Washington Insider-- Tuesday

What's Next for Renewable Fuel Policies?

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Iowa Supreme Court Upholds Natural Gas Tax Formula

Iowa's complicated formula used to tax natural gas consumption was upheld by the Iowa Supreme Court in a 6-0 ruling that concluded the tax is constitutional.

Several ethanol producers in the state had filed suit on the tax, charging it is unfair as they have to pay more than many competitors to get natural gas used to fire ethanol plants.

Ethanol plants challenging the law are ones that obtain natural gas directly from interstate pipelines operated by out-of-state suppliers rather than through local utilities. According to an Associated Press report, a 1998 law specifies the taxes are to be assessed on these types of users based on the amount of gas they consume and their location, splitting the state into 52 geographic areas that are taxed differently.

Little Sioux Corn Processors is among those bringing the suit, charging the law is unconstitutional after being denied requests for refunds from the Iowa Department of Revenue after consultants to the company figured the firm is paying up to 45 times more than some others. Other plants had filed claims for millions of dollars in refunds. Plants that receive natural gas from state-regulated utilities often pay far less per therm used than customers, as those utilities pass more of the tax on to residential customers than to businesses.

Writing for the court, Justice Daryl Hecht said that while the law does not produce uniform results for taxpayers, lawmakers had a rational basis for writing it the way they did.

The ethanol industry now is expected to shift their focus to the state legislature to try and get the law changed.

However, a task force led by the Iowa Department of Revenue suggested in December that the law should be kept in place as it is currently written, noting it works well for local governments, utilities and state tax collectors.

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FDA Reports Big Boost in Sales of Antibiotics for Food Animals

Efforts by some in Congress to curtail the use of antibiotics in agriculture got a boost today after the Food and Drug Administration (FDA) reported a sharp increase in antibiotic sales between 2009 and 2013. Some lawmakers and public-health groups have urged the Obama administration to take more aggressive steps to limit and track the use of antibiotics in cows, chickens and other food animals.

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In a report on antibiotics medically important to humans, FDA said sales of antibiotics approved for use in food animals jumped 20% between 2009 and 2013. The annual report from the FDA said a total of 32.6 million pounds of antibiotics were sold domestically for an approved use in animals in 2013. Of those, more than 60% were considered to be medically important.

in 2012, the FDA banned “extra-label” non-medical use in animals for the cephalosporin class of antibiotics, which are commonly used to treat humans for pneumonia, urinary tract infections, and other maladies. Not only did this restriction fail to curb the use of cephalosporins, but the new FDA report shows that the drug use increased following the ban. The report shows that cephalosporin use in 2013 was at 28,337 kilograms, up from 27,654 kg the year before; an increase of nearly 2.5%.

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Washington Insider: What’s Next for Renewable Fuels Policies?

One of the new realities facing US crop producers is that the national energy policies that have been supported by both parties over recent decades may no longer be manageable. For a constellation of reasons, the Environmental Protection Agency has failed for the past two years to meet its own schedule of annual RFS announcements of the volume of renewable fuels to be blended into the gasoline supply.

In response, the American Petroleum Institute and the American Fuel and Petrochemical Manufacturers sued EPA and the agency is proposing a consent agreement.

Christopher Grundler, the EPA official who administers the program, says the holdup has been the difficulty in deciding how to balance what Congress intended with regard to the RFS with the “facts and the data before us.” He notes that ethanol has reached its saturation point--the “blend wall”--created by the legal blending limit of 10 percent. To sell above that level will take more E15 and E85 blends but there are few gas stations equipped to sell these. “That is a fact we cannot ignore,” he said.

Refiners argue that EPA can’t require companies to use ethanol volumes greater than 10%, and with falling demand for gasoline the agency can’t follow the schedule in the 2007 legislation.

Ethanol producers counter that without pressure from the EPA, stations won’t have any incentive to surmount “what refiners call the blend wall.”

So, now EPA is suggesting that it will clear up much of that uncertainty later this year. It says it will propose volume requirements for 2015 by June 1 and will set those for 2014 and 2015 and resolve a pending waiver petition for 2014 by November 30.

Outside the scope of the consent decree, EPA also commits to propose blending requirements for 2016 by June 1, and complete them by November 30; propose and complete the RFS biomass-based diesel volume requirement for 2017 on the same schedule; and re-propose volume requirements for 2014 by June 1 that reflect the volumes of renewable fuel that were actually used in 2014. EPA also says it is seeking public comment on these proposals as indicated in the consent decree, which will be subject to public comment before being signed by the administrator.

In spite of the program’s increasing disarray, EPA says it expects that its June 1 announcement will "detail EPA’s thinking” and "we will continue along that path for subsequent years.”

At least, EPA seems committed to the new schedule—Grundler said missing the deadlines “is not an option.”

And, the ethanol industry says it is happy to see the settlement and called it a "good start” since no one has benefited from the delays in annual obligations, according to Bob Dinneen, president of the Renewable Fuels Association. "While we are sympathetic to the difficulty EPA faces in promulgating annual targets, the statute is clear about the volumes required and the agency simply has to do a better job moving forward."

Brian Jennings, executive vice president of the American Coalition for Ethanol accused “Big Oil” of trying to bully came close to bullying EPA to re-write the RFS so they could escape their legal responsibility to blend E15 and flex fuels into gasoline...Our priority will continue to be to ensure EPA holds oil companies legally responsible under the RFS for making cleaner and less expensive fuel choices, such as E15 and E85, available to consumers.”

While the consent decree appears to have ended EPA’s use of simple delays as an administrative strategy, the proposed consent decree does not address the content or substance of the volume standards, and the disagreement over these is almost unbridgeable, experts say. Much as the ethanol industry and some producers would like to see the blend cap raised, infrastructure requirements and motor industry opposition appear to make that unlikely.

In addition, as the industry fundamentals change, the basis for the national policy has changed dramatically. US worries about Middle Eastern domination of US petroleum supplies have diminished. At the same time, the environmental profile of ethanol has faded along with hopes for commercial cellulosic ethanol. US producers that once were solidly behind renewable fuel policies are now sharply divided.

So, will the EPA release new policies later this year that make the renewable fuel advocates or the petroleum folks happy? Or, will EPA find a new way to kick the can down the road and avoid pouring more fuel on a controversy that already is very hot? At least one long-time observer thinks that EPA’s deadline derby is not exactly over.

And, there is another observation. If the administration can’t manage to set RFS standards, the issue seems increasingly likely to end up in the courts, who may be less fastidious about stirring up political storms than either Congress or the Executive Branch. Once again, US energy policies should be watched very carefully by producers, Washington Insider believes.


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