EPA’s New Year's gift to Big Oil

Successful implementation of federal energy and transportation policies by innovative companies requires long-term strategic planning. When Congress designed the Renewable Fuel Standard (RFS), its intention was to decrease America’s climate changing emissions from transportation by reducing our reliance on oil and replacing it with cleaner biofuels. But now, the Environmental Protection Agency appears ready to reverse course on the policy, codifying the so-called blend wall and guaranteeing petroleum a lock on the transportation fuel market and consumers’ wallets for years to come. If left unchanged, EPA’s proposal for the 2014 RFS rules will slow development of newer advanced biofuels and increase emissions of greenhouse gases.

The RFS was not intended to codify 90 percent use of petroleum for transportation fuels. It was designed to break through the so called blend wall by incentivizing investments in higher blends of ethanol, drop-in fuels like biobutanol, and biodiesel as well as new advanced biofuels such as green gasoline – and it has been working. In prior rulemakings, EPA supported increased use of renewable fuels over the long-term and established that there should be a very high bar to deviating from the policy.

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Refiners and other stakeholders have been aware they would be required to gradually increase volumes of biofuels over time ever since the passage of the Energy Independence and Security Act in December of 2007. EPA noted that fact just one year ago, as it denied the petitions of 12 state governors who sought a general waiver of the RFS in response to the nationwide drought. The Agency further noted that ethanol producers and automakers have made diligent efforts to introduce higher blends and increase numbers of flex-fuel vehicles. “The affected industries have had and continue to have the ability to achieve widespread adoption of E85,” EPA said at the time.

EPA also addressed the general waiver authority – which includes the “inadequate domestic supply” clause – in establishing the final rule for RFS2 in 2010 and in addressing the comments on the proposed final rule in 2009. For some reason EPA is now attempting to reinterpret the plain meaning of the law to include domestic infrastructure to market increased volumes of biofuels. EPA’s proposed 2014 RFS rule is a 180-degree reversal of its past interpretation of its waiver authority as well as of Congress’ intent.

The change in direction doesn’t impact the biofuel industry alone. Many refiners and petroleum distributors have begun to invest in additional renewable fuel capacity, both for higher blends of ethanol and biomass-based diesel. Delek US Holdings, Global Partners LP, HollyFrontier, Marathon Petroleum, and Valero Energy Corp. have all reported to their investors plans to increase renewable fuel production and blending. Those parties now stand to lose on their investments solely because they worked in good faith to comply with both the letter and spirit of the law. Buckeye Partners had to report a loss to its investors during the third quarter of this year, after the value of RINs declined in the wake of the leak of the draft 2014 RFS rule in October.

The RFS was designed to reward refiners who moved fastest toward the goal of adopting renewable fuels. It allows them to accumulate credits – called Renewable Identification Numbers (RINs) – and sell them to others who are slower to comply with the law. Some petroleum refiners actually have resisted using renewable fuels and are now complaining loudly about the cost of their non-compliance, since they’ve had to purchase RINs from more forward-thinking refiners and downstream partners. They could just as easily invest in the much lower costs of deploying new infrastructure for renewable fuels. If the administration pulls back the reins on the RFS today, it will reward the most recalcitrant petroleum refiners, undercut the long-range plans and investments of refiners who have sought to fully comply with the law, and set the program on a course that would take many more years to correct.

One of the first impacts of the proposed rule being considered will be environmental backsliding due to an immediate increase in greenhouse gas emissions in 2014. Since petroleum fuels are coming from increasingly marginal sources – such as Canadian oil sands – they emit more greenhouse gases than they did in 2005, when the RFS was first designed. The proposed rule for 2014 will require an increase in the use of petroleum fuels, inarguably increasing the environmental impact from transportation fuel use.

The RFS was designed to be carried out over more than a decade. We are now only four years into the program. To reverse course at this time simply punishes those who have sought to make the law work to both reduce our reliance on oil and improve our environmental health. EPA should not be flip-flopping and should maintain the long-range vision for this program.

Erickson is executive vice president at the Biotechnology Industry Organization.