Biofuels Groups Hit Back on RFS

STREATOR, Ill. (DTN) -- The Advanced Ethanol Council and Biotechnology Industry Organization, representing more than 35 advanced biofuel companies, wrote a letter dated Tuesday, Oct. 29, to President Barack Obama saying the controversy over the Renewable Fuels Standard is a battle over market share.

"The controversy over the RFS boils down to a market share battle between a growing biofuels industry and the incumbent oil industry," the authors wrote.

In essence, the oil industry wants the Environmental Protection Agency to make administrative adjustments to the RFS "that will greatly reduce or eliminate the drivers that facility more biofuel blending over time, which will ultimately lead to price competition between the two industries at the fuel pump."

The RFS requires an annual increase of renewable fuel blending with petroleum based fuels each year, ramping up to 36 billion gallons by 2022. However, the mandate for 2014 is currently under agency review.

This year's total mandate is for 16.55 billion gallons of renewables to be blended into petroleum products, with 13.8 billion gallons coming from the renewable fuels category satisfied primarily with corn-based ethanol. The RFS volume is scheduled to increase to 18.15 billion gallons in 2014, but the EPA has stated it may adjust the ethanol blending mandate due to blend wall concerns raised by the oil industry.

The blend wall is the saturation point for ethanol in the gasoline pool based on current gasoline standards and consumer preference.

Obligated parties under the RFS -- refiners, blenders and importers -- must show compliance with blending mandates by turning in Renewable Identification Numbers. Oil industry advocates say higher ethanol RIN costs this year could increase the cost of gasoline. Also, they say breaching the blend wall in 2014 would result in higher consumer costs. The letter's authors disagree.

"The RFS is actually well engineered to address the blend wall on its own, without consumer cost," they wrote.

When an obligated party does not blend liquid biofuel, it can buy a RIN instead to show compliance, they said.

"RIN trading and values will increase as a result of their affirmative non-compliance, which in turn provides further incentive for other oil companies to actually blend liquid gallons at a savings to consumers," they wrote.

Higher RIN prices are not increasing fuel costs for consumers for two reasons they said. RIN values encourage the use of ethanol that is up to $1 gallon cheaper than gasoline, "which cut consumer spending by $700 billion to $2.6 trillion in 2013," they said, and many oil companies are "now admitting to shareholders on earnings calls that they are the ones profiting from higher RIN values."

The authors see an adjustment down in RFS mandated volumes as discouraging investment in advanced biofuels.

"The mere possibility increases investment risk, which in turn drives capital away from the U.S. market and decreases the effective deployment of advanced biofuels," they wrote.

"Depressurizing the program too aggressively at this critical juncture will only make the deployment of advanced biofuels more challenging by embedding willful non-compliance as a construct for discouraging innovation, blocking the availability of cheaper fuels and increasing pump prices," they added.

(BM/AG)

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