By Todd Neeley
DTN Staff Reporter
OMAHA (DTN) -- With the final Renewable Fuel Standard sitting on a desk at the White House's Office of Management and Budget, ethanol and oil interest groups Thursday announced new media campaigns in a digital tug-of-war to catch the administration's attention on what each side believes should be done with the RFS.
EPA Administrator Gina McCarthy said in recent weeks the agency adjusted the final RFS volumes based on a slight uptick in gasoline demand of late, setting the stage for what one renewable fuels industry representative said Thursday is a change in the way EPA should be calculating RFS volumes.
Brent Erickson, executive vice president in charge of the industrial and environmental section at the Biotechnology Industry Organization, said during a Fuels America news conference that the administration was in the final stages of approving an RFS that "may actually gut the policy." Erickson said the RFS proposal that includes cuts to biofuels volumes across the board has "undercut" advanced biofuels.
"It fundamentally changes the way renewable fuel targets are calculated," he said. "Instead of being based on what the industry produces, EPA offered a new way based on what the oil industry wants to provide. The methodology will dampen investment in biofuels for years to come. The Department of Energy recently noted that we need 1,000 more refineries in the U.S. If this policy goes forward, we won't see those plants built. The RFS is supposed to push us over the blend wall. Congress said this was to be a game-changing law."
The American Petroleum Institute announced Thursday that it was launching a television, radio and online advertising campaign in the Beltway to press the White House to "leave politics aside" in finalizing the final 2014 volumes. Also on Thursday, Fuels America announced it had purchased a full-page advertisement in USA Today to run next week, asking the president to leave the RFS mandates in place.
Bob Greco, American Petroleum Institute downstream group director, said during a news conference that the Obama administration was "playing politics" with the RFS rule, in potentially holding back on issuing the final RFS until after the November election. Most notably, Democratic control of the Senate could hinge in part on the Iowa race between Democrat Bruce Braley and Republican Joni Ernst, who are in a dead heat at this point in a race where candidate positions on ethanol are playing a key role. Braley has asked the administration not to cut the RFS volume mandates.
Greco said the RFS "has become a disaster" as EPA has fallen about a year behind in finalizing volumes in the law. "Right now EPA should be finalizing the 2015 requirements," he said. "The administration hasn't released regulations on time since 2011. The result is uncertainty in the fuel supply."
Overcoming the blend wall where total ethanol production exceeds the available E10 market, Greco said, cannot be met through the expanded use of E85, despite what EPA contends on overcoming the blend wall. Only 6% of the U.S. vehicle fleet can use E85, he said, and consumer demand is less than 1%. At the same time, Greco said, the demand for ethanol-free gasoline blends has grown to 5%.
"EPA has shown more concern mandating the market for fuel for which there is no demand," he said. "Refiners cannot plan for compliance for regulations that change. The ethanol blend wall is real and the administration can't use gimmicks to address it. Unfortunately, the administration seems to be playing politics with the RFS rule rather than doing what's right for consumers."
Greco said EPA appears poised to push the biofuels volumes in the RFS as close to the blend wall as possible. "The more they do that, the more flexibility they take out of the system," he said.
Greco said the oil industry supports the use of renewable fuels up to 10%. "It's a good blending component," he said. "Without the RFS, refiners see value in blending ethanol. If you try to force fuels into the market when consumers don't want it, you're risking severe economic damage."
When the RFS was enacted in 2007, Greco said, "we were in a completely different world than we are now. Gas demand was higher and now we're producing more domestic oil. We're now looking at flat, if not declining gasoline demand. The whole basis for the RFS has been undermined. We think it ought to be repealed on this basis."
Jon Doggett, vice president of public policy for the National Corn Growers Association, said during a news conference Thursday that the ethanol industry was important to rural economies that continue to see corn prices fall. Thursday's USDA report projects the 2014 corn crop at 14.4 billion bushels, and a record average yield of 171.7 bushels per acre.
"Our farmers are about in the next couple of weeks to harvest the largest corn crop ever produced," Doggett said. "When the RFS passed, it was a challenge to our farmers to produce corn. Now there is too much corn produced. We're a nickel away from two-something on corn in some areas. In some areas where we have transportation problems, we're a nickel away from being under $2. We've done our part and we continue to do our part. The oil industry knew as soon as 2008 that they were obligated parties. Again and again they've pushed back on the things they have been required to do. They have the ability to make this mandate."
Doggett said the ethanol industry has provided markets for corn and, "we want to make sure there's demand there to prevent the prices from falling further. We do need to have some certainty so we can market this year's crop and can plan for next year's crop."
Steve Hartig, general manager of POET-DSM Advanced Biofuels, which last week launched commercial production of cellulosic ethanol using corn stover and cobs at its plant in Emmetsburg, Iowa, said the EPA proposal is harming a budding industry.
"The administration's proposal has frozen investment in cellulosic ethanol and has put rural economies at risk," he said during a news conference Thursday. "This is the worst time to make changes. It means the renewable fuels industry won't be able to grow beyond 10%. The policy is discouraging to investors."
Hartig said investors are hesitant to invest in advanced technologies. It's difficult for companies like POET-DSM to sell a new product into a shrinking market. "What we're looking for is just stick with the law moving forward," he said. "The blend wall was coming years back. People that didn't prepare for it shouldn't cry now."
Also on Thursday, in a letter to McCarthy, the Renewable Fuels Association asked EPA to address "disparate fuel volatility regulations" that hinder the sale and expansion of E15. RFA President and Chief Executive Officer Bob Dinneen wrote in the letter, "EPA's failure to put E15 and E10 on equal footing with regard to volatility requirements has been a substantial roadblock to broader introduction of E15."
Because E15 is not granted the same Reid Vapor Pressure, or RVP, volatility waiver afforded to E10, most retailers are "faced with a hopeless decision every spring: stop selling E15 during the summer volatility control season, or secure the appropriate low-RVP gasoline blend stock. For most retailers, neither of these options are acceptable business decisions."
Dinneen said in the letter that EPA "continues to handicap market opportunities for E15 by effectively making it a seasonal fuel. Understandably, retailers and marketers are hesitant to invest in a fuel that can only be offered part of the year. Our biggest frustration is that there is simply no legal or environmental justification for EPA's unequal volatility treatment of E10 and E15."
Todd Neeley can be reached at firstname.lastname@example.org
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