RFS Debate Continues With Precedent-Setting EPA Oversight and Congressional Policy
The debate surrounding the Renewable Fuel Standard (RFS) continues to press on, following recent potentially precedent-setting actions by the Environmental Protection Agency (EPA) and legislation introduced in Congress that takes aim at reforming the 13-year-old policy.
Earlier this week, the EPA reached an agreement with Philadelphia Energy Solutions (PES), a Pennsylvania-based refiner, the largest on the East Coast, reducing the liability the company has to the agency in its required annual Renewable Identification Number (RIN) certificates. PES has cited that high RIN prices are the main reason the refiner had to file bankruptcy in January, due to the fact that PES does not have the capabilities of blending oil with ethanol, and therefore needs to purchase RINs on the open market to comply with the RFS.
RIN prices have been a point of contention for petroleum companies since the expansion of the RFS back in 2007. When ethanol and other renewable fuels are produced, a RIN number is created and attached to the unit. The unit and the RIN are then sent to a refiner who blends the materials into gasoline. At that point, the RIN is detached from the unit that was blended and can be used as a credit for a refiner, or be sold to other refineries. RIN prices vary depending on the market, and fluctuate based on oil and gasoline demands, due to the fact that there is a limit to how much ethanol can be in gasoline for optimum engine performance, known as the blend wall.
The deal between PES and the EPA results in the department forgiving approximately 200 million credits, worth approximately $350 million. In a previous interview with InsideSources, University of Illinois Professor Scott Irwin said any action taken that impacts the RFS would have to be done via Congress, as the policy doesn’t give the EPA the authority to make any changes.
Renewable Fuels Association (RFA) President and CEO Bob Dinneen expressed that the association hadn’t reviewed the full settlement and couldn’t comment on it, but did express that if held up in court, would set a bad precedent.
“At first blush,” Dinneen said, “this strikes us as rewarding bad behavior and sets an extraordinarily bad precedent.”
On the legislative side of the debate, Representative Peter Welch (D-Vermont) and Senator Tom Udall (D-New Mexico) introduced companion bills last week that would reform the RFS, which is the goal of oil lobbyists and a legislative priority for Texas Republican Senator Ted Cruz.
The Growing Renewable Energy through Existing and New Environmentally Responsible (Greener) Fuels Act has three phases that would redesign the RFS. The largest impact would be phasing out the corn ethanol mandate, and would immediately reduce the amount of ethanol in fuel by 1 billion gallons by capping the amount of ethanol that can be blended into conventional gasoline at 9.7 percent.
Dinneen said that this portion of the legislation “fails to recognize” the market reality that the blend wall of E15 has been periodically breached time and again. At a rate of 9.7 percent, Dinneen said the legislation ultimately “destructs demand.”
“In fact,” Dinneen said, “recent data released by the Department of Energy showed that gasoline consumed in 31 states —including Senator Udall’s home state — and the District of Columbia, contained more than 10 percent ethanol on average in 2016. The RFS is delivering on its promise to expand consumer access to cleaner, higher octane fuels like ethanol, helping to break Big Oil’s near-monopoly at the pump. This bill is a solution in search of a problem and would ultimately harm consumers.”
The second largest impact would be the bill’s focus on extending the cellulosic next generation biofuel mandate until 2 billion gallons of annual production is achieved, or 2037. The bill would also aim to return used cornfields to pasture and wildlife habitats by adding a 10 cent-per-RIN fee to fund a new Private Land Protection and Restoration Fund in the U.S. Treasury. The fund would help pay for Department of Interior programs that pay for easements on private lands to keep them out of agricultural production, and keep lands in conservation uses like grass, forest, stream buffers, or pollinator habitat. Lastly, the fund would help farmers transition land currently in crop production and other uses.
“Despite its early promise, the RFS has been a well-intentioned flop that is harming our environment by contributing to the conversion of millions of acres of grasslands, wetlands and forests into crop production while failing to bring about the widespread use of truly sustainable fuels like cellulosic,” Welch, Congressman from Vermont, said in a statement. “Our commonsense legislation reforms the mandate to dramatically reduce its environmental impact and to support the continued growth of advanced biofuels.”
Cruz’s point of compromise would be adding a 10 cent cap to RIN prices in exchange for expanding E15 to be sold 12 months out of the year, instead of nine. Experts say that this wouldn’t do much to help renewable fuel producers, seeing as that by restricting RIN prices, there’s no incentive to blend more ethanol, thus hampering an E15 expansion.
Midwestern Governors are continuing to warn President Donald Trump about the negative potential of Cruz’s plan, releasing a joint letter to the President this afternoon, explaining the benefits of merely expanding E15 and not compromising.
“As noted by Secretary Sonny Perdue, economic conditions today ‘are testing the resilience of the American farmer,'” wrote Iowa Governor Kim Reynolds, and governors from South Dakota, Indiana, Kansas, Missouri, and Nebraska. “Many farmers ‘continue to face tight bottom lines, even negative returns in some cases.’ These challenges would only be exacerbated by demand-destroying alterations to the RFS – a policy which has been a lifeline for farmers, driving job growth and attracting billions of dollars of investment to rural areas where opportunities are needed most.”
