2014 US Renewable Fuel volume decision looms, as EPA hands off to OMB

August 24, 2014 |

RFS2The critical 2014 RVO number begins its trek towards final publication.

Will the Obama Administration stand by the Renewable Fuel Standard, or knuckle under to petroleum interests?

In Washington, word filtered out from the Environmental Protection Agency that the 2014 RVO has moved to the Office of Management and Budget for review.

Let’s first review the proposal that EPA circulated last fall, that resulted in so much controversy.


Potential impact: severe on the downside

The impact could be immediate and severe. A nationwide survey of producers conducted by the National Biodiesel Board (NBB) in April found that more than half have already idled a plant this year and 78 percent have reduced production from last year. Nearly two-thirds – 66 percent – have already laid off employees or anticipate doing so. This, after a draft RFS rule released in November by the EPA proposed holding biodiesel volumes at 1.28 billion gallons – a sharp drop from last year’s actual production of nearly 1.8 billion gallons.

Last week we reported that “the biodiesel industry is suffering from sinking prices as buyers wait on the sidelines until the mandate is announced.”

On the ethanol side, Citigroup estimated that as many as 20 ethanol plants are expected to be shuttered as a result of the cutbacks in ethanol blending for the RFS in 2014.

Industry push-back

In January, the governors of Iowa, Kansas, North Dakota, Minnesota, South Dakota and Nebraska sent a joint letter to the White House, the EPA Administrator and the Secretary of Agriculture saying that as many as 44,500 jobs related to biofuels are at risk if the RFS is lowered as planned by the EPA.

The RVO was due last November, and the EPA has repeatedly missed deadlines. Last month, Iowa Governor Terry Branstad slammed the EPA during his weekly press conference for having failed to announce the 2014 RFS, after missing a June deadline. He says that as a result of the indecision, corn prices have fallen to below $4 a bushel—below the cost of production—from $5.50.

In February, Iowa’s Attorney General said that the EPA does not have the authority to cut the amount of biofuel blended under the RFS, in the manner in which it is proceeding.The clause the EPA is apparently using to justify cutting the blend refers to the domestic ability to produce enough biofuel to satisfy the demand, something which is contrary to the actual case. The EPA is arguing that the clause can be extended to inadequate infrastructure to supply the biofuel but the AG says the law is clear, it relates only to supply rather than distribution.

Food price free-for-all

Meanwhile, the Congressional Black Caucus said in a letter in February to the EPA administrator that food prices increased last year by $2,000 for a family of four due to higher corn prices. They are asking for the RFS to be cut to below the 10% blend wall.

The EPA’s rationale

EPA writes: “The proposal seeks to put the RFS program on a steady path forward – ensuring the continued growth of renewable fuels while recognizing the practical limits on ethanol blending, called the ethanol blend wall.”

The blend wall refers to the difficulty in incorporating increasing amounts of ethanol into the transportation fuel supply at volumes exceeding those achieved by the sale of nearly all gasoline as E10 (gasoline containing 10 percent ethanol by volume).

Options in the courts: Suing to enforce the 2014 statutory numbers

It’s going to be tough for the biofuels industry to sue to enforce the overall statutory volumes, given the shortfall in cellulosic biofuels — even though the EPA is wading into regions of doubtful legislative intent in using blendwall issues as a reason to cut the corn ethanol target. It will be interesting to see if the RFA sues to maintain the corn ethanol mandate and potentially leaves advanced biofuels facing an even stronger set of cuts in order to make room for more corn ethanol.

By their statutory authority on cellulosic fuels (not in any way subject to a challenge on their powers under RFS2, but could have been open to challenge based on the gallonage), they could have waived down the celuloisic portion to 17 million gallons based on available fuel, and waived the rest of the standard accordingly down.

The advanced biofuels pool would have been reduced to 2.013 billion gallons, and corn ethanol would have stood at something like 14.387 billion gallons. The agency too steps to decrease the corn ethanol pool — and to increase the advanced biofuels pool slightly.

Industry Reaction

Michael McAdams, President, Advanced Biofuels Association

“A little less than a year ago, press leaks first suggested that EPA might reduce the 2014 renewable fuel standard (RFS) for advanced biofuels to as little as 2.2 billion gallons, which is substantially lower than current production.  Since that time, ABFA members and our many allies have clearly demonstrated that such reductions would fall disproportionately on advanced biofuels and represent a significant reversal of the Obama administration’s previous support for our industry.  We hope the final rule will be a major improvement and encourage the White House to set RFS volume obligations at levels that are consistent with our industry’s current and projected production capacity for advanced and cellulosic biofuels.”

Anne Steckel, Vice President of Federal Affairs, National Biodiesel Board

“We’re pleased to see the process moving forward and hope the final rule will show that this Administration is standing behind our national goals for clean, domestic fuels that strengthen our economy and national security. We also continue to urge the Administration to finalize the rule as quickly as possible. The original EPA proposal and continued delays have severely disrupted the U.S. biodiesel industry this year. We can begin to reverse that damage with a meaningful increase in the biodiesel volume that is finalized as quickly as possible so that producers can ramp up production in a timely fashion.”

Bob Dinneen, CEO, Renewable Fuels Association

“While we have not seen the rule, we hold strong in our belief that EPA and OMB will fulfill President Obama’s commitment to biofuels as a means of greater energy independence, lower greenhouse gas emissions, and wider availability of cost-saving alternative fuels for American consumers. This decision is about more than targets and gallons, it is about a rationale that places highest importance on the long term strength of this country and not the bottom line of oil companies.”

Tom Buis CEO, Growth Energy

“While OMB has up to 90 days to review this rule, what is most important is the content of the final rule.  The renewable fuels industry has provided extensive comments highlighting how the proposed reduction in the 2014 RVO’s would be detrimental to the biofuels industry, the American consumer and our environment.  I hope that after reviewing these thorough comments, they will finalize a rule that moves our nation forward on the adoption of renewable fuels, not backwards.

“Ultimately, this final rule should promote the policy goals of the RFS and call for an increase in the production of renewable fuels, so we can continue to reduce our dependence on foreign oil, create jobs at home that cannot be outsourced and mitigate climate change, while we improve our environment. Furthermore, it is critical we have the support of the Administration to end the monopoly oil companies have on the liquid fuels marketplace and finally provide consumers with a choice and savings at the pump.”

Brian Jennings, Executive Vice President, American Coalition for Ethanol

“ACE members are pleased the 2014 RVO is now at OMB for interagency review and we continue to encourage the administration to finalize a rule that allows the RFS to work by incentivizing oil companies to blend above the E10 limit.  Anything short of that turns the keys to the RFS over to the oil companies and puts cellulosic biofuel at risk.  While all stakeholders have waited a long time for the final rule, and it could take another 30 days or more for interagency review, getting the rule done right is far more important than getting it done quickly.”

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