RFS Under the Microscope

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By Todd Neeley
DTN Staff Reporter

OMAHA (DTN) -- Though the EPA official who directs the Renewable Fuel Standard program says the agency has worked hard to get the program back on track, pending lawsuits over the program likely will decide future actions by the agency.

Both ethanol and oil interests are challenging the U.S. Environmental Protection Agency's use of waiver authority to set renewable volumetric obligations below statute. Ethanol supporters say RVOs are too low, while oil interests say they're too high.

"We were not surprised to be sued by both sides," Janet McCabe, acting assistant administrator of EPA's Office of Air and Radiation, told the House Energy and Commerce Committee Wednesday. The committee hosted a hearing on the RFS, in light of recent legislation introduced by Reps. Bill Flores, R-Texas, and Peter Welch, D-Vt., to reform the program to limit the growth of ethanol markets to no higher than E10.

"Our job is to try to implement the statute. It is about (consumer) choice. It's about diversity (of fuel). We're going to have different people from different vantage points with strong views on it," McCabe said.

McCabe told the committee the agency expects to at some point receive "direction" from a court on the program.

The committee was involved in the drafting of the original RFS. The past decade has seen fuel consumption and demand drop, fueling a recent move to reform the program.

"As I see it, the RFS was enacted largely for three reasons: to reduce America's dependence on foreign oil, to lower greenhouse gas emissions, and to strengthen rural economies," said Rep. Ed Whitfield, R-Ky., chairman of the committee.

"Over the span that the RFS has been in place, oil imports have indeed declined dramatically. However, most of this trend is due to sharply increased domestic oil production -- something that few imagined was even possible during the Congressional debates over the RFS. Little of the decline in import dependence can be attributable to the RFS itself."

Rep. Joe Barton, R-Texas, said it is time to repeal the RFS because the ethanol industry has proven it can stand alone. However, he said the chances of reform or repeal are unlikely in 2016.

"We could repeal it and the market conditions could still provide a robust market for it," he said. "This is not a struggling industry that needs various protections and mandates in the law. But I'm not sure we can legislate this year."

McCabe told the committee that if the RFS was repealed, it would have little effect on the demand for corn-based ethanol in the gasoline pool.

"It's not up to me to speak to the legislation itself," she said. "But there would be ethanol in gasoline through E10."

Although much of the focus of bills offered to reform or repeal have centered on removing so-called mandates for corn ethanol, McCabe told the committee the RFS does not mandate its use. Instead, the RFS is designed to spark development of advanced biofuels like cellulosic ethanol and biomass-based biodiesel.

Anne Steckel, vice president of federal affairs for the National Biodiesel Board, told the committee EPA is not providing biodiesel a strong enough standard in the RFS.

Last year, consumers used nearly 2.1 billion gallons of biodiesel and renewable diesel. Steckel said EPA should expand that proposal to 2.5 billion gallons.

"However, we continue to believe the EPA is underestimating the volume of biodiesel that can be delivered under the RFS," she said. "Under the pending proposal, the EPA would set a biomass-based diesel volume of 2.1 billion gallons for 2018. The industry looks on pace to exceed that volume this year, and the EPA itself projects that we will see 2.5 billion gallons of biodiesel and renewable diesel in 2016 and 2.7 billion gallons in 2017.

"The RFS is not a status quo policy. It was designed to drive investment and innovation."

Bob Dinneen, president and chief executive officer of the Renewable Fuels Association, said the EPA's use of waiver authority has hurt investment in advanced biofuels.

"While the oil industry would like to re-litigate the RFS today because its continued implementation will mean a further loss of market share, doing so would devastate investments that have been made in next-generation biofuel technologies and stop the evolution of the transportation fuels market just as it is getting started," he said.

"It is important to note that Congress did an excellent job of crafting the RFS, building in a great deal of administrative and market flexibility to deal with issues as they arise. As a result, there is nothing wrong with the RFS that cannot be fixed with what is right with the RFS, and there is no need to legislate changes to a program that is working well today."

R. Timothy Columbus, partner with Steptoe & Johnson LLP Washington, D.C., representing the Society of Independent Gasoline Marketers of America and the National Association of Convenience Stores, told the committee fuel retailers will not be able to keep up with more renewable fuels in the system.

"The retail fuels market was and remains simply incapable of meeting the ever-increasing renewable volume obligations under the RFS statute," he said.

"Back in 2012, EPA appeared uncertain about whether it would use its statutory authority to reduce the RVOs below the statutory levels. Consequently, the nation was dangerously close to hitting the so-called blend wall. Members on both sides of the aisle urged EPA to avoid breaching the blend wall to avoid a fuel supply catastrophe."

Members of the committee asked McCabe what EPA is doing to study the environmental effects of the RFS. She said EPA has not done a recent analysis of potential effects of the RFS on land use and other issues. The last such analysis was conducted in 2011.

Primarily, McCabe said, the agency has been focused on getting the program back on track.

Collin O'Mara, president and chief executive officer of the National Wildlife Federation, said the committee has to "demand the report" from McCabe's office.

"In 2007, Congress passed the Renewable Fuel Standard with good intentions: reducing dependence on fossil fuels, accelerating development of sustainable biofuels, and reducing greenhouse gas emissions," he said.

"Unfortunately, nine years later, there have been severe unintended consequences -- large-scale loss of wildlife habitat (especially native grasslands) and degradation of water quality -- and wildlife has borne the brunt of these impacts. These unintended consequences threaten some of our most beloved and rare wildlife species, including sage grouse, meadowlarks, longspurs, swift fox, and the monarch butterfly, as well as a range of fish and other aquatic life."

RFA's Dinneen said the ethanol industry agrees with environmentalists on the need for EPA to update what it knows about how the industry has affected the environment. The industry has tried to convince EPA to update ethanol's carbon footprint analysis, Dineen said, because new science shows the biofuel is better than previously thought.

"We're quite confident it's going to show benefits," he said. "Farmers have been getting far more efficient. Let's get the agency to get some of these analyses updated."

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

(AG/BAS)