The US Renewable Fuel Standard and repeal, reform: The Digest’s 5 Minute-Guide

The Blend Wall Issue

Joseph H. Petrowski, CEO, The Cumberland Gulf Group – On behalf of the Society of Independent Gasoline Marketers of America and the National Association of Convenience Stores.

Since the enactment of the Energy Independence and Security Act (“EISA”) of 2007, we have heard much about the impending arrival of the so-called “blend wall” – the point at which the market cannot absorb any additional renewable fuels. Most of the fuel sold in the United States today is blended with 10% ethanol. If 10% ethanol were blended into every gallon of gasoline sold in the United States today, there would be an insufficient volume of renewable fuels to satisfy the RFS mandates.

In this regard, we have already hit the blend wall, but because obligated parties are permitted to “carry-over” RINs from the previous year, we have not seen the economic fallout the blend wall will eventually cause. RINs can only be carried over for one year, however, so as the volume obligations continue to rise, eventually there will be insufficient RINs to enable obligated parties to satisfy the RFS’s mandates.

The RVOs set forth in the 2007 law bear absolutely no rational relationship to current market conditions. The market simply cannot absorb the quantity of ethanol required without administrative or statutory changes to existing law.

Consistent with the flexibility that Congress granted the Agency, EPA should use its waiver authority to avoid the economic harm that the blend wall will cause. The economic harm that will result from hitting the blend wall would be severe and directly caused by the RFS. This will have three salutary effects:

First, it will achieve displacement of foreign fuel with domestic fuel without inflicting excessive costs on consumers.

Second, it would relieve the burden of non-compliance from the refining community without making those entities produce less and/or export more fuel, either of which would increase the price at the pump domestically.

Third, it would preserve the benefits of a diverse fuel supply.

As a policy matter, EPA’s waiver authority represents the proper allocation of responsibility, whereby Congress is not charged with designating the appropriate annual volume obligations based on the market. Instead, this task falls to experts at EPA, who are required to consult with their counterparts at the Departments of Agriculture and Energy. In other words, a waiver to avoid the blend wall is how both the RFS, and the government in general, is supposed to work.

In today’s Digest — the RINs situation; is the Blend Wall and RFS-buster?; concerns about E15 ethanol; RFS impact on the food sector; diversifying the fuel supply; the real problems and immediate relief; and “a way forward?” – all by following the page links below.