The U.S. Senate Committee on Environment and Public Works held a hearing Feb. 16 to examine the Renewable Fuel Standard and offered differing viewpoints on the role of RFS in increasing gasoline prices. As Congress and the Environmental Protection Agency look to chart a path forward on encouraging low-carbon fuels, it will require finding common ground including regulatory certainty, senators and witnesses share.

The RFS has not hit the original targets from the 2005 and 2007 laws establishing the Renewable Fuel Standard. In 2007, the expectations were that gasoline demand was going to grow by 30%. “In fact, it has declined dramatically,” which has created shortfalls in meeting the ambitious goals set by Congress, shares Lucian Pugliaresi, president of the Energy Policy Research Foundation, Inc.

Pugliaresi testified similar to what he shared in 2016 that “biofuels and ethanol represent a very important component of the fuel supply” and a “cost effective way to get octane.” Pugliaresi warned in 2016 to the EPW Committee that if you try to drive biofuel mandates above the 10% of gasoline pool, it brings certain price risks with it.

Pugliaresi says EPRINC’s calculations before the Committee in 2016 estimated that Renewable Volume Obligations could increase gasoline prices from approximately 30 cents to 50 cents gallon. Actual data from December 2021 show that the RFS is now raising gasoline prices by nearly 30 cents per gallon, he testifies. However, biofuels representative on the witness panel Growth Energy CEO Emily Skor refuted the gasoline price correlation.

Renewable Identification Numbers or RINs were included in the RFS to add flexibility to the compliance mechanism of the RFS. Obligated parties have the option to either blend biofuels and generate RINs or purchase RINs to meet their obligations under the RFS. LeAnn Johnson Koch, partner at Perkins Coie, LLP who represents small refineries, says small refineries are harmed by the RFS because of their limited ability to blend biofuels, forcing them to buy RINs that are more expensive than complying through blending.

EPA has proposed a blanket denial of all pending small refinery exemptions, which Johnson Koch warns could be detrimental to small refineries.

“EPA must honor Congress’ direction and abandon its plan to write small refinery hardship relief out of the Clean Air Act on the ill-conceived notions that every single refinery in the U.S. has the exact same cost of compliance and recovers 100% of its costs of RFS compliance or that granting hardship relief lowers the blend rate,” she testifies. “If EPA doesn’t, senators, we should expect to see noncompliance, shutdown, and closure of small refineries adding to the already crippling gas prices. America stands to lose critical supply, with zero benefit to the biofuels industry.”

Skor says gas prices directly correlate with the price of crude oil, not RINs. According to the EIA, crude oil is the most impactful contributor, accounting for 56% of the price of gasoline. The RIN market is independent from gas prices and instead reflects the blending decisions by obligated parties, Skor says.

Skor also says the higher ethanol blends, such as E15 approved in 31 states, saves consumers 10 cents per gallon. Contrary, for consumers choosing gasoline with no blended ethanol they pay a 50-cent premium over the blended standard 87 with up to 10% ethanol.

Sens. Joni Ernst, R-Iowa, Tammy Duckworth, D-Ill., and Debbie Stabenow, D-Mich., discussed the transportation emission reductions that result from renewable fuels, ethanol’s contribution to lowering fuel prices and agriculture’s role in producing and improving renewable fuels, among other issues.

Sen. Cynthia Lummis, R-Wyo., shared that as Congress determines the futures steps of encouraging low carbon fuels, there “has to be a way to encourage renewable fuels at the same time you don’t make it all the small fail and the big survive and thrive,” as it relates to the current pitting of small refiners against the large refiners in managing the high RIN prices.

Move toward low carbon fuel standard

Pugliaresi says some commentators have also suggested that EPA’s reset in 2023 should be used as an opportunity to move the program to a low carbon fuel standard that would be driven by more cost-effective criteria directly tied to reducing carbon emissions. “As shown in the California case, while such a program would likely reduce some of the dislocations from the blending mandates, it does not eliminate rising costs from the production of transportation fuels,” he warns.

Cory-Ann Wind, Oregon Clean Fuels Program Manager for the Oregon Department of Environmental Quality, offered her insights following Oregon’s implementation of its low carbon fuel standard. She shares the program’s success and progress can be summarized in three distinct outcomes: “First, companies that are producing biofuels are making those fuels more cleanly and delivering them in greater volumes to Oregon. The carbon intensity of the ethanol and biodiesel Oregon uses has decreased, and we’ve seen significant increases in the blending of biodiesel and renewable diesel in recent years. Renewable forms of diesel, natural gas, propane, and electricity have all entered the Oregon market since the beginning of the program and have emerged as commercially viable and costeffective replacements of their fossil versions.”

Skor also reiterated the importance of using all the tools in the toolbox to deal with lowering emissions and meeting climate goals.

“As much as the Biden administration dreams of an all-electric world, the reality is liquid fuels are here to stay,” Ernst says. “The latest research shows corn ethanol is 46% less carbon intensive than petroleum-based gasoline and biodiesel is 74% less carbon intensive than petroleum-based diesel. […] So, let’s follow the science and use biofuel as part of clean energy policy.”

EPA has been slow to make decisions on new advanced biofuel applications and pathways for usage. At the same time, the Clean Air Act prohibits some of the advanced renewable fuels that qualify for state programs from qualifying as renewable fuel under the federal program.

Skor says many cellulosic biofuels are not getting the proper “credit” for advanced biofuels today because the technologies are pending at EPA. This stifles innovation and does not give proper credit to the lowering of carbon intensity.

The biofuels industry is supportive of a LCFS if a low carbon fuel program truly was technology-neutral and properly accounts for the full lifecycle of biofuels including the low carbon farming practices utilized today.