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Economist: Meeting RFS Obligations Possible if EPA Lowers Requirements

Economist: Meeting RFS Obligations Possible if EPA Lowers Requirements

Purdue's Wally Tyner projects 2.3 billion gallon reduction will be necessary to meet biofuel mandates in 2014

The Environmental Protection Agency's announcement earlier this month that it would consider lowering volume mandates for the 2014 Renewable Fuels Standard has sparked considerable conversation in the world of ethanol production – some say it could be the path to a "workable" RFS, while others maintain that higher volumes would still be attainable.

Wally Tyner, Purdue University Professor of Agricultural Economics, sides with the group that believes a 2.3 billion gallon cut in the volume requirements for 2014 could be an acceptable production target for refiners.

Purdue's Wally Tyner projects 2.3 billion gallon reduction will be necessary to meet biofuel mandates in 2014

"The devil is in the details. However, it is clear that if the EPA does what is implied … the RFS moves from being unworkable to quite manageable," Tyner said in a report on the RFS.

Part of the reason RFS mandates should be relaxed, Tyner argues, is the decline in consumption of gasoline nationwide – from 141 billion gallons in 2007, when the RFS' annual incremental increase schedules were updated -- to a rate of 133 billion now.

That decrease is also coupled with the "blend wall," the point at which the market can no longer handle the amount of ethanol that is being produced.

Another argument against the current RFS levels, Tyner said, is the cellulosic component. On the whole, cellulosic has not been able to expand at the pace originally projected and thus has been unable to fulfill RFS mandates.

Even with cellulosic's inability to handle the mandate, Tyner noted that the EPA has not reflected the issue in volume requirements.

However, Tyner calculates in the report that 15.85 billion gallons of biofuels can be produced in 2014 if the EPA reduces its volume targets for corn ethanol to better align with the blend wall, and by lowering its requirements for production of cellulosic biofuels such as from corn stover, straw and Miscanthus grass to what the EPA might deem to be available. 

Similarly, he notes volume requirements in 2015 and 2016 may also be met with similar reductions. Without any changes, the energy industry would have to blend 20.5 billion gallons of biofuels into gasoline in 2015 and 22.25 billion gallons in 2016. His calculations would reduce those totals to 16.58 billion in 2015 and 17.3 billion the following year.

Tyner said the EPA has shown willingness to reconsider the blend mandates because it was unrealistic to believe that the industry could meet them as EPA had enforced them in the past.

"I think they saw that a train wreck was coming and they did the right thing," he said.

Petroleum groups agree. Last week, both the American Fuel and Petrochemical Manufacturers and American Petroleum Institute asked the EPA to scale back the RFS to 14.8 billion gallons through a partial waiver.

The groups argue that inability to blend the mandated amount of ethanol "could lead to domestic fuel supply shortages and ultimately cause severe economic harm to consumers and the economy."

Meanwhile, ethanol groups stand by the mandates, noting that the policy has allowed ethanol and cellulosic fuels to advance in the marketplace, claiming a market share long held by petroleum.

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