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Renewable Fuel Standard levels released, what next for RFS?

Renewable Fuel Standard levels released, what next for RFS?

Market looks at how EPA's RFS volume levels will impact future demand

In the aftermath of the much-anticipated Renewable Fuels Standards volume obligations, it seems both sides of the debate were not happy with the final mandate levels called for by the Environmental Protection Agency.

Ahead of the court-mandated June 1 deadline, on May 29 the EPA proposed levels that were below the congressional levels laid out in the 2007 law, but above levels previously proposed in November 2013.

The EPA’s proposal would cut nearly 4 billion gallons of ethanol from the RFS through 2016, representing nearly a billion and a half bushels in lost corn demand.

Trucks line up to cross the scales at the Coshocton, OH Three Rivers Energy biofuels plant. (USDA photo by Heather Hartley)

Wally Tyner, Purdue University energy policy specialist, says in the end, the final EPA numbers represent a “compromise position.”

For corn ethanol, the EPA accepted arguments that the "blend wall" is a legitimate barrier to significantly increased production and did not accept arguments that E85 fuel would grow if the EPA mandated higher ethanol levels. But its 2016 mandate of 14 billion gallons requires some growth of E85 and E15 without reaching the original legislated level of 15 billion gallons.

Tyner says the EPA believes the blend wall is a “strong barrier, with little possibility for increasing E85 or E15 fuel. EPA set the 2015 level essentially at the 10% blending level.” EPA's 2016 level assumes some consumption beyond the E10 blend wall.

Ethanol producers believe that the market could absorb higher levels, noted in statements from industry groups after the announced levels.

A step backward

The Renewable Fuels Association has called on the EPA to do away with the “blend wall” methodology and allow the statutory volumes in the RFS to drive marketplace change. Bob Dinneen, president and chief executive officer of the Renewable Fuels Assn., said the levels represent a step backward for the RFS.

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“EPA successfully enforced a 13.8 billion gallon RVO in 2013. The industry produced 14.3 billion gallons of ethanol last year. There is no reason to promulgate an RVO rule that takes us backward. All it will do is result in an ever-increasing supply of renewable fuel credits (RINs) that will further discourage private sector investment in infrastructure and technology. This doesn’t make sense,” Dinneen says.

The 2014 through 2016 compliance years were to include a cumulative total of 9 billion gallons of cellulosic ethanol.  Instead the EPA has called for 345 million gallons – less than 4% of the initial goals, another sign that the RFS was based on flawed assumptions, according to the National Chicken Council which continues to say the RFS and its implementation is “broken beyond repair.”

Biodiesel boom

“Biodiesel appears to be a big winner with its mandate steadily growing over time and far exceeding the congressionally mandated level," Tyner notes.

The original congressional mandate for biodiesel was for at least 1 billion gallons, and the 2016 level reaches 1.8 billion gallons. "EPA believes that the market can provide and absorb significant increases for biodiesel," Tyner says.

EPA set the “other advanced biofuels” levels at 202 million, 244 million, 494 million over the next three years. EPA set these levels fairly low with some growth over the period. Ethanol from sugarcane can be used in this category. Also, biodiesel and cellulosic biofuel can be used here. "So, in fact, even more biodiesel could be used to meet the 'other advanced' mandate," Tyner said.

American Soybean Association Kansas director Bob Henry testified at a public hearing on the RFS at the end of June that there is no reason why EPA should not at a minimum support biomass-based diesel volumes of at least 2 billion gallons for 2016 and 2.3 billion gallons for 2017, highlighting that additional soybean oil will be displaced from domestic food markets as a result of the recent FDA determination requiring the elimination of all partially hydrogenated oil.

Economic impact

Iowa Gov. Terry Branstad testified at the public hearing that EPA’s indecision the last two years has led to market uncertainty that hurt farmers as well as froze investment in next generation technology. In August 2013, ahead of the proposed lower RFS levels, the price of corn was $6/bu., and now it has fallen to $4 a bushel. Iowa farmland prices dropped 15% last year and USDA estimates that farm income will decline 32% this year.

Brenda Heffelfinger, business manager, grain processing, DuPont Industrial Biosciences, testified that the United States has quickly risen to lead the world in biofuels technology and execution by that leadership is now hanging in the balance, dependent upon the actions of the EPA to correctly administer the policy.

“DuPont plans to license the next wave of biofuels technology, cellulosic, here in the United States and around the world. However, the most promising announcements, negotiations and conversations are all happening outside the United States.

"As long as the EPA continues to undermine existing domestic biofuels capacity, this will continue, creating a scenario where the benefits of U.S. innovation and technological advances are realized overseas."

TAGS: USDA Soybeans
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