EPA Indicates Willingness to Consider Adjusting RFS for 2014

On August 9, 2013, in RFS, by Debra Newman

The Environmental Protection Agency (EPA) reported this week that it would consider lowering the target for how much renewable fuel, including corn-based conventional ethanol, and advanced biofuels, that would be needed to be blended into gasoline in 2014.  EPA also gave refiners and blenders more time to meet renewable fuel quotas in 2013.

The Renewable Fuel Standard (RFS) has a pre-set standard that increases each year for the quantity of renewable fuel that is to be used in the United States until 2022. As the nation approaches the so-called blend wall, the point at which the mandate will require the use of more ethanol than can be blended into the fuel supply at 10 percent per gallon, the challenge to actually blend the mandated quantity of ethanol becomes more difficult. RFS targets are increasing from a pre-set amount of 18.15 billion gallons in 2014 to 36 billion gallons in 2022. EPA said this week that the blend wall would be hit in 2014. Details of the EPA’s proposed 2014 targets are due sometime next month. The overall mandate for converted fuels for 2013 was left unchanged.

As expected, the reaction to EPA’s decision this week was somewhat predictable. Biofuel producers welcomed the agency’s action while refiners said it did not go far enough to address what the problems with the renewable fuel mandate are.

EPA’s announcement this week was more than eight months overdue. The final 2013 rule will require a total of 16.55 billion gallons of biofuels to be blended into the nation’s gasoline and diesel supplies this year, up from last year’s target of 15.2 billion gallons. At the same time, refiners will have an extra four months to adhere to the 2013 targets, with the deadline extended to June 30, 2014.

To comply with the federal biofuel program, gasoline and diesel producers must acquire the credits (RINs), either by blending biofuels into petroleum products or buying them in the open market. RINs prices have increased from a few cents in January to almost $1.50 in late July but have since slipped back to less than $1.00 per gallon. The volatile secondary market for RINs suggested traders were taking little relief that EPA would relax next year’s mandate.

“Higher RINs prices were a function of concern that there would not be enough RINs created in 2014 once the blend wall was reached; the EPA appears to have alleviated this risk,” analysts at Goldman Sachs said in a research note. Some major independent refiners, such as Valero Energy Corp, the country’s biggest, and smaller merchants like CVR Refining, expect to spend a total of over $1.5 billion on RIN costs this year, according to recent company statements.

EPA’s proposal is a missed opportunity, the American Petroleum Institute said and urged legislative action as the solution. “Now it’s up to Congress to exercise leadership and move quickly to end this dangerous mandate before it hurts consumers, damages vehicles, and harms our economy,” said API president Jack Gerard in a statement. Lawmakers on the House Energy and Commerce Committee are looking to craft legislation to reform the biofuel mandate and address blend wall issue, but calls to end the RFS seems remote given support for the renewable fuels industry.

The Senate environment committee is also planning a hearing on the biofuel mandate, but it is uncertain whether much action will happen on the mandate in the Democratic-controlled chamber.

“The National Chicken Council appreciates that EPA has finally recognized the reality of the situation and is willing to consider adjustments to the 2014 volume requirements of the RFS to address the fact that we simply cannot blend more and more ethanol into less and less gasoline,”  NCC President Mike Brown said is a statement this week.

“This is a band-aid approach, however, to a problem that needs a long-term, sustainable solution. Chicken producers, and all end users of corn, can’t rely upon the administration to make these adjustments on an annual basis. We need certainty in the market that only Congress can provide by repealing the conventional requirements of the RFS,” Brown said.

EPA’s Federal Register notice is available here.