Scaling the Wall … Again

By Bob Dinneen | April 16, 2013

Margaret Thatcher once said, “You may have to fight a battle more than once to win a war.” That is certainly the case when it comes to the renewable fuel standard (RFS). When the first RFS was passed in 2005 the American Petroleum Institute supported the bill because it provided a pathway to end the use of methyl tert-butyl ether. When the program became such an unmitigated success that Congress expanded the RFS to 36 billion gallons in 2007, the API was vehemently opposed. Now, API is attempting to relitigate the RFS and have it overturned.  So we’ll have to fight that battle again to win the war for America’s energy security. Win it we will.

The official beginning of this year's Battle for the RFS occurred last month when the House Energy and Commerce Committee released the first in a series of white papers to investigate various elements of the RFS, the first on the blend wall. The committee asked a series of questions, most of which reflected a bias against the RFS, suggesting the blend wall was indicative of a “problem” with the law that needed to be fixed. But it’s not a problem with the law. It’s the result of oil companies refusing to comply with it!

When Congress passed the 36 billion gallon RFS, it clearly understood that volume of fuel would compel the market to move beyond 10 percent blends. The expectation was that E85 would become a viable competitor of gasoline. Indeed, the auto companies responded to the market signal provided by the RFS by dramatically increasing their production of flexible fuel vehicles. Ethanol companies also responded to the market signal of the RFS, expanding production, investing in new cellulosic technologies and initiating the effort to seek approval for E15.  

The only stakeholder to ignore the market signal of the RFS was the oil industry. From the beginning, oil companies refused to make the modest infrastructure investments necessary to provide market access for E85 and they have steadfastly opposed every effort to commercialize E15. A recent analysis by the RFA’s Geoff Cooper concluded the cost of RFS compliance for 2013 would amount to just 6 cents per gallon of capital investment to accommodate the additional ethanol needed beyond E10.

Oil companies say they’re not to blame, that it’s the gasoline marketers who own the downstream blending facilities where the investments have to be made.  While that’s true to some extent, it is also true that they have used every tool available to them, including the terms of franchise agreements, to keep marketers from offering consumers choice at the pump. Oil companies are now appealing to Congress to repeal the RFS because the “blend wall,” which they created, supposedly makes it impossible to meet the increasing volume obligations. Phooey. Congress shouldn’t reward their bad behavior and should consider the consequences of changing the rules in the middle of the game. Businesses rely upon consistent and reliable policy. Investments have been made in response to the RFS. Changing that policy now simply because one stakeholder has ignored the law would chase investors in biofuels away, reversing the progress we have made toward a diverse energy portfolio and leaving America ever more dependent on oil. That’s why we’ll continue the fight, and that’s why we’ll win it again.

Author: Bob Dinneen
President and CEO,
Renewable Fuels Association