Biofuels to House: Octane Idea a Dud

OMAHA (DTN) -- In a hearing before a U.S. House of Representatives committee on Tuesday, biofuel interests stood their ground and told lawmakers a proposal to replace the Renewable Fuel Standard with a high-octane standard essentially would leave biofuels in the dust

The environment subcommittee of the House Energy and Commerce Committee considered testimony from biofuel interests and others regarding a proposal put forward by Rep. John Shimkus, R-Ill., and Rep. Bill Flores, R-Texas.

On the day before Thanksgiving, Shimkus and Flores released what they are calling a "discussion draft" of a bill that essentially would phase out the RFS in 2023 and eliminate a mandate requiring the blending of biofuels altogether.

In addition, the EPA administrator would be required to set volumes on advanced biofuels to be blended at the prior year's production volumes of cellulosic ethanol, biomass-based diesel and other advanced biofuels.

The current law mandates the increased blending of a variety of biofuels through 2022. The actual production volumes of cellulosic ethanol and other biofuels, however, have not come close to reaching the mandate. The current RFS law was designed to set a course for 36 billion gallons of biofuels to be blended by 2022. The discussion draft bill would not mandate the use of biofuels at all.

The proposal is a non-starter for biofuel interest groups.

FARM ECONOMY

Emily Skor, CEO of Growth Energy, told the committee that it shouldn't touch the RFS at a time when the agriculture economy is struggling.

"The absolute repeal of the RFS is unnecessary and will further destabilize the farm economy and the ethanol sector, both of which are already suffering from the EPA's excessive use of small-refinery exemptions, roadblocks erected by the oil industry to ethanol-blended fuel, and export barriers," she said in written testimony.

"We cannot support legislation that would ultimately turn back the clock on our nation's commitment to renewable biofuels, completely undermining the benefits that consumers have come to expect from ethanol at the pump."

Biofuel interests generally support the move to 95 RON (research octane number) requirement at the pump. However, industry representatives told the committee the move wasn't bold enough. Some suggest a move to 98 RON would provide a better incentive for high-octane fuels such as ethanol.

The current proposal, Skor said, would not be much of an incentive for petroleum interests.

"In fact, 98% of all gasoline sold in the U.S. today contains 10% ethanol," she said. "Moving to a 95 RON baseline fuel would require almost no changes from refiners across the country."

NO INCENTIVE

Brooke Coleman executive director of the Advanced Biofuels Business Council, said moving to a 95 RON would do little to incentivize the oil industry to buy more ethanol.

"In theory, renewable fuels like ethanol are in the best position to succeed under an octane standard because ethanol is by far the cheapest source of octane available today," he said. "In practice, and unfortunately, it is in the oil industry's long-term financial interest to marginalize competition and buy petroleum-based octane enhancers from themselves, even if it means lower downstream profits in the immediate term."

Coleman said the proposal provides some predictability for advanced biofuels in setting volume standards and feedstock.

"Unfortunately, the volumetric predictability comes in the form of a provision long advocated by the oil industry, namely, the setting of cellulosic biofuel standards based on prior year actual production," he said. "We strongly oppose the adoption of this provision under current and any future renewable fuel regimes. The problem with setting the cellulosic biofuel standard based on prior year production is it puts the growth trajectory of cellulosic biofuels largely in the hands of the oil industry."

Kurt Kovarik, vice president of federal affairs at the National Biodiesel Board, said the NBB also is concerned that the proposal lacks incentive to use biofuels such as biodiesel.

"The proposal would direct EPA to set backward-looking volume requirements," he said. "It may protect existing assets but not drive investment and further growth. And it would not address several of the causes of instability in the program, such as retroactive small refinery exemptions."

ETHANOL HARM

Geoff Cooper, CEO and president of the Renewable Fuels Association, said the studies show that setting a 95 RON would harm the ethanol industry.

"We simply cannot support eliminating the RFS program, as the draft envisions, without a much stronger signal to the market that ethanol's role in our fuel supply will continue to grow," he said in his written testimony. "A 95 RON standard does not provide that signal and is not a suitable replacement for the RFS beyond 2022. Indeed, as concluded in a new study commissioned by the Energy Information Administration, oil companies could easily meet a 95 RON standard without using any additional ethanol beyond current levels."

The RFA, he said, "strongly believes" a national standard to establish a minimum 98 to 100 RON would provide "much greater fuel efficiency gains and greater reductions in tailpipe pollution and GHG emissions."

The discussion bill would require automakers to design and warranty vehicles for using E20 blends -- 20% ethanol, 80% gasoline.

Cooper said the EPA should grant a fuel waiver for even higher blends to allow refiners and blenders to have more flexibility in capturing ethanol's octane benefits.

"Just as we believe the proposed provision requiring automakers to warrant their vehicles to operate on E20 should be adjusted to E30, RFA believes this provision should require the EPA to grant a fuel waiver allowing the use of up to E30 in light-duty vehicles, not just E20," he said.

Wesley Spurlock, a corn farmer from the Texas Panhandle representing the National Corn Growers Association, said the discussion draft would "undo successful renewable fuel policy" that has helped rural communities.

"At a time when farm income has declined more than 50% over the past five years and farmers continue to face market challenges from trade disruptions, we can't afford more uncertainty," he said.

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

Follow him on Twitter @toddneeleyDTN

(SK/AG)

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