EPA Seeks Stakeholder Input

EPA RFS Hearing 12-5-13

EPA Seeks Stakeholder Input on Authorities Under RFS and Biofuel Marketing

On December 5 officials from the Environmental Protection Agency (EPA) heard from about 140 witnesses consisting of individual consumers, oil companies, convenience store operators, livestock and crop producers during a hearing on their proposal to reduce the 2014 Renewable Fuel Standard (RFS).

EPA Lowers Mandates

Specifically, EPA’s 204-page draft proposal recommends the 2014 RFS (Renewable Fuel Standards) at a total 15.21 billion gallons of renewable fuel production from all sources. Specifically, EPA will relinquish the overall 18.15 billion gallon mandate in the 2007 Energy Independence and Security Act (EISA) (PL 110-140). The threshold for conventional corn ethanol would be about 13 billion gallons, or 800 million gallons below the current corn ethanol mandate (13.8 billion gallons) and 1.4 billion gallons below the target of 14.4 billion gallons established in the EISA. Advanced biofuels (biodiesel, cellulosic or plant-based ethanol) would total 2.2 billion gallons.

EPA officials have said for months that they have little choice but to lower the mandates for 2014 in light of diminishing demand for gasoline and higher ethanol blends.  As we reported previously the U.S. Energy Department’s Energy Information Administration (EIA) concluded gasoline consumption in the U.S. for the first half of 2013 was 0.6%, or about 50,000 barrels per day LOWER than the same period last year.  The EIA stated the declining consumption trend for the U.S. is a continuation from 2012 when gasoline consumption also declined by 50,000 barrels per day year-on-year.

During the hearing it became quickly evident through questioning of witnesses by EPA officials that EPA was appealing for more information about market aspects of renewable fuels and whether or not stakeholders believed EPA has the legal authority to alter the renewable fuel mandates.

At issue is the interpretation that EPA has some flexibility under the RFS statute to adjust RFS mandated volumes, but most of that flexibility rests in EPA’s power to reduce the amount of “advanced biofuel” mandated under the RFS. EPA’s ability to reduce the corn ethanol mandate under current law and current circumstances is far from clear. Two U.S. Senators, Dianne Feinstein (D-CA) and Tom Coburn (R-OK) are proposing legislation that would eliminate federal requirements for corn ethanol while keeping intact the Renewable Fuel Standards (RFS) mandate for advanced biofuels.

U.S. has reached the blend wall & maxed out the ability to blend ethanol with gasoline

With regard to marketing, John Reese, Shell Oil Economist, explained that the U.S. has reached the blend wall and maxed out the ability to blend ethanol with gasoline at the 10 percent level. Most vehicles today are compatible with the 10 percent blends.  While EPA has already approved the use of higher E15 blends for vehicles produced after 2001, automotive manufacturers do not support this.

Paige Anderson, Director of Government Affairs for the National Association of Convenience & Fuel Retailers also offered comments about the infrastructure challenges and needed investments that convenience retailers face when complying with the RFS mandate. “The convenience and fuel retailing industry sells approximately 80% of the gasoline consumed in the U.S. Our mission is to sell products that consumers want to buy. We don’t prefer one fuel type over another. If demand is for E10, we sell E10. If consumers want E85, we sell E85.”

Anderson went further to say that there is a perception problem that needs to be addressed with E85.  “The reality is that consumer acceptance of higher blends of ethanol beyond 10% remains a challenge. Just because people are purchasing flex fuel vehicles does not mean they are filling up their gas tanks with E85.”  She explained this exacerbates an already difficult decision that independent retailers must make when deciding on whether or not to spend thousands of dollars on new equipment or retro-fitting current equipment in order to sell a new fuel.

Inappropriate prices at the pump?

Chip Bowling, a corn farmer from Newburg, Maryland, and Vice President of the National Corn Growers Association testified to EPA officials that the proposed rule would contradict the “exact intent of the RFS, which is to produce and consume ethanol.”  Bowling countered the arguments above by saying that it was not a retail infrastructure problem, nor a maxed-out blend wall, nor auto manufacturing but rather inappropriate prices at the pump.

Bowling noted, there are “approximately 15 million flex-fuel vehicles are on the road in the United States and are capable of running on blends of ethanol up to 85 percent.  While there are approximately 3,200 retailer stations that offer flex fuel, it is often inappropriately priced higher than regular gas even though the cost of ethanol is $0.50 to $1.00 per gallon cheaper than gasoline. Not surprisingly, consumers choose the cheaper regular blend of fuel, picking E10 over E85, and so not until recently was much E85 utilized.”

EPA is accepting comments on their proposed rule until January 28, 2014.

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