RFS Reform Talk

OMAHA (DTN) -- Members of the U.S. Senate Environment and Public Works Committee on Wednesday drew lines in the sand on the future of the Renewable Fuel Standard -- mainly along party lines -- although the original law was passed along bipartisan lines back in 2005 and revamped in 2007.

Though potential RFS reform during a presidential election year seems to face long odds, Sen. James Inhofe, R-Okla., said during a hearing he believes the law implemented by the U.S. Environmental Protection Agency should be repealed.

"At the heart of today's discussion is the fact that it is time for Congress to revisit the RFS," he said. "In fact, Congress must revisit the RFS by 2022 when the tables in the Clean Air Act end or U.S. fuel policy will be left in the hands of the EPA. I think we can all agree no one wants that to happen.

"EPA's mismanagement is compounded by concerns that the compliance market is not working properly. Biofuel production has not reached the levels that were expected when the program was created."

Sen. Barbara Boxer, D-Calif., reiterated what ethanol producers, farmers and cellulosic ethanol developers have been saying -- the RFS should be allowed to work as intended.

"The implementation of the RFS has not been perfect, but the law is sound," she said. "Congress designed the RFS to be managed in a flexible, common sense way, and we gave the EPA the authority to make certain adjustments when necessary.

"As I have said before, legislative changes to the RFS are not needed, and I will do everything in my power to stop any legislation to modify or undermine this landmark law."

Howard Gruenspecht, deputy administrator of the U.S. Energy Information Administration, told the committee it was unlikely the current RFS mandate to produce 36 billion gallons of biofuels by 2022 would be met -- largely because the cellulosic ethanol industry has failed to reach full commercial-scale production.

"This is not a new or surprising finding," he said in his written testimony. "All of EIA's annual energy outlook reference case projections since the present RFS targets were enacted in the Energy Independence and Security Act of 2007 have suggested such a shortfall."

EPA is on track to issue the next RFS volumes on time, said Janet McCabe, EPA acting assistant administrator in the office of air and radiation.

RFS ADJUSTMENTS

Ronald Minsk, an energy policy consultant and former special assistant to President Barack Obama on energy and the environment, said a few adjustments could be made to improve the RFS rather than repeal.

Minsk said by moving the "point of obligation" in the RFS from importers and refiners to the terminal rack where motor fuel is distributed and taxed, EPA would increase the incentives for obligated parties to blend ethanol and reduce the costs of the program.

"EPA has the legal authority to make this change to the program and could do so by the end of this year," he said.

A second option, Minsk said, would be for EPA to establish lower renewable volumetric obligations, or RVOs, for conventional renewable fuel to reduce the overall compliance costs of the RFS.

It could be done, he said, without "substantially reducing" the volume of conventional renewable fuel blended into the fuel supply, such as corn ethanol.

"In doing so, EPA also could continue to establish RVOs for advanced renewable fuels at levels in a manner similar to what they did in the recent final rule," Minsk said.

A third option, he said, would be for Congress to amend the law to accomplish a result similar to EPA lowering the RVOs.

"Under the current program structure, there is a misalignment between the parties obligated to ensure that blending occurs and the parties that are situated in the supply chain to blend," Minsk said.

"As EPA recognized in 2009, moving the point of obligation to blenders can better align the obligation and the ability to blend. Moreover, moving the point of obligation to the blender more evenly distributes the cost of obligation across the obligated parties and likely reduces cost of the program to consumers."

ENERGY LANDSCAPE CHANGES

Inhofe said the energy landscape has changed since the RFS passed about a decade ago.

"America now produces more oil at home, imports less from abroad, consumes less gasoline, and emits less carbon from oil-based fuels," he said. "Most of the rationale originally justifying the RFS has disappeared.

"All we have left is an unstable program rooted in EPA's waiving entire portions of annual requirements, allowing imported soybeans and ethanol from South America to count towards the RFS, and regularly missing implementation deadlines."

Brooke Coleman, executive director of the Advanced Biofuels Business Association, said lower crude oil prices and lower pump prices are only temporary.

"It would be a mistake to confuse the short-term economic benefits of recent increases in U.S. oil production and decreases in gasoline prices with long-term energy security," he said.

Lower gasoline prices are occurring, Coleman said, because OPEC nations are using their market power to derail the United States' oil boom. The economy still remains "vulnerable" to oil prices, he said, as OPEC can pull the plug on production at any time to cause a spike in prices.

CELLULOSIC ETHANOL POSITIONED

In the past year, cellulosic ethanol development companies have announced plans to deploy their technologies outside the United States because of doubts about the future of the RFS.

Coleman said cellulosic ethanol is in position to grow with the right federal policy in place.

"The U.S. is in position to lead the world when it comes to the development of advanced, low-carbon biofuels," Coleman said.

"And yet, we face as much policy uncertainty as we ever have before, almost always generated by fabricated claims about renewable fuels and the RFS. Incumbents in the fuel energy space are going after our tax provisions, our farm bill programs, and of course, the RFS. It is important to understand that this is happening because of the effectiveness, rather than ineffectiveness, of these programs to drive consumer choice at the pump."

Brian Jennings, executive vice president of the American Coalition for Ethanol, said in a statement to DTN that EPA has not implemented the RFS as intended.

"While we appreciate that the administration improved the final Renewable Fuel Standard blending targets for 2016 compared to the purposed rule, regrettably, the methodology used to waive volumes for 2016 protects the old way of doing business by obstructing consumer access to cleaner fuels, stifling competition in the marketplace, and undermining innovation," he said.

"ACE members have made significant biofuel production advancements because of the RFS and we know that further innovation is within reach if federal policy continues to reward a competitive marketplace."

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

Follow him on Twitter @ToddNeeleyDTN

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