US 2013 Renewable Fuel Standard both win-win, lose-lose

HOUSTON (ICIS)–The final 2013 Renewable Fuel Standard (RFS) did not solve all concerns raised by both the oil and refining industry and the ethanol and renewable chemical producers, but it could be a partial fix – at least temporarily.

Earlier this week, the US Environmental Protection Agency (EPA) announced it has established the 2013 annual percentage standards for a fuel volume mandate that aims to boost ethanol, biodiesel and other renewable resources. The EPA also extended the compliance deadline by four months.

“I think this is a win-win for both sides and lose-lose for both sides,” said Phil Flynn, senior market analyst at the PRICE Futures Group. “For refiners, this lead is an extension, and ethanol producers wanted this to be a moving target. No one got what they really wanted, but it put us in a situation where we can avoid hitting the blend wall.”

According to the EPA, the blend wall refers to “the difficulty in incorporating ethanol into the fuel supply at volumes exceeding those achieved by the sale of nearly all gasoline as E10”. Most gasoline sold in the US today is E10, a blend of 10% ethanol.

“The sense I’m getting is because of these adjustments, we’re not going to smash into the blend wall, and they’re not going to throw the baby into the water,” Flynn said. “It’s going to be up to Congress if we hit the blend wall or not.”

Flynn explained the RFS was written when the US Energy Information Administration (EIA) projected rising gasoline demand each year for decades to come – a situation that no longer reflects current market conditions.

“They didn’t expect us to have the probability of producing record amounts of natural gas or the technology to produce electric cars,” Flynn said. “Is gasoline demand going to grow strong enough to make these mandates realistic? Even if it is, is it going to be the best fuel to use with so many other competitive fuels coming out?”

Flynn added that while the EPA can grant waivers and extensions to help alleviate the problem, it will be up to Congress to fix the problem.

Final 2013 Renewable Fuel Standard (RFS)

The final 2013 RFS requires 16.55bn gal of renewable fuels to be blended into the US fuel supply. At this blend level, biofuels will make up 9.74% of all US transportation fuel.

The rule specifically requires blended volumes of 1.28bn gal of biomass-based diesel, or 1.13%, as well as 2.75bn gal of advanced biofuels, or 1.62%. Additionally, it requires 6.00m gal of cellulosic biofuels, a 0.004% blend level that was developed to reflect current market conditions.

The EPA also extended the compliance deadline from 28 February 2014 to 30 June 2014, adding that it will propose to use flexibilities in the RFS statute to reduce both the advanced biofuel and total renewable volumes in the 2014 requirement.

The new rules have received commendation from the biofuels and renewable chemicals industry.

“It is clear that US EPA has done its homework when it comes to setting the 2013 standard,” said Brooke Coleman, executive director of the Advanced Ethanol Council (AEC) at the Renewable Fuels Association (RFA).

Coleman agreed the adjusted targets for cellulosic biofuels reflect the number of actual gallons expected to be available at the end of the year and that there should be sufficient quantities of advanced biofuels in the market to maintain the standard.

“Amidst all the smoke and mirrors coming from those who do not want to see competition in the motor fuel marketplace, people need to remember that the renewable fuels industry produced enough conventional and advanced renewable fuel to meet the original legislated standard through 2012 and expect to again in 2013,” Coleman said.

The Biotechnology Industry Organization (BIO) added that rapid innovation and new jobs are both “visible progress” of the industry and proof that the RFS works.

“BIO firmly believes that the limits to market access for biofuels, commonly referred to as the blend wall, represent a series of barriers contrived by obligated parties to prevent biofuels from gaining access to the marketplace,” said Brent Erickson, executive vice president of BIO’s industrial and environmental section. “Multiple avenues exist for blending additional volumes of biofuel into the nation’s fuel supply. BIO urges EPA to withstand pressure to reduce RFS obligations based on blend wall claims.”

However, the oil and petrochemicals industry has a different opinion on the rules.

“We are disappointed that EPA failed to provide refiners and consumers immediate and necessary relief against the E10 blend wall and skyrocketing costs of our nation’s biofuel mandate,” said Charles Drevna, president of the American Fuel & Petrochemical Manufacturers (AFPM).

The group said it hopes the EPA will use its waiver authority to significantly reduce the amount of ethanol and other biofuel required under the RFS for 2014.

The American Petroleum Institute (API) is asking Congress to repeal the “broken mandate” altogether.

“While the administration acknowledges that higher ethanol mandates are unworkable by suggesting a new approach for the 2014 standards, EPA missed an opportunity to fix the problem this year,” said Jack Gerard, API president and CEO. “Now it’s up to Congress to exercise leadership and move quickly to end this dangerous mandate before it hurts consumers, damages vehicles and harms our economy.” 

Valero, which is both a refiner and an ethanol producer, said the finalised 2013 RFS “looks good on paper” but its effects on current Renewable Identification Numbers (RINs) prices remain to be seen. RINs are credits that demonstrate compliance with the RFS. RIN prices have fluctuated wildly in recent months.

“RINs have become a market all to themselves, which was never the intention of the law, and that continues to cost consumers money and increase the cost of gasoline,” said Bill Klesse, the company’s CEO. “The RFS, with its RINs requirement, has created an uneven and unfair wholesale and retail fuel marketplace that arbitrarily picks winners and losers.”

Valero said it supports renewable fuels and continues to invest in them, but the EPA needs to establish an RFS that is “workable and fair and encourages the program’s goals”.

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