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Could RFS Cuts Hinder Biofuels Growth?

Could RFS Cuts Hinder Biofuels Growth?

08 December 2013

ANALYSIS - The Environmental Protection Agency's (EPA) 2014 proposed rule to reduce the required amount of biofuels to be produced in 2014 by 2.94 billion gallons could reduce incentive for biofuels growth, writes Gemma Hyland.

The EPA has once again proposed to significantly reduce the cellulosic mandate (from 1.75 billion gallons to just 17 million gallons) but, in contrast to previous years, has also proposed to reduce the overall mandate by more than 3 billion gallons.

Under the proposed volumes, biofuel prices and the blend wall will largely determine a fairly narrow range of about 460 million gallons - about a day and a half worth of US motorfuel consumption - where much of the action in the biofuels market is likely to occur. It is this volume which will intersect the blend wall, influencing RIN prices and where biodiesel, corn ethanol and sugarcane ethanol imports will face off.

Purdue University energy policy specialist Wally Tyner said: "I think it is a mistake to put the RFS that low," said Tyner, who recommended that the corn ethanol requirement be set at 13.9 billion gallons to provide inventive for refiners to blend and sell more E85 fuel, a mixture of 85 per cent ethanol and gasoline that can be used only in "flex fuel" cars. Other cars use gasoline that contains 10 per cent ethanol. That level also would not put undue pressure on corn prices.

Refiners have incentive to produce more E85 because the ethanol price is falling compared with gasoline and they may be able to get added revenue from their blending credits called RINs, short for renewable fuel identification numbers.

The consequence of setting the RFS at 13.01 billion gallons for corn ethanol would be to "destroy that incentive," Tyner said. In passing a fuel standard, Congress intended to provide a strong incentive to bring more renewables into the market. The proposed level of 13 billion is even less than the blend wall at 13.3 billion gallons.

Public hearing

Following a public hearing last week, National Farmers Union (NFU) President Roger Johnson said: “While we are pleased that EPA held this hearing to gain feedback, NFU members are incensed with EPA’s initial proposal. At a time when the price of corn is below the breakeven point for farmers, EPA’s proposal slashes the corn ethanol requirement to a level below current production. This will have a devastating impact on farmers and the rural economy.

“EPA has cited the so-called ‘blend wall’ as the reason for reducing the RFS targets. This excuse comes directly from Big Oil’s talking points. The RFS was not intended to be convenient for the oil industry. It is intended to provide consumers a choice at the pump and to increase our nation’s energy security.

“EPA’s proposal will hurt the advanced and cellulosic biofuels industry at a time when commercial-scale plants are coming online. Without a stronger commitment from EPA, investors will be reluctant to continue to pour billions of dollars into an industry that is creating good paying jobs in rural areas, providing farmers with additional markets, and mitigating climate change.”

Congress 'must fix mess'

National Chicken Council (NCC) president Mike Brown called for a permanent Congressional fix at the EPA hearing.

"Congress created this mess, and ultimately, Congress must fix it. Congressional action to repeal the RFS remains the most viable pathway to allowing all users of corn to have equal standing in the marketplace."

Mr Brown noted that last year, more than 40 per cent of the nation’s corn crop went to ethanol production – not food or feed. This rising demand for corn has artificially forced prices for the commodity up by nearly 40 per cent since 2005, to the detriment of US food producers and hungry families.

"The volatility and uncertainty in the market has been equally damaging for poultry producers," he continued.

EPA’s proposed 2014 renewable fuel standard rule relies on a legal provision that allows it to lower its advanced biofuels and total renewable fuel targets using two waiver authorities in the Clean Air Act, EPA said.

The first waiver authority allows the agency to lower the advanced biofuel volume mandate because of a shortage in available supply of cellulosic biofuels.

The second waiver allows EPA to lower the overall renewable fuel requirements because of limits on the volume “of ethanol that can be consumed in gasoline given practical constraints on the supply of higher ethanol blends to the vehicles that can use them and other limits on ethanol blend levels in gasoline.”

Gemma Hyland, Editor

Gemma Hyland, Editor

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