U.S. EPA Postpones Renewable Fuels Decision.

Nov 22, 2014

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U.S. EPA Postpones Decision Setting 2014 Renewable Fuel Objectives.

By Joe Dales, Farms.com

The battle between the Renewable Fuels industry and oil industry over how much ethanol must be blended has been brought to center stage by the U.S. government’s inability to set the RFS mandates.  The EPA has decided to postpone the 2014 standards for using renewable fuels which will set up fights in Congress and the courts over the Renewable Fuel Standards program that has been bitterly contested for nearly a decade. The delay, announced yesterday by the U.S. Environmental Protection Agency of the proposed RFA objectives was to lower the quotas for using ethanol, biodiesel and cellulosic fuels.

The aggressive opposition to the reduction in RFS blend goals by the renewable fuels industry, supported by farmers and the agriculture industry has lead the EPA to be nearly a year late in setting the mandates for 2014, and left fuel blenders wondering over how much of the additives they were supposed to be using.

“The powers that be in Washington always tend to procrastinate, but this has been getting ridiculous,” Pavel Molchanov, an analyst at Raymond James & Associates, said in a research note. “There is no precedent for this.”

The 2005 Renewable Fuels law was designed to encourage the use of renewable fuel and lessen U.S. dependence on imported oil. Refiners such as Exxon Mobil Corp and Valero Energy  are required to add a certain percentage of bioethanol to gasoline and other products each year following guidelines set out in the law and interpreted each year by the EPA.

2014 RFS Mandate Delayed

The EPA, Environmental Protection Agency announced it would set the 2014 requirements under the Renewable Fuels Standard next year, when it also plans to issue mandates for 2015 and 2016. The agency could waive the 2014 requirements altogether or accept whatever has been produced as meeting the mandate.

“This unexpected announcement highlights that there are still significant challenges facing the RFS and underscores the need to come together and find a practical, bipartisan solution,” Michigan Republican Representative Fred Upton, the chairman of the House Energy and Commerce Committee, said in a statement.

Iowa Republican Senator, Charles Grassley, who is a supporter of ethanol production: “Unfortunately, as we also saw this with the Keystone XL pipeline, uncertainty, delay and indecision are hallmarks of this administration on energy policy.”

The large oil companies have invested heavily against the RFS ethanol inclusion mandates and want to see Congress end this law.

The postponement of a final decision “is a gross dereliction of responsibility that leaves fuel refiners and the biofuels industry alike to navigate a course of ambiguity,” said Charles Drevna, the president of the American Fuel & Petrochemical Manufacturers. The oil company association, which has members including Exxon Mobil and Chevron, said it plans sue the EPA for failing to issue the targets by last November, as required.

In a draft proposed RFS rule released a year ago, the EPA said it would require blending 15 billion to 15.52 billion gallons of renewable fuels such as corn ethanol and biodiesel in 2014, down from 18.15 billion gallons set in the 2007 legislation. A final proposed rule was sent by the agency to the White House and was forecast to slightly increase that quota, although the proposal hadn’t been made public.

The EPA justified that cut by saying ethanol was bumping up against a so-called blend wall, or the maximum amount of the fuel that could be mixed into the gasoline supply without damaging engines. Ethanol producers say the blend wall is an imaginary creation of refiners -- whose products are displaced the renewables -- and threatened to sue if EPA finalized that rule.

Now the RFS quota fight will spill into 2015, with the likelihood that it will move into the courts and Congress. Lawmakers have worked to revise the mandates, although no compromise measure has advanced to a vote.

Not everyone is threatening to fight Congress or sue in the courts. Many renewable fuel producers support the EPA’s delay, because they said the agency agrees with their position that a decrease in the RFS quotas would reduce the attractiveness of future investment in biofuels.

“We appreciate the administration’s willingness to pivot in the right direction this late in the game,” said Brooke Coleman, executive director of the Advanced Ethanol Council. “The key now for advanced biofuel investment is to move quickly to fix what needs to be fixed administratively.”

What does this mean for agriculture and farmers?

Moe Agostino, Commodity Marketing Strategist with Farms.com Risk Management believes, "this is important for demand for corn as ethanol is a critical market and any reduction in ethanol demand will drive grain prices lower."  "Farmers need to watch this RFS battle as it could impact futures prices as we work through record corn production and lower prices."

 

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