EPA’s Christmas Gift to the Oil Refiners

“Now is the time for all biofuels stakeholders to speak up loudly and factually,” says BIO’s Brent Erickson, to reverse a mistake of “epic proportions”.

By Brent Erickson, Executive VP and head of Industrial & Environmental section, BIO

The Obama administration appears ready to give the oil refining industry the perfect gift this Christmas. If left unchanged, EPA’s proposed RFS rule for 2014 could result in codifying the so-called blend wall and guarantee petroleum a lock on the transportation fuel market for the foreseeable future. There should be no mistake that EPA’s interpretation of its general waiver authority under the RFS contradicts legislative intent and marks a 180 degree reversal of the Agency’s previous rules and policy.

In previous years, EPA acknowledged that Congress intended the RFS to help increase the use of renewable fuels and that the standard for any waiver under the general waiver authority should be very high. The RFS was intended not to codify that only ten percent of transportation fuel be biofuel, but instead to actually help break through the blend wall by incentivizing investments in higher blends of ethanol, drop-ins and biodiesel as well as new advanced biofuels – and it has been working as intended.

Just one year ago, in denying the requests of 12 governors for a general waiver of the RFS in response to the drought, EPA noted that refiners and other stakeholders have been aware of the E10 blendwall since passage of EISA in December of 2007. The Agency further noted the efforts that ethanol producers and automakers have made to introduce higher blends and increase numbers of flex-fuel vehicles. “The affected industries have had and continue to have the ability to achieve widespread adoption of E85,” EPA said at the time. If the blend wall is codified, those investments will be significantly undermined.

The Administration should be consistent with its interpretation of the general waiver authority, which includes the “inadequate domestic supply” provision. EPA previously addressed the provision in establishing the final rule for RFS2 in 2010 and in addressing the comments on the proposed final rule in 2009. When Congress referenced supply, it meant supply of biofuels – and EPA has acknowledged that. EPA is now torturing the plain meaning of the law to include domestic supply of gasoline. Simply put, EPA’s proposed 2014 RFS rule flies in the face of its past interpretation of its waiver authority under the law.

The change in direction doesn’t impact the biofuel industry alone. Many refiners and petroleum distributors have begun to invest in additional renewable fuel capacity, both higher blends of ethanol and biomass-based diesel. Delek US Holdings, Global Partners LP, HollyFrontier, Marathon Petroleum, and Valero Energy Corp. have all reported to their investors plans to increase renewable fuel production and blending. Those parties now stand to lose on their investments solely because they worked in good faith to comply with both the letter and spirit of the law.

Buckeye Partners had to report a loss to its investors during the third quarter of this year, after the value of RINs declined in the wake of the leak of the draft 2014 RFS rule in October.
It’s also nearly certain what will happen to investments in advanced biofuels if the proposal to restrict the market becomes final. If finalized, these rules will undercut continued development of advanced biofuels and sacrifice the United States’ leadership in clean energy development. Needless to say, that would also strand the investment already made by advanced biofuel companies.

Overall advanced biofuels have met the RFS production goals every year since the start of the program. Cellulosic biofuels, after several years, are now coming online and entering the marketplace. These technologies are ready for rapid scale up, and private companies are willing to continue investing to make that happen here in the United States. That is, as long as the nation remains committed to the goals of the RFS.

We will know soon if EPA and the Administration come to their senses or if they intend to, for the first time, undermine Congressional intent. Now is the time for all biofuels stakeholders to speak up loudly and factually and to let EPA know the latest course reversal is a mistake of epic proportions.