White House Punts on RFS after Nearly a Year of Delay

After much anticipation, the Environmental Protection Agency (EPA) finally announced it would not set targets for 2014 under the Renewable Fuel Standard (RFS). Instead they will issue the final numbers for 2014 before or with the 2015 RFS proposed rule—over a year late.[1] In other words, the EPA is punting a final decision on the 2014 numbers and lumping them together with the 2015 numbers. Industry leaders are now calling on Congress to act and repeal or significantly reform the program. If it takes more than one year for EPA to set volume requirements under the RFS (when EIA sends EPA their estimates) then either EPA is too political to make a decisions or the RFS is flawed or both.

Will EPA’s Latest Failure Cause Congress to Reform the RFS?

It is amazing that it would take EPA more than a year to set the RFS volumes, especially when these decisions affect large investment decisions by the America’s refiners. Unsurprisingly the refiners are not happy. The President of the American Fuel and Petrochemical Manufacturers (AFPM) Charles T. Drevna stated that Congress needs to address this issue, “The fact that EPA proposed the 2014 standards over a year ago, and now 2014 is almost over, is another reason why Congress needs to step in and repeal or significantly reform this badly broken program.” The President of the American Petroleum Institute (API), Jack Gerard released a similar statement, “The only real solution is for Congress to scrap the program and let consumers, not the federal government, choose the best fuel to put in their tanks.”

In the meanwhile AFPM is suing EPA for failing to issue the renewable fuel mandate, citing the harm it has caused refiners who cannot adequately prepare for compliance unless the Agency meets their deadlines. (To find out more about EPA’s timeline for RFS and their recurring inability to meet deadlines click here.)

EPA Routinely Misses their Own Deadlines for RFS

This year was especially controversial because EPA’s proposed 2014 RFS lowered the amount of total biofuels that oil refiners were originally required to blend into gasoline under the Energy Independence and Security Act. This is the first time EPA had to lower the number of total biofuels required below what was required the previous year, because we have reached what is known as the “blend wall.” Most cars and trucks can only use fuel which is 10 percent ethanol. That limits the total amount of ethanol that can be blended with fuel.

As we have previously noted, EPA has routinely fallen behind on meeting their deadlines for implementing the RFS. In fact, EPA hasn’t met the statutory deadline in November since 2011.[2] This is not because it is immensely difficult for EPA to figure out how to set sensible limits below the “blend wall”. EPA would simply have to look at demand projections by the Energy Information Administration (EIA) and set targets low enough to not exceed 10 percent.

The continuous uncertainty surrounding the RFS is bad for anyone who buys fuel. Refiners need to be able to plan and consider biofuels mandates over multiple years in order to meet the RFS’s requirements. This is because RFS allows refiners to save a certain amount of renewable credits (known as RINS[3] –serial numbers assigned to biofuel for the purpose of tracking its production, use and trading, and can be purchased to fulfill part of the RFS requirement) to use to show compliance the next year.

Political Considerations delay 2014 RFS Numbers

Unfortunately, it appears that politics got in the way of setting sensible policy. Since 2014 was an election year, and the RFS was a political issue in a vulnerable Iowa Senate seat, EPA continued to delay a final decision. An article in POLITICO highlighted political issues surrounding this decision:

Several sources following the issue closely say that the White House hoped that boosting the overall volumes would be enough to act as a boon to (then Iowa Senate Democrat Bruce Braley). But renewable fuels advocates in the state aren’t happy with that compromise, so anything short of a clear victory for ethanol makers could hurt Braley’s campaign… ‘If they increase the number, but it’s till tied to the blend wall, in our view, they will have killed the program, and that will be seen as a huge loss for Braley, and they’ll wait until after the election,’ said one person in the biofuels industry. ‘If it’s good for Braley, it’ll be before the election. If it’s bad for Braley, it’ll be a punt. And people will see the punt.”[4]

In other words, since the White House had no options to act on the 2014 RFS numbers and make the Democratic Iowa Senate candidate look good, they made the decision to hold off on finalizing the requirements.

This all happened even though they knew the requirements set in legislation needed to be lowered for certain categories of renewable fuels in the program (cellulosic, advanced, and total renewable fuels) as of November 29, 2013, when they originally proposed lowering the standards.[5] Now refiners will have to continue waiting due to EPA’s inability to overcome political issues.

Conclusion

It is unsurprising that EPA is officially punting the final 2014 RFS numbers considering that 2014 is nearly over and now they are also behind on the 2015 RFS. This is not good for anyone who buys fuel because it forces additional costs on refiners who the RFS forces to blend biofuels into conventional fuels. However, EPA has continually made it difficult for refiners to comply with RFS requirements by missing their deadlines. Since EPA is subject to political control by the Administration, sensible policy falls by the wayside. It is time to repeal the RFS and get rid of the headache and political favors that go with it.

[1] Erica Martinson, EPA whiffs on ethanol, POLITICOPro, November 21, 2014, https://www.politicopro.com/energy/whiteboard/?wbid=44420.

[2] Christopher Doering, EPA’s ethanol mandate for 2014 behind schedule, The Des Moines Register, June 27, 2014, http://www.desmoinesregister.com/story/money/agriculture/2014/06/27/epa-ethanol-mandate-weeks-away-gas-supply-congress-renewable-fuel-standard/11447021/.

[3] Amanda Peterka, EPA extends compliance period for the 2013 blend requirement, E&E News, June 6, 2014, http://www.eenews.net/eenewspm/2014/06/06/stories/106000088585.

[4] Erica Martinson, White House may see no reason for pre-election biofuel move, POLITICOPro, October 7, 2014, https://www.politicopro.com/member/?webaction=viewAlerts.

[5] Environmental Protection Agency, 78 Fed. Reg. 238 (proposed November 29, 2013) (to be codified 40 CFR Part 80), http://www.gpo.gov/fdsys/pkg/FR-2013-11-29/pdf/2013-28155.pdf.