RFS Uncertainty Remains

OMAHA (DTN) -- The ethanol industry is setting its sights on June 2016 -- the next self-imposed deadline set by the U.S. Environmental Protection Agency to release proposed 2017 Renewable Fuel Standard volumes.

By 2022, the current RFS statute calls for 36 billion gallons of biofuels to be blended in the gasoline pool, capping corn-based ethanol at 15 billion gallons. So, as the EPA continues to scale back on volumes called for in the 2007 law, the future of the RFS continues to be in question.

If the RFS was designed to drive innovation in biofuels, some are wondering what happens to the law beyond 2022, as it appears required volumes won't be produced.

In an interview with DTN/The Progressive Farmer following the EPA release this week, Bob Dinneen, president and chief executive officer of the Renewable Fuels Association, said the annual battle to convince EPA to set RFS volumes at the original statute has made it difficult to look beyond the current year.

Because the next proposed RFS volumes release would come in the middle of an election year, Dinneen said there continues to be as much doubt about the program as there has ever been.

"It's going to be up to EPA," he said. "I'm not sure I could know enough to opine as to what would happen without knowing what the administration will be. If you're talking about Ted Cruz's EPA or Hillary Clinton's -- that's clearly going to have a huge impact.

"The RFS doesn't necessarily go away. Most candidates said they would support the RFS as it is through 2022. That's good because this administration has not. After that, tell me what the price of oil is in 2022. Has Congress taken a look at oil subsidies? Is there a level playing field when it comes to energy? All of that will play into what folks want to do with the RFS."

Now that EPA has released three years' worth of RFS volumes for ethanol and other biofuels, industry attention turns to the next EPA-set deadline for 2017 RFS volumes -- June 2016.

EPA has said the release gets the program back on track after years' worth of delays and missed deadlines. The latest proposal came about as a result of a court order.

"This is not a court-ordered deadline," Dinneen said about the June 2016 deadline. "We'll see if they can meet that. They are embarrassed by a failure to meet deadlines. But political pressure of the election will not make the process easier."

Growth Energy officials this week said the final numbers will allow the industry to break through the so-called blend wall where total ethanol production exceeds the available E10 market.

EPA used a waiver rule to change the blend volumes required by petroleum marketers. Biofuel volumes are set in the final rule at 16.28 billion gallons for 2014, 16.93 billion gallons for 2015, and 18.11 billion gallons for 2016.

Under the original 2007 law, overall biofuel blending volumes would have been 18.15 billion gallons in 2014, 20.5 billion gallons in 2015 and 22.25 billion gallons in 2016.

The new rule lowers blend volumes from the law by 1.87 billion gallons for 2014, 3.57 billion gallons for 2015 and 4.14 billion gallons.

RINS MARKET

What has received little press is a biofuels market that includes 2 billion gallons of outstanding renewable identification numbers, or RINs. Gasoline blenders who are obligated by the RFS to blend ethanol can buy and sell RINs to meet their obligations.

Dinneen said the currently available RINs would be enough for blenders to meet their obligations if EPA chose to set volumes outlined in the 2007 law.

"I don't see this is much of a dent in the blend wall," he said. "EPA didn't do much but increase the numbers much beyond EIA (Energy Information Administration) data on gasoline demand. We're not going to break through the blend wall as long as we have 2 billion gallons in RINs hanging over the market. This rule, in my view, undermines the market mechanics of RINs. Am I glad they increased the numbers? Sure. But I think what they did about the RINs is a real problem.

"It's not for EPA to decide when or how credits are used. They are supplanting the market with their own judgement of what the market ought to be and it's just wrong."

LAWSUIT DEBATED

One the remaining questions is whether ethanol and oil groups will be filing lawsuits in response.

Growth Energy has said it will explore the possibility with its members and board members. Dinneen said the RFA also is considering its options, with the notion that any litigation can take years and create more uncertainty for the industry.

"We will defend the integrity of the program that EPA has done great damage to," Dinneen said. "The last thing this industry needs is more uncertainty. It's pretty frustrating. The real losers are those companies in the advanced sector. Those investors don't need a bigger additional uncertainty of litigation."

Dinneen and the RFA were critical of the EPA's final volumes announced this week, pointing out how President Barack Obama didn't tout the successes of the RFS during climate talks in Paris this week.

Dinneen told DTN the industry is receiving mixed signals.

"I don't understand it," he said. "I think it's sad the president goes to Paris to lecture the world about climate change and the need for other countries to take steps on the same day his own EPA is cutting the single most effective greenhouse gas reduction policy for transportation fuels the world has ever known. The hypocrisy is appalling."

Dinneen said the administration's stance on the RFS changed with the introduction of the so-called indirect land-use change theory in 2008. The theory claimed expanded biofuels production in the United States would cause farmers in foreign countries to make land-use decisions that could lead to increased carbon emissions. It's a theory that Dinneen said continues to erroneously hurt corn ethanol's carbon footprint as defined by the RFS because it penalizes corn-based ethanol.

"It has been roundly rejected by the scientific community," Dinneen said. "There has been a lot more analysis, and every new analysis shows the impact from corn ethanol is miniscule."

RFA and others have asked the agency to update the data in the RFS on ILUC to reflect real-world information, he said, and that has not been completed.

When it comes to the health of the U.S. ethanol industry, he said low oil prices have made for tight margins for ethanol producers.

"We are frustrated demand is not being driven by EPA and this program," Dinneen said. "We're promoting exports as much as we can. The existing industry is going to be better for it. Most at risk are those companies trying to commercialize new technologies.

"That's kind of frustrating. You're witnessing the evolution of the industry, seeing the promise of the industry being realized. All of that now has slowed or is moving overseas. That's just not how it should be."

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @ToddNeeleyDTN

(AG/CZ)

Copyright 2015 DTN/The Progressive Farmer. All rights reserved.