API Calls for Full Repeal of RFS

STREATOR, Ill. (DTN) -- As the Renewable Fuel Standard requires increasing amounts of renewable blendstock to be blended into transportation fuels each year, with the vast majority of the mandate now satisfied by ethanol, oil industry groups and energy experts warn of harmful consequences in ethanol concentration levels above 10% in gasoline for conventional vehicles, citing their concerns Wednesday in Washington before a U.S. House Committee hearing.

James Lankford, R-Okla., chairman of the House Committee on Oversight and Government Reform, convened the hearing called "Up Against the Blend Wall: Examining EPA's Role in the Renewable Fuel Standard," to hear these concerns and to examine what steps should be taken by the Environmental Protection Agency, the administrator of the RFS, to address worry over potential engine damage, safety and costs in meeting the RFS.

The goal of the hearing, said Lankford in his opening statement, is to "learn what the EPA can do, has done, or has not done to ease the burden on consumers" regarding the RFS.

Oil industry groups say an ethanol concentration in gasoline above 10% in non-flex-fuel vehicles could cause mechanical issues in vehicles and drive consumer costs higher, saying a partial waiver by the EPA allowing a 15% ethanol blend-in rate in gasoline for 2001 and newer light-duty vehicles was inadequately reviewed before issued.

Ethanol trade groups, who were not invited to testify before the committee, strongly disagreed with the testimony.

The RFS, part of the Clean Air Act, was first introduced in 2005 and amended in 2007 requires higher levels of renewables to be used each year through 2022 when it reaches 36 billion gallons. There are nested categories in the RFS that include renewable biofuel, advanced biofuel, biomass-based biofuel and cellulosic biofuel, with renewable biofuel, viewed as a stepping stone to more advanced renewables when the mandate was created, capped at 15 billion gallons in 2015. This year the carve-out for renewable biofuel is 13.8 billion gallons, increasing to 14.4 billion gallons in 2014, with this category now satisfied nearly exclusively by corn-based ethanol.

"Because the law requires increasing amounts of renewable fuels be blended into gasoline each year, if demand for gasoline goes down, the only way to meet the standard is by blending a higher percentage of ethanol," said Lankford, adding the ethanol blend wall is breached when the mandated volume tops 10% of the nation's annual gasoline demand.

The EPA, which coordinates with the Energy and Agriculture departments to project transportation fuels demand and expected feedstock availability for the upcoming year, proposed 9.63% of petroleum-based transportation fuel would need to be displaced this year. The EPA has yet to issue its final rule, which by language in the legislation revising the RFS requires the EPA to issue the final rule no later than the last day of November in the preceding year.

In testimony before the committee, Jack Gerard, American Petroleum Institute president and CEO, called for the EPA to immediately issue a waiver for the mandate while calling for full repeal of the RFS.

"The Renewable Fuel Standard is irreparably broken and could cause significant harm to consumers, the economy and the nation's fuel supply," Gerard said.

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]

Gerard testified that most cars on the road today were not designed to use more than 10% ethanol mixed with gasoline "and we are getting close to passing that threshold because of ever increasing ethanol mandates."

Gerard cited a study by NERA Economic Consulting, a private global consulting company that predicts once ethanol mandates top a 10% concentration in gasoline, the cost of diesel could increase by 300% and the cost of gasoline could increase up to 30% by 2015.

Testing performed by the Coordinating Research Council, a non-profit engineering and environmental organization, also found a 15% ethanol blend in gasoline could damage engines and cause vehicles to break down said Gerard.

"The blend wall and its harmful impact could be prevented today if EPA would simply use its waiver authority to keep volumes below 10%," said Gerard in his testimony on behalf of the oil and gas trade group.

Energy Policy Research Foundation, Inc., a non-profit energy economics organization, confirmed NERA's findings.

"From 2006-2008 EPRINC's research on the RFS concluded that it would not be feasible to implement the RFS at levels above 10% of the gasoline pool without significant disruptions to the transportation fuel supply network and without substantial increases in the cost of gasoline for American consumers," testified Lucian Pugliaresi, president of EPRINC.

He also pointed to the EPA's decision in 2012 not to waive RFS requirements despite a once in a generation drought which caused corn prices to spike, pushing costs sharply higher for corn feedstock for ethanol and feed for livestock. At the time, the EPA found the drought caused no "significant economic" harm.

"It is my view that the EPA has two immediate tasks," Pugliaresi said. "If they are concluding that the blend wall is not a problem, EPA should provide Congress with a detailed analysis how the program can be implemented without substantially increasing the price of E10 and diesel fuel. EPA should also inform Congress and the public of how large a price increase it is willing to tolerate before the economic damage is significant."

Under the best-case scenario, he said meeting the increasing RFS would push the marginal cost to supply E10 up 18 cents per gallon in 2014 and 36 cents per gallon by 2022, a cost to American consumers of $20 to $40 billion.

The American Fuel & Petrochemical Manufacturers also criticized the EPA for its tardiness in releasing annual Renewable Volume Obligations under the RFS.

"Even if the proposed renewable fuels RVOs were attainable, which they are not, EPA acts in bad faith by continually missing the statutory deadline to set required levels for the following year," said Charles Drevna, AFPM president, in a news release late Wednesday.

He said refiners make a responsible effort to meet the mandated RVOs, "however, six months into the year, EPA has still not announced 2013 renewable fuel RVOs and we are at a loss to explain how the agency can repeatedly ignore its statutory requirements."

Ethanol industry advocates strongly disagree with criticism of the RFS.

Bob Dinneen, president and CEO of the ethanol trade group the Renewable Fuels Association in a news release Wednesday characterized the RFS as "the single most effective energy policy this country has ever known."

He said the oil industry is "using fear to protect their total and complete dominance of the fuel market," adding this a nothing more than "a smokescreen meant to district Americans from the real issues" such as the nation's "addiction to petroleum," dependence on foreign oil, the environmental damage from oil sands and hydraulic fracturing, "and let's not forget, high gas prices."

Ahead of Wednesday's hearings, the Advanced Biofuels Association said in a news release issued Tuesday that the RFS debate is having a chilling effect on future development of advanced fuels.

"A number of stakeholder groups are attempting to create a view that the RFS is broken and should be wholesale repealed rather than allowing EPA to utilize their authority to make any required adjustments," ABA said. "That would be a step backward in America's energy future."

ABA cited many advanced and cellulosic companies currently seeking to break ground or attempting to raise funds to build their first plants.

"The entire discussion has had a negative impact on these businesses and their financial community," ABA said.

(BM/AG)

P[] D[728x170] M[320x75] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]
P[R1] D[300x250] M[300x250] OOP[F] ADUNIT[] T[]
P[R2] D[300x250] M[320x50] OOP[F] ADUNIT[] T[]
DIM[1x3] LBL[article-box] SEL[] IDX[] TMPL[standalone] T[]
P[R3] D[300x250] M[0x0] OOP[F] ADUNIT[] T[]