backwards.  They have already announced they are developing the permanent re-set of all RVOs, which they are required to do after 2016 under the RFS. In other words they have the legal authority to set the conventional biofuel demand at 13.5 or thereabouts for the next four years and all the screaming and hand wringing by the ethanol industry cannot change that.

Therefore, any so called deal has to re-establish the full 15 billion gallons. But then what? Is anyone in the ethanol industry suggesting a 15 billion gallon RFS and an E15 market is nirvana?  We need to be looking beyond the RFS and there are several opportunities the ethanol industry needs to rally around, right now.

Clearly we have ignored the health benefits of replacing the aromatic carcinogens and toxics in gasoline.  EPA has been required to do so since the 1990 Clean Air Act and not taken action, The last time they at least looked at doing so in 2007 they admitted ethanol was a superior octane enhancer but there was not enough ethanol in a cost benefit analysis to reduce aromatics. Not enough ethanol?Within a year or two of that determination we were producing plenty of ethanol and here we are in 2018 trying to figure out where to put it and giving it away often below cost.

At CFDC and with our partners at the Urban Air Initiative we have been looking for our leaders in Congress to help demand EPA update this analysis and they look at us like we are from Mars.  Why? Because all they ever hear is that we need a guarantee of a 15 billion gallon RFS and E15.

Similarly, the other opportunity at hand and one we have failed to capitalize on is the CAFE and GHG Rule, and the critical role clean octane from high ethanol blends can play.  We have piles of studies from the auto industry and the Department of Energy confirming high octane fuels, and particularly high octane fuels from ethanol,  can meet the efficiency gains and ghg reductions that are required by the rule.  While we have made some progress in bringing it to the attention of the regulators, in terms of attention and priority it too has been dwarfed by the hand wringing and pleading for the RFS.

Thankfully we have a great messenger focusing exclusively on this issue with our  High Octane Low Carbon Alliance, led by former Senate Majority Leader Tom Daschle. In addition to CFDC the RFA, NCGA, National Farmers Union, the Fuel Freedom Foundation and several others are members of this Alliance with a specific focus on octane.   No one values the RFS more than Senator Daschle since it was his legislation, but he would be the first to say we need to look to the future and position ethanol as a cleaner, healthier, and more efficient fuel through its octane value.

So my thought to the ethanol industry is to not give away the store but if a limited prisoner exchange of RVP for the RIN export can be arranged, that opens the door for the higher blends and all the benefits that come with it. This reported  deal may or may not become reality but if it does we simply cannot allow the RVP waiver to be limited to 15% .  And we need to look at life both with and without the RFS–  either way we must develop new markets and get the value we deserve.

Lets put all these free market advocates to the test– no one is mandating anything but Senator Cruz and others need to understand that we do not have a gasoline market, we have fuel market. The petroleum industry may have captured the market but they do not own it.   Let us in and then these RFS issues will take care of themselves.