EPA's RFS proposal angers ag, oil interests alike

WASHINGTON, May 29, 2015 – Rather than bring peace to the fight over the Renewable Fuel Standard, today’s announcement by the Environmental Protection Agency seems to have stirred up both sides.

The EPA today released RFS Renewable Volume Obligation (RVO) proposals for 2014, 2015, 2016, and biomass-based diesel requirements for 2017, calling for growth in the program, which angered oil interests, but gradual growth rather than immediate shifting to statutory levels, which angered renewable fuel advocates.

Janet McCabe, EPA’s acting assistant administrator in the Office of Air, called the proposals “ambitious but responsible,” implying that the marketplace can only handle so much of an increase at this time.

“We don’t think, as we lay out in the proposal, that the statutory volumes are reasonably achievable in the time frame that we’re talking about here in this rule,” McCabe said on a call with reporters. “You’ve got to keep in mind that we’re setting volumes for 2014, 2015, and 2016; 2016 is not that far away. In that time frame, we think that these volumes actually represent more than gradual growth, they represent ambitious growth and are appropriate in light of Congress’ intent.”

McCabe acknowledged that the “blend wall” – a cap in the amount of biofuels, specifically ethanol, that can be absorbed by the marketplace without switching to higher blends – “is an issue.” The oil industry contends that cars on the road can handle E10, a 10 percent ethanol blend that is also the most popular form of fuel on the road, but jumping up to higher blends like E15 or E85 could do damage to the vehicle fleet. Renewable fuels advocates say the blend wall is artificially constructed by the oil industry due to its control over the distribution of the fuel supply.

Today’s announcement was largely triggered by a lawsuit filed in March by the American Petroleum Institute (API) and the American Fuel and Petrochemical Manufacturers (AFPM), who – like many biofuel producers – argued that uncertainty in the program was causing harm to their businesses. A resulting consent decree announced in April called for these proposals to be announced by June 1 and finalized by Nov. 30 of this year.

API and AFPM both expressed appreciation for EPA not immediately going for statutory RVO levels, but both see today’s announcement not as responsibly ambitious, as EPA contends, but rather as overly ambitious. Now, both organizations are calling on Congress to either repeal or make major changes to the law underlying the RFS.

“In acknowledging that the proposal seeks to force more ethanol use than the marketplace can handle, EPA is playing Russian roulette with fuel supply and consumers,” AFPM President Chet Thompson said. “Although EPA took appropriate actions and recognized the blend wall, it proposed a standard that falls far short of mitigating the potential harm to consumers. The use of ethanol in motor fuels has reached a saturation point and since the agency did not appropriately address the issue, Congress must.”

“Consumers’ interest should come ahead of ethanol interests,” said Jack Gerard, API’s chief executive. “EPA assumes growing demand for high-ethanol fuel blends that are not compatible with most cars on the road today, potentially putting American consumers, their vehicles and our economy at risk.

“Today’s announcement makes abundantly clear that the only solution is for Congress to repeal or significantly reform the RFS. Members on both sides of the aisle agree this program is a failure, and we are stepping up our call for Congress to act.”

The oil industry has some livestock-sector allies in the fight against the RFS who contend that the mandate is driving up the price of corn. The crop is a major feed source for their animals, and the primary feedstock for ethanol in the U.S., where about 37 percent of the corn crop was used to make the fuel last year.

National Chicken Council President Mike Brown said the RFS has cost his industry more than $50 billion in higher feed costs and that “the RFS, and its implementation, are broken beyond repair.”

Renewable fuels advocates vehemently disagree. In statements released after the EPA announced its proposal, the near-unanimous consensus was that the industry appreciated efforts to bring the RFS back on schedule after more than a year of delays, but the volume requirements were inadequate.

Renewable Fuels Association President and CEO Bob Dinneen called the announcement “a step backward for the RFS,” saying EPA is catering to the desires of the oil industry to slow the mandated blending requirements.

“(EPA) has eviscerated the program’s ability to incentivize investments in infrastructure that would break through the blend wall and encourage the commercialization of new technologies,” Dinneen said. “By adopting the oil company narrative regarding the ability of the market to effectively distribute increasing volumes of renewable fuels, rather than putting the RFS back on track, the agency has created its own slower, more costly, and ultimately diminished track for renewable fuels in this country.

“The EPA plan fundamentally places the potential growth in renewable fuels in the hands of the oil companies — empowering the incumbent industry to continue to thwart consumer choice at the pump with no fear of consequence for their bad behavior. That is not what the statute intended.”

Growth Energy CEO Tom Buis said the announced standards “still need significant improvement.” He promised that Growth Energy would submit “exhaustive comments” on the proposal, but he wasn’t happy with the direction of EPA’s announcement.

“Everyone in Congress, as well as all parties in the renewables and oil industry, knew when this legislation was debated and passed into law that the only way the RFS goals could be met was by introducing higher blends into the market moving forward,” Buis said. “Now the obligated parties, controlled primarily by Big Oil, have refused to live up to their obligation, and the initial read on EPA's proposal is they have simply acquiesced to the demands of Big Oil.”

A statement from Chip Bowling, president of the National Corn Growers Association, left room for a potential lawsuit challenging the announced figures, saying that NCGA is “evaluating our legal options for defending the law.” He said the proposal, which calls for lower corn use than the original statutory requirement, could represent almost 1.5 billion bushels in lost corn demand and could be devastating to producers across the country.

“The only beneficiary of the EPA’s decision is Big Oil, which has continuously sought to undermine the development of clean, renewable fuels,” Bowling said.  “Unfortunately, the EPA’s gift to Big Oil comes at the expense of family farmers, American consumers and the air we breathe.

“The Renewable Fuel Standard was working as intended, with no need to change.”

Not only is the proposal potentially damaging for the short-term success of the renewable fuels industry, it could possibly set a dangerous example for the future for the Clean Air Act according to Brian Jennings, executive vice president for the American Coalition for Ethanol.

“If EPA is willing to let oil companies disregard Clean Air Act requirements to clean up motor fuel, how does it expect power plants to comply with their Clean Air Act proposal to curb carbon pollution?” said Jennings.

Opinions on the issue are generally split on Capitol Hill. Efforts to fix the RFS legislatively are not uncommon, but haven’t been successful to date. In a statement, Senate Environment and Public Works Committee chair Jim Inhofe, R-Okla., who has spoken out against biofuels policy in the past, said the statutory volumes were “unachievable,” but didn’t say the RFS needed to be fully repealed. Rather, he suggested more robust supervision should be in order.

"EPA's announcement adds to the building evidence of how poorly the agency has managed the renewable fuel standard, and how the mandate is in need of significant reform and oversight,” Inhofe said, pointing to missed implementation deadlines and other issues within the EPA. “All of these actions by EPA give a clear case for a mismanaged program in need of rigorous oversight.”

One of Inhofe’s fellow Senate Republicans, Chuck Grassley of Iowa, called today’s announcement “Christmas in May for Big Oil” and said President Barack Obama should do more to promote the use of biofuels within his administration.

“President Obama’s EPA continues to buy into Big Oil’s argument that the infrastructure isn’t in place to handle the fuel volumes required by law. Big Oil’s obstruction and the EPA’s delays and indecision have harmed biofuel producers and delayed infrastructure developments,” Grassley said. “Today’s proposal is just as harmful to biofuels as what the EPA put out in November 2013, and it’s 18 months late. What happened to the president who claimed to support biofuels? He seems to have disappeared, to the detriment of consumers and our country’s fuel needs.”   

Rep. Collin Peterson, D-Minn., the ranking member on the House Agriculture Committee, expressed his disappointment with the ruling, saying biofuels are necessary for a strong rural economy.

“I had hoped that the long period of time EPA took to make these announcements meant that they would get it right and follow the path set by Congress,” Peterson said. “Unfortunately, it was a mistake to think the EPA could administer this program without screwing it up and this is yet another misguided announcement from the agency.”

In a related development, USDA today said it will invest up to $100 million in partnership projects to support the infrastructure needed to make move renewable fuel options available to American consumers. The department said it will administer competitive grants to match funding for state-led efforts to test and evaluate new approaches to market higher blends of renewable fuel, such as E15 and E85. Currently the typical gas pump can deliver fuel containing a maximum of 10 percent ethanol (E10), limiting the amount of renewable energy consumers can use to fuel their cars. USDA said goal of the new initiative is to double the number of pumps capable of supplying the higher renewable blends to consumers.

Grassley said these developments will be helpful, but wouldn’t be necessary if EPA had allowed the RFS “to function as intended,” adding that “private investments already would have been made.”

Sen. Heidi Heitkamp, D-N.D., added that USDA’s efforts need backup from the EPA.

“While the USDA’s new investments will provide needed support for expanding our ethanol infrastructure, the lack of strong complementary support from the EPA is disappointing,” Heitkamp said.

The EPA will hold a public hearing on the RFS proposal June 25 in Kansas City, Kansas, and the proposal will also be open for public comment until July 27. According to the consent decree, EPA must finalize the standards by Nov. 30.

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