For years, the oil industry, livestock groups, and several food companies have been trying to convince the Environmental Protection Agency (EPA) to waive or repeal federal rules that require more and more American grown renewable fuels like ethanol and biodiesel to be blended into the U.S. fuel supply. But under both Presidents George W. Bush and Barack Obama, there appeared to be no turning back. Until now.
On November 15, the EPA proposed lowering the Renewable Fuels Standard (RFS) from an 18.15 billion mandate to 15.21 billion gallons of ethanol and biodiesel for blending into gasoline and diesel. The proposed rule is open for a 60-day comment period and both supporters and critics are gearing up for massive write-in campaigns. The rule can be viewed at http://tinyurl.com/kvuj35o
EPA's announcement today is a good first and welcome step, but ultimately, Congress must act. Congressional action to repeal the RFS remains the most viable pathway to allowing all users of corn to have equal standing in the marketplace, said National Chicken Council President Mike Brown.
However, EPA's move has been roundly criticized within the biofuel sector as an overstepping of the agency's legal authority and as potentially damaging to the industry. Depending on what the final rule looks like, a lawsuit challenging the rule could be forthcoming.
As the National Corn Growers Association pointed out, the decision could not have come at a worse time, while corn prices are falling back to levels last experienced in 2007. By the latest USDA projections, the corn crop will be an all-time record 13.8 billion bushels.
This price decline comes at the same time that the cost of production has increased. In 2012, it cost $655 per acre to plant corn. Based on this year's projected yields, a farm price of $4.25 per bushels would be required to cover production costs, points out NCGA. Given the impact this proposal could have upon demand, and in light of the uncertain message it sends to those who invest in biofuels, the economic consequences of such action would reach far beyond rural America, impacting future U.S. energy security and creating environmental repercussions.
Blend wall concerns
Congress enacted the Renewable Fuel Standard in 2005 and expanded it in 2007. The EPA had been considering revising its 2014 mandate in part because declining demand for gasoline has led to a corn ethanol "blend wall," the point at which the market cannot consume as much ethanol as the EPA requires to be produced.
The EPA has proposed lowering its mandate for corn ethanol production from the current 14.4 billion gallons to 13.01 billion, but at least one biofuels expert suggests that a higher level might represent a better balance.
"I think it is a mistake to put the RFS that low," said Purdue University energy policy specialist Wally Tyner, who recommended that the corn ethanol requirement be set at 13.9 billion gallons to provide incentive for refiners to blend and sell more E85 fuel.
The consequence of setting the RFS at 13.01 billion gallons for corn ethanol would be to "destroy that incentive," Tyner said, noting that the proposed level of 13 billion is less than the blend wall at 13.3 billion gallons.
Tyner also said the EPA's target of 1.28 billion gallons of biodiesel fuel next year could be increased to 1.5 billion gallons because production this year likely will exceed 1.6 billion.
Further, Tyner recommended that the EPA increase its 2014 proposal for production of cellulosic biofuels, which come from such sources as corn stover and switchgrass, from 17 million gallons to 30 million gallons, closer to his expectation of actual production. The legislated level of the mandate for next year is 1.75 billion. Tyner noted that there is little cellulosic biofuel today because of lack of technical progress in producing it and investment in it.
"Thus, essentially all the cellulosic category must be waived because the product simply does not exist," he said.
Several lawmakers and biofuel organizations opposed to the EPA's recent RFS proposal are ramping up efforts to push back against the proposed rule. Just last week, dozens of biodiesel stakeholders headed to Capitol Hill last week to support the RFS and voice strong disappointment with the Obama Administration's proposal for next year's renewable fuels volumes.
I think there is a middle ground here that would keep us moving forward on biofuels, Stabenow said. In the end, this means thousands of jobs.
While Stabenow said she does not see a legislative fix, she stressed the proposed rule could be subject to change. Stabenow, as well as others in the renewable fuels industry, argued that the proposal would create uncertainty in the industry, which could hurt the economy in general. We're talking about a major rural economic development impact all across the country, she said.
Stabenow said the EPA proposal makes it more important to have a strong energy title in the farm bill to continue support for the biofuels industry. She said tax incentives are needed to make sure the industry does not lose the progress made since the RFS was strengthened in 2007.
The big problem is oil companies are able to block pumps from being established and then arguing there's not a market and then coming back and trying to kill the RFS, Stabenow said. We need a level playing field in competition - customer access to E85 or other [biofuels] at the pump - and let the consumer decide what they want to do.