Record production propels industry in face of EPA rule

EPA needs to stop micromanaging the RFS—allow the program to work as intended—and the record-setting ethanol industry will continue to perform for American consumers, writes Bob Dinneeen. This column appears in the January issue of EPM.
By Bob Dinneen | December 24, 2015

Some might call it a twist of fate. Others might refer to it as the height of irony.

Whatever one chooses to call it, there is no denying that within a 10-day span of time in November, the U.S. ethanol industry experienced both an unprecedented high and a frustrating setback.

The high came in the form of ethanol production numbers for the week of Nov. 20. According to the U.S. Energy Information Agency, weekly ethanol production for that week topped 1 million barrels per day for the first time ever. On an annualized basis, that equates to 15.33 billion gallons per year. Cue balloons. Start the band. Congratulations!

But wait. Why then, just 10 days later, on Nov. 30, did the U.S. EPA decide it was necessary to reduce the volumes called for in the RFS for undifferentiated biofuels (corn ethanol) from 15 billion gallons to 14.5 billion gallons? Cleary, the U.S. ethanol industry had proven it can supply the requisite volume of ethanol. Even more curious, why did the agency choose to ignore more than 2 billion gallons of ethanol in the form of surplus carryover credits, or renewable identification numbers (RINs), available to refiners for renewable fuel standard (RFS) compliance as well? Indeed, the overwhelming body of data available to EPA demonstrated that there was no need for the agency to reduce the RFS levels for corn ethanol by a single gallon. Obligated parties would most certainly have been able to meet the levels called for by the statute.

Clearly, what the biofuels industry needs, and what is important for any industry to thrive, is policy consistency and certainty. The most troubling aspect of EPA’s decision is that it has eliminated both. Not only did the agency reduce the gallons required by U.S. Congress, but EPA also introduced a new waiver authority not contemplated by Congress. This newly created authority allows the agency to consider factors such as infrastructure, the so-called blend wall and gasoline demand, in the context of a general waiver that was designed by Congress solely to determine the available supply of renewable fuel.  As a result, the numbers specified by the statute have little meaning in the future as EPA can now set them based on their own amorphous criteria influenced by the political meme of the day.  If gasoline demand falls because the price of oil rises or electric vehicle sales increase, the RFS can be reduced.  That is not what the statute intended.

If allowed to work as Congress designed, rising credit prices would incentivize investments in new technology and infrastructure. This in turn would drive the market to adopt lower-carbon biofuels and higher ethanol blends.  But EPA has embraced the false narrative perpetuated by the oil companies that the marketplace cannot accept higher volumes of ethanol now, and has made the fatal mistake of gutting that market-forcing mechanism in order to slow the growth of biofuels just as those investments were being made.  The commercialization of cellulosic ethanol had begun.  I fear it now moves overseas.  Fueled by the industry’s own Prime the Pump program and the USDA’s Bioenergy Infrastructure Program, infrastructure for higher-level blends was happening.  The importance of those efforts now grows exponentially as the push from the RFS evaporates.

By failing to enforce the statutory volumes, by ignoring the existence of surplus credits and by artificially mandating a credit reserve, EPA is attempting to manage the biofuels market in a way that Congress never intended and consumers do not want.  So, this is my takeaway from 10 days in November. EPA needs to stop micromanaging the RFS—allow the program to work as intended—and the record-setting ethanol industry will continue to perform for American consumers.

Author: Bob Dinneen
President and CEO,
Renewable Fuels Association
202-289-3835