Senate committee divided over changing or preserving RFS

The Renewable Fuels Standard has problems that need to be addressed, US Senate Environment and Public Works Committee members suggested at a Feb. 24 hearing about the federal program. But they disagreed over whether its renewable fuel volume goals are unrealistic or not ambitious enough.

The Renewable Fuels Standard has problems that need to be addressed, US Senate Environment and Public Works Committee members suggested at a Feb. 24 hearing about the federal program. But they disagreed over whether its renewable fuel volume goals are unrealistic or not ambitious enough.

“Most of the rationale originally justifying the RFS has disappeared,” Chairman James M. Inhofe (R-Okla.) said in his opening statement. “All we have left is an unstable program rooted in [the US Environmental Protection Agency’s] waiving entire portions of annual requirements, allowing imported soybeans and ethanol from South America to count toward the RFS, and regularly missing implementation deadlines.”

Ranking Minority Member Barbara Boxer (D-Calif.) said, “The implementation of the RFS has not been perfect, but the law is sound. Congress designed the RFS to be managed in a flexible, commonsense way, and we gave EPA the authority to make certain adjustments when needed.” Legislative changes are needed, she said, adding that she would do everything she could to stop any bill which tries to modify or undermine the law.

Other committee members questioned one of the hearing’s witnesses—EPA Acting Assistant Administrator for Air and Radiation Janet McCabe—regarding the agency’s problems meeting deadlines for establishing annual renewable fuel quotas for motor fuel suppliers. EPA issued final quotas for fiscal 2014, 2015, and 2016, and biomass-based diesel for 2014-17 in November which were more ambitious than what it proposed in June (OGJ Online, Nov. 30, 2015).

David Vitter (R-La.) said that EPA’s missing quota announcement deadlines makes it difficult for biofuel manufacturers to attract investment. “I think the signals we send are intended to push the market,” McCabe responded. “But the market itself determines how much biofuels are actually used.”

Waiver use questioned

Others disapproved of EPA’s exercising its authority to waive mandates in 2014 and 2015. “I think when you set volumes below the RFS’s goals, it discourages growth,” said Deb Fischer (R-Neb.).

“Both Big Oil and Big Agriculture are effective in making their voices heard in Congress,” said Sheldon Whitehouse (D-RI). “I’m concerned that smaller groups, such as cellulosic ethanol producers, are not being given the chance they deserve.” Democrats Jeff Merkley (Ore.) and Edward J. Markey (Mass.) each said biofuel businesses in their states would benefit if EPA followed RFS quota mandates.

McCabe said EPA’s recently issued final rule tries to ensure that growth of renewable fuel production and use continues, consistent with congressional intent. It also uses waiver authority—judiciously—to establish ambitious quotas that are also responsible and achievable, she added. “Wherever the industry is, they can see continued and steady growth in the volumes we set,” McCabe said.

Many stakeholders and members of Congress have asked why some of the RFS’s volume targets can’t be reached, she said. Reasons include slower than expected development of the cellulosic biofuel industry and the resulting supply shortfall, gasoline consumption which declined instead of growing as was expected in 2007, and constraints in supplying certain biofuels, particularly gasoline with more than 10% ethanol, McCabe said.

“EPA has taken steps to enable the use of E15 in certain light-duty cars and trucks beginning with model year 2001,” she said in her written testimony. “[The US Department of Agriculture] has also put resources into expanding ethanol refueling infrastructure. At the same time, EPA recognizes that there currently are real limitations in the market to the increased use of these higher ethanol fuels, including current near-term limits on fuel infrastructure.”

Unlikely to hit 2022 target

But a second witness said the RFS program probably will not achieve the target established in the 2007 Energy Independence and Security Act (EISA) calling for 36 billion gal of US renewable motor fuel use by 2002. “Virtually all of the projected shortfall is in the category of advanced biofuels, which includes cellulosic biofuels,” US Energy Information Administration Deputy Administrator Howard Gruenspecht told the committee.

The premise that advanced biofuels, particularly liquid cellulosic biofuels, would be available in significant amounts at reasonable costs within 5-10 years of the 2007 RFS targets has not been borne out, he continued. “Ethanol faces demand, distribution, and regulatory challenges that make it difficult to increase its use as a motor fuel regardless of its source,” Gruenspecht said.

EIA’s recent Annual Energy Outlooks, including 2015’s, project motor gasoline demand declines in contrast to earlier forecasts of stronger demand, while actual and project reliance on crude oil imports is significantly lower than it was when the expanded RFS program was enacted in 2007, he said in his written testimony.

“While the RFS is likely a key driver of biodiesel given current oil prices and biodiesel costs, it is possible that biodiesel use could be competitive with petroleum diesel prices independently of the RFs if oil prices were higher,” Gruenspecht said. “Alternatively, competitive parity with petroleum diesel independent of RFS obligations might also be attained through lower costs of biodiesel inputs.”

A third witness also said rapid expansion of domestic crude oil production and falling product demand since 2007 have made EISA’s projections obsolete. “The fundamental problem with the RFS is not ethanol. It’s the law’s mandates,” said Lucian Pugliaresi, president of Energy Policy Research Foundation Inc. (EPRINC).

He said in his written testimony that by modeling a range of likely compliance costs alternatives from 2017 to 2022 and viewing the scenario with adoption of EISA’s RFS mandate, EPRINC forecast that renewable volume obligations would raise gasoline prices 30-50¢/gal from prices which would prevail without volumetric mandates.

A primary cost factor

“This cost escalation is higher than in our earlier forecasts because we are entering into a market with lower gasoline prices, and in a low gasoline price environment for transportation fuels, volumetric mandates that exceed the blend wall are likely to be more costly,” Pugliaresi said. Only an RFS repeal scenario would prevent mandates from increasing gasoline prices, he added. “Other than the cost of crude oil, EPA’s [Renewable Volumetric Obligation] targets now will be the primary factor in setting the price of gasoline,” Pugliaresi said.

A fourth witness said EPA could adjust rules governing the RFS program, specifically by moving the point of obligation from importers and refiners to terminals. This would better align the incentive to blend renewable fuel with the obligation to do so and substantially reduce the program’s compliance costs, said Ronald E. Minsk, who was special assistant to the president for energy and environment on the White House’s National Economic Council during 2013-15.

“Congress also could address the problem, either by setting lower mandates for conventional renewable fuel or by eliminating the RVO for conventional renewable and establishing, in addition to the existing RFS requirements for advance renewable fuels, an separate mandate that all fuel be blended to include a specified percentage—perhaps 9.7%—of conventional renewable fuel at a level that is below the blend wall,” Minsk said in his written testimony.

The final witness, Brooks Coleman, executive director of the Advanced Biofuels Council, argued against changing the RFS because it is working. “The ABBC’s web site details roughly two dozen advanced-cellulosic biofuel projects in the US and abroad, and there are numerous US commercial facilities now in commission or production phases,” he said. More consistent policies are essential to attract the necessary investments, Coleman said.

The committee’s leaders, Inhofe and Boxer, clearly disagreed with each other about the RFS. Both said that it’s time to reexamine the program, and considered the Feb. 24 hearing an important first step. Committee sources said the next steps would be to investigate specific problems with the RFS more closely, and determine whether bills are needed for necessary reforms.

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