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EPA Puts RFS In Jeopardy

Actions taken by EPA to help keep RFS alive have actually backfired and brought more attacks in defending Congress’ intent.

It’s been a year since the Environmental Protection Agency proposed the Renewable Fuels Standard volume targets for 2014. And unlike every year prior, EPA tried to change the course of Congress’ RFS, particularly the corn-based levels, which now seems to have backfired.

Ahead of the Thanksgiving holiday EPA announced it would not be finalizing the 2014 renewable volume obligation (RVO) levels this year and instead would wait until likely February 2015 to finalize 2014 levels and also propose 2015 and 2016 levels at the same time (see story on page 1).

Wally Tyner, Purdue University ag economist, said it’s quite ironic that EPA likely proposed lower corn-based biofuels levels because they were hearing so much flak from Congress and others saying the RFS wasn’t working well and the blend wall was problematic. But by trying to reduce the RFS, it may have actually had the opposite effect.

“The RFS may be more in jeopardy than it was before,” Tyner said.

He challenged that EPA’s set of maneuvers they tried to implement for 2014 have reduced the agency’s credibility. And now everybody trying to attack them is going to up their attack, Tyner claimed. 

A major reason EPA gave in reducing the RFS levels was because of the blend wall, however, Tyner said his research and separate findings from Bruce Babcock at Iowa State University, said EPA’s move was an “overreaction.”

One of the fears is if the price goes up for Renewable Identification Numbers (which are created for each gallon or equivalent biofuels blenders), it meant that there were not enough fuels to meet the mandates.

Tyner said the uniquely-designed RFS causes RIN prices to rise in order to stimulate production. In the case of E85, he said he calculates only about 3% of the capacity of the flex fuel vehicle on the road today uses E85, which allows for plenty more room to grow consumption for biofuels. But without the RIN market to encourage increased blending, there is no incentive to make E85 more competitive which would result in more consumption.

Bill Lapp, president of Advanced Economic Solutions, said it appears likely that the EPA’s RVOs for 2014 will be closely aligned with the number of RINs produced for conventional (corn-based ethanol) and advanced biofuels. “Biodiesel will be produced in excess of the likely mandate, as biodiesel production and RIN values are being driven by their value in meeting the advanced biofuel mandate,” Lapp said.

Tyner said he expects EPA to essentially ratify whatever RINs ended up being generated for 2014 as the RVO level, and when it proposes 2015 levels provide a well-reasoned argument on the levels it plans to propose even if it isn’t going to make everyone happy.

Tyner added it is important to recognize that when Congress approves a non-market solution for something such as clean air, fuel economy or in this case renewable fuels standards levels, it is because Congress didn’t believe that the market alone would allow for the socially-desired outcome.

“Congress wanted to have more renewable fuels and EPA has the responsibility to accept that intent of Congress and come out with rules that achieve that,” Tyner said.

Lapp has said he believes the RFS is in need of reform, if not repeal. “However Congress appears very reluctant to tackle any reform of the legislation in 2015,” he said.

So now we wait to see if EPA sets off another firestorm or if Congressional intent on the books wins over the agency’s meddling.

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