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US trade groups express concern over renewable fuels mandate for 2014

12.05.2013  |  HP Editorial Staff

Keywords: [Blend wall] [biofuels] [ethanol] [cellulosic ethanol] [API]

Downstream leaders for both the American Petroleum Institute (API) and American Fuel & Petrochemical Manufacturers (AFPM) testified Thursday at the Renewable Fuel Standard (RFS) public hearing before the US Environmental Protection Agency (EPA). 

Bob Greco, downstream group director for the API, discussed issues including the ethanol blend wall, cellulosic biofuels and rulemaking.

In his remarks, Greco reinforced API’s position on the RFS. In particular, API is most concerned on the ethanol blend wall and retail infrastructure compatibility issues associated in using ethanol-gasoline blends above 10% by volume. Unintended consequences with higher ethanol-content fuels initiate fuel rationing and raise retail fuel costs to consumers and business.

Other serious issues involved the deadlines for compliance with the new rules. EPA’s tardiness on 2014 RSF rule does not provide sufficient time for operational, logistics and investment decision, according to Greco. 

Also, the 2014 volume of cellulosic ethanol remains a problem even after the D.C. Circuit Court vacated the 2012 cellulosic standard. In response, EPA set a new target of 17 million gallons, which is considered unreasonable.  

Greco urged the EPA to take more positive steps to resolve the problems with RFS in 2014 and to not raise the total ethanol requirement above 9.7% by volume. 

The full transcript of Greco’s testimony is as follows:

Our members’ primary RFS concern is the ethanol blend wall. There are serious vehicle and retail infrastructure compatibility issues associated with the usage of gasoline containing ethanol in excess of 10% vol. Left untouched, the statutory mandates could cause fuel rationing, drive up the cost of diesel by 300% and the cost of gasoline by 30% by 2015, and lead to a $770 billion decrease in US GDP and a $580 billion decrease in take-home pay for American workers, according to a study by NERA economic consulting.
 
The RFS mandates are based on the flawed presumption that gasoline use would continue to rise well into the future when in fact, the opposite is now occurring.  These rigid requirements are obsolete and have no place in today’s energy market.
 
API is encouraged that, for the first time, EPA has acknowledged that the blend wall is a dangerous reality that must be addressed to avoid negative impacts on America’s fuel supply and to prevent harm to American consumers. However, we will continue our call for Congress to repeal the RFS to protect consumers from this outdated and unworkable program once and for all.
 
While the Agency’s proposal is an important step in the right direction, the proposal does not go far enough to address the blend wall. Based on the RFS volume ranges proposed by EPA, the resulting ethanol-to-gasoline blending ratio could be as low as 9.8% or as high as 10.3%. As stated in our general waiver petition submitted earlier this year, API recommends that EPA set the ratio at no more than 9.7% ethanol to ensure a fungible RIN market, and to preserve a market for those consumers that choose E0, or clear gasoline. 

The proposed standards represent a significant challenge if finalized, and would leave no tolerance to account for the difficulty of blending ethanol into every gallon. As a result, some of the negative impacts of the blend wall may not be fully avoided. We urge EPA to set the 2014 RFS volume standards so that the ethanol-to-gasoline blending ratio stays sufficiently below 10%.  

Rulemaking Timing

EPA also needs to take statutory deadlines seriously and issue timely rules.  EPA’s continual tardiness has real, adverse effects on our industry. Obligated parties need this information ahead of the compliance period to make operational, logistics, and investment decisions. A biomass-based diesel standard for 2014 should have been issued well over a year ago.  At this point, EPA does not have the authority to increase the stringency of the biomass-based diesel standard before 2016.

The uncertainties created by the ethanol blend wall this year are enormous; and EPA is only adding to the uncertainty with retroactive rules.  The Clean Air Act recognizes the need for regulatory certainty and clearly defines these non-discretionary deadlines.

Cellulosic Biofuel 

Finally, the Clean Air Act clearly requires EPA to determine the mandated volume of cellulosic biofuels each year at the “projected volume available.” The D.C. Circuit Court vacated the 2012 cellulosic standard and EPA is taking appropriate steps to correct the invalid 2011 cellulosic standard. However, EPA’s proposal for 17 million gallons of cellulosic biofuel is once again aspirational and unreasonable. It shows EPA did not heed the D.C. Circuit’s admonishment to change its failed “self-fulfilling prophesy” approach to one which employs a neutral methodology for setting future cellulosic biofuel mandates. It is patently unfair and improper for EPA to keep setting unrealistic cellulosic mandates only to revise them after the compliance year in response to court action.
 
This year, EPA suggests an improved methodology; but the use of spurious statistical simulations based on unrealistic parameters is a feigned attempt at legitimacy. Continuing to mainly rely on forecasts prepared by cellulosic biofuel producers, which have been consistently wrong every year, is a failed approach and constitutes a stealth tax on refiners. In fact, EPA’s August assessment of 6 million gallons for 2013 appears to once again be a substantial overestimate of actual cellulosic production, which will likely be less than 1 million gallons. Clearly EPA still does not have an acceptable conceptual model for predicting cellulosic production capacity. API continues to recommend setting this standard at actual demonstrated production.  

In closing, EPA has taken positive steps to address problems with the RFS in 2014, but tardy year-by-year fixes are not the solution. EPA needs to act quickly to finalize these 2014 standards, waiving the total ethanol requirement to not more than 9.7%.


Meanwhile, Charlie Drevna -- president of the American Fuel & Petrochemical Manufacturers (AFPM) trade group, also testified at Thursday's hearing. 

Drevna's full remarks can be read below:
The Environmental Protection Agency’s (EPA) recognition of the ethanol blendwall and the potential adverse effects on consumers is a welcome first step, however, EPA’s actions are shortterm in nature and point to the need for Congress to address the severely flawed and outdated Renewable Fuel Standard (RFS).

The statutory quantities of ethanol exceed the technical limitations of many engines in service today. The vast majority of existing vehicles and infrastructure cannot handle a gasoline supply containing more than ten percent ethanol (“E10”), which leads to what is referred to as the “E10 blendwall.”

EPA’s proposed waiver attempts to reconcile the reality of the blendwall with the unrealistic renewable volumes in the statute, and is necessary to prevent the RFS from artificially limiting the supply of transportation fuel available for U.S. consumption. Renewable Identification Numbers (RINs) are the currency used for RFS compliance. The number of RINs available for compliance depends not on production but on domestic consumption of renewable fuels. As the RFS mandates exceed the ability of the underlying fuel supply to use additional ethanol, there will be a shortage of RINs available for compliance. Neither E15 or E85, or drop-in renewable fuels will fill the RIN gap in the necessary timeframe. The blendwall is here now.

Since RINs operate as permits to sell transportation fuel, if there are not sufficient RINs, obligated parties will have to reduce their obligation to comply with the law. Obligated parties can only legally supply as much gasoline and diesel for U.S. consumption as they have RINs to meet the obligation that supplying the fuel incurs. Unless EPA takes action to reduce the mandates to levels compatible with vehicles and infrastructure, the result could be to reduce imports, increase exports, and reduce domestic production.

In an August 2013 waiver petition, AFPM proposed a 9.7 percent cap on ethanol in gasoline because it is the minimum EPA action necessary to retain a supply of pure gasoline required for some engines, account for historical differences between EIA projections of gasoline demand and actual demand, and promote liquidity in the RIN market. EPA’s proposal maintains ethanol consumption at about the same levels as consumed in the past two years, which means there would be no actual reduction.

To date, the advanced biofuel requirement has functioned as a de facto mandate for hundreds of millions of gallons of sugarcane ethanol imported from Brazil. This is not what Congress intended – EPA should consider only “domestic supply” when setting the advanced biofuel and total renewable volumes.

EPA is required by the Clean Air Act to publish annual renewable fuel volumes by November 30 of the preceding year. The Agency was nine months late setting the 2013 volumes and will be at least seven months late in finalizing the 2014 volumes causing uncertainty in the transportation fuels markets. Further, EPA was required to set the biomass-based diesel volume for 2014 by October 30, 2012, but missed this statutory deadline by more than a year.

  There is a consequence to being late. EPA does not have the authority to increase the volumes for biomass-based diesel for 2014 or 2015. Therefore, it cannot promulgate a volume for biomass-based diesel for either year that is higher than 1.28 billion gallons, the regulatory value for 2013. The law is clear on this point.

In relation to the cellulosic portion of the mandate, while EPA recognized the statutory levels simply do not exist and made a downward adjustment from what the law says, its proposal still far exceeds reasonable projections on what can actually be produced.



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