The Renewable Fuel Standard:  Mend It AND End It

By Douglas L. Faulkner, “The Cleantech Conservative”

President Clinton gave a major speech in defense of affirmative action in 1995 entitled, “Mend It, Don’t End It”, an easily-remembered and clear summary of his policy approach.  So, to borrow a pitch and reformat the goal, my recommendations for fixing the current Renewable Fuels Standard (RFS) work from this slogan:   “Mend It And End It.”

Choosing to work in the middle between two very bad options is the only approach that can both become law and revitalize biofuels as a key national energy insurance policy.

Neither of the other two posited solutions – – holding fast to the current RFS for the indefinite future with no changes at all or shutting down the mandate entirely- – could reasonably be expected to hold off poisoned alternatives or ensure passage in the next Congress and receive Presidential sign-off.  And, just as important, neither extreme option will remove the many obstacles to healthy, long-term growth for the industry.

As I previewed last Spring in my remarks to the “Advanced Biofuels Leadership Conference,” first and foremost, policymakers and activists have to recognize how much has changed since 2007 when the current RFS was passed.

Rising challenges to the RFS

Elaborating on my “Sooner or Later” presentation,  multiple, rising challenges are drawing shorter the time for any RFS:

• Both the left and the right ends of our domestic political spectrum are growing much less supportive (for different reasons) of the current federal approach to supporting the industry, and in some cases, over biofuels in general.  For their part, conservatives largely embrace the fuel choice, but reject the mandate (and the Environmental Protection Agency (EPA) oversight role), even as the public seems to be losing faith in big government-solutions.
• Fundamental changes in the markets for liquid transportation fuels are underway, not the least being the incredible, unexpected boom of domestic oil and gas production and marked weakening of global crude demand.  These changes, married to possible shifts in society’s historical driving habits and greater fuel efficiencies of vehicles, have pushed back a decade or two the pressing need for biofuels seen at the time of the RFS.
• Despite (and, possibly because of) huge crops of corn and soybeans, the lack of replacements for fuel oxygenates from ethanol, the unsolved “blend wall,” vibrant export markets and the reliance on food crops as feedstocks, the multifaceted positions of interested parties will lead to even more debate about the value – – and maybe even the necessity- – of some type of mandate for first generation biofuels.  And while those biofuels are coming closer to on-shore wind and solar energy in terms of cost-competitiveness with fossil fuels, later generations of biofuels still need more time to mature.
• The ticking debt time-bomb in the federal budget and a counter-reaction to the surge of federal regulations in the Obama Administration will shrink financial and other assistance from Washington, D.C. for the industry – – and, ultimately, appetites for government interventions in the marketplace.
• The industry’s basic message has grown less persuasive, as the many justifications used over the years have been muddied or swept away by surging technological, economic and political forces that have undermined earlier arguments for support.
• The industry has no more than a ten year window to transition from government mandate to full market exposure.  And, that window might close much sooner, unless the existing Standard is reformed.

A Grand Bargain

I propose the outlines of a Grand Bargain that would attract enough votes in both parties for enactment.  These core elements include:

• A realistic mandate with teeth for advanced biofuels and cellulosic fuels, featuring solid requirements for volume amounts of purchases;
• An even faster, or perhaps more efficient, transition to the market for first-generation biofuels;
• A sunset clause with clear and definitive milestones leading to ending of the overall mandate, but with sufficient time to allow financing for new advanced biofuels production plants now on-the-drawing-boards as well as further technology progress.

• An end to EPA’s involvement in setting the yearly mandates; instead, use indexing to set yearly levels matched to actual production;
• Approval of pending pathways, ending the long regulatory delays;
• Standardized definitions of feedstocks, cleaning up the current legislative patchwork.

Getting the backing

To secure the oil industry’s backing and its political supporters, it may also be necessary to add lifting the decades-old embargo on exporting U.S.-produced petroleum and approval finally for the Keystone XL pipeline.  It might also include amending the Administration’s fuel efficiency standards for cars and light-duty trucks to crack open the door more for intermediate blends of blended biofuels.

This deal is tailor-made for a Congress under Republican control looking for conservative fixes and a President seeking to cement his legacy.  But even if the Senate stays in Democratic hands, the pent-up political demand for energy legislation may still give it impetus in 2015, before the Presidential campaign heats up and stalls substantive legislative activity.  This approach would also have added benefit for political kingmakers and strategists by taking the divisive biofuels issue off-of-the-table before the Iowa caucuses in early 2016.

There does not appear to be a broad appetite for pulling the rug out from under the industry by killing the RFS, which would suggest the fear in some quarters about an uncontrolled chain reaction triggered by its reform is ill-founded.  The threat to the industry is more existential;  the absence of a solution such as I am proposing threatens biofuels’ hard-fought gains – – and, even its very existence in the long-run.

Indeed, I would argue that standing pat, protecting outdated legislation written for a different time and place, will eventually strangle the industry.  Holding tight to the Standard in hand might even paradoxically trigger a backlash resulting in the very outcome industry doesn’t want – – premature abolishment of the RFS.  Reforming the RFS will give the biofuels industry and its financiers the policy stability they seek, ending years of fruitless and costly political strife.

Change is coming

Change is coming to the biofuels arena.  It does not matter whether it is wanted, needed or desired – – or vice-versa.  The biofuels Industry can either deny the realities and fight any change, or embrace it and lead the charge.  Time is running out for winning the best deal possible and setting the stage for biofuels’ resurgence in the twenties and thirties.  It’s high time to revive President George W. Bush’s vision of ending our addiction to oil.