The Obama administration recently announced the approval of higher levels of ethanol in gasoline for newer vehicles. Is this a good move for the ethanol industry? During today's OnPoint, Bob Dinneen, president and CEO of the Renewable Fuels Association, explains why his industry had a mixed reaction to EPA's decision. He also discusses the future of tax credits for the ethanol industry, heading into Congress' lame duck session.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Bob Dinneen, president and CEO of the Renewable Fuels Association. It's great to see you again.
Bob Dinneen: Monica, it's great to see you.
Monica Trauzzi: Bob, the Obama administration recently announced the approval of higher levels of ethanol in gasoline for newer vehicles. The news got a mixed response though from your industry. Why aren't you happy with EPA's decision to allow for more ethanol in gasoline?
Bob Dinneen: Well, I think the decision itself was mixed. Look, on the one hand it's good. They're recognizing that E15 is appropriate for use in 2000 and newer vehicles. But our frustration is, of course, that there's no data that EPA has that suggests that there's a problem with older vehicles and we just think EPA could have gone further. There's still a lot of work that needs to be done before you're going to see E15 in the marketplace. We've got to deal with state regulations. We've got to deal with a labeling regulation that EPA has proposed, that right now is extraordinarily problematic. We're going to go about and we're going to do that work and hopefully we'll make some lemonade out of the regulation that EPA has given us so far.
Monica Trauzzi: So do you believe that enough testing has been done on higher blends to make it so that vehicles earlier than 2000 would get the OK also?
Bob Dinneen: Absolutely. Look, in all the testing that has been done there's been no problem that's been identified with any vehicles. We worked with a world renowned automotive engineering firm, Ricardo, that said, look, if you're approving E15 for a 2001 vehicle, there's no difference in the emissions. There's no difference in the materials that are used in anything with these vehicles that would suggest it wouldn't be appropriate for an older vehicle. We're not talking about, you know, something that's terribly dramatic here. E25 is being used in Brazil today on older vehicles. So I think our sense is that there's plenty of data out there. Our frustration is in no other of the 20 some odd 211(f) waivers the EPA has evaluated have they required testing on legacy vehicles, on vehicles that are beyond EPA's own regulatory control. And I'm not sure that EPA has a good handle on how you do that testing in the first place. How do you test the useful life of a vehicle on a fuel when it's already beyond its useful life? So I think there are real questions about how they address some of those answers or some of those issues. And we believe strongly that EPA has sufficient data to approve E15 for all vehicles.
Monica Trauzzi: Is there any indication of when they might move on a decision like that?
Bob Dinneen: Well, they've indicated already, of course publicly, that they hope to go 2001 and newer sometime this winter. Fabulous, that would be a much better step in the right direction. And they've indicated they'll look at testing for those older vehicles. Well, is that another couple years down the road and how you do that testing? And, again, in the absence of data that suggests that there's a problem here, and there's none, indeed the evidence from Ricardo would suggest that E15 is absolutely appropriate for those older vehicles, we don't know why this 211(f) waiver process is so much different than previous ones and why they're moving the goalposts.
Monica Trauzzi: So, like you said, there are still some hurdles to overcome, like some local rules, local issues. So does this decision by EPA actually do anything to significantly move product? Which is essentially what you guys want to do, you want to get more product on the market.
Bob Dinneen: Right. Certainly not in the near term because there are all these other issues that have to be addressed. But it was a good first step. We're going to work with EPA and other stakeholders to make sure we are addressing the labeling appropriately, that we are addressing those state regulations where we need to, that our producers are getting the certification for the sale of this fuel based on health effects testing that's being completed soon. So we're checking off all of these things. It's good that EPA started this process moving forward, but there's still a lot of work that needs to be done.
Monica Trauzzi: Was this a political decision by EPA to please the Corn Belt?
Bob Dinneen: I don't think so or I think the Corn Belt would've been happier with decision. I think they're looking at the data that they have and they want to get out the answers that they have available. But, you know, we think EPA could have gone a lot further.
Monica Trauzzi: Let's switch gears and talk about tax credits. Right now there's a tax credit in place that pays $0.45 per gallon to blenders to incorporate ethanol into their fuel. What are your expectations for how that might be addressed during the lame duck?
Bob Dinneen: Well, we think Congress needs to act. Look, the government is not going to shut down. They're going to get something to the president's desk in terms of a continuing resolution. It will likely have a tax component. I think there will be an opportunity in a lame duck to address some of these issues. Congress failed to work on the extenders last year, throughout the balance of this year. They're going to have to get that done and we think it's critically important that they do so. If, on January 1, Congress has failed to extend these important incentives, plants will shut down, jobs will be lost. I don't know how many or what, but certainly ...
Monica Trauzzi: Will it really be that dramatic though? I mean the ethanol industry is doing OK.
Bob Dinneen: We are right now.
Monica Trauzzi: Particularly with first-generation ethanols.
Bob Dinneen: We are right now, but ...
Monica Trauzzi: Why do you guys keep needing tax incentives?
Bob Dinneen: In the absence of the tax incentive discretionary blending evaporates. With more than 2 billion RENs through the RFS program that are out on the marketplace, they would quickly be bought up by refiners. So there's no question that in the absence of the tax incentive demand for ethanol will fall. And if that happens, there's no question that plants, some plants would shut down. Now, will it be as dramatic or as devastating as the failure of Congress to extend the biodiesel tax credit? No, because we do have a stronger underpinning of regulatory support. The RFS is there and there will be ethanol that will continue to be blended. But suddenly the RFS is going to be a cap, not a floor. All the growth opportunities for ethanol aren't going to be there. If we're going to continue to grow the ethanol industry and evolve the ethanol industry and have markets there for cellulosic ethanol and other advanced biofuels, without the tax incentive that doesn't happen. So we are very committed to making sure the industry is able to continue to grow and evolve these marketplaces that are opening up. And that's why extending the tax incentive needs to occur. Now, do you want to look at ways to reform it? Absolutely and we're working with the administration, we're working with our allies on Capitol Hill, we're working with other stakeholders to try to determine how you can address the future of the tax policy in a responsible fashion, in a way that provides some confidence that the markets will continue to be there, that will allow the continued evolution of the industry into newer technologies, different feedstocks, all the rest. That's a healthy conversation to have. You can't have that in the week or two that you're going to have in a lame duck session. So they can extend this tax incentive with, you know, a stroke of the pen, a little bit of Whiteout, just change the date. That's what they need to do this year and let's have a robust discussion about future biofuels tax policy and make sure we're thinking about it in terms of what's the best policy to promote cellulosic ethanol? How do we commercialize other advanced biofuels? How do we make sure that E85 and other fuel uses for ethanol as a replacement fuel are there? And that's just going to be a much broader conversation.
Monica Trauzzi: And a lot of what happens is going to depend on what happens in the upcoming midterm elections.
Bob Dinneen: True.
Monica Trauzzi: I want to get your predictions. The latest polls show that the House should go to the Republicans. Are you sensing the same thing and what do you think a shift like that would mean for energy policy discussions?
Bob Dinneen: Well, we see the same polls as everybody else is and certainly it's pretty clear at this point that the House is likely to turn to the Republicans again. From our industry standpoint, that really doesn't have much of an impact because ours is not a partisan issue. The 2005 energy bill that created the renewable fuel standard was passed with a Republican standard. The 2007 energy bill that expanded the RFS to a 36 billion gallon requirement was passed with a Democratic Congress. Both parties, all Americans see the importance of continuing to reduce our reliance on imported oil, continuing the investment that we have made in domestic energy production like ethanol. And we think that there's strong bipartisan and bicameral support. But we're going to be sort of the linchpin perhaps of making sure that energy policy passes because ours is a bipartisan issue.
Monica Trauzzi: OK, we'll end it there. Thank you for coming on the show.
Bob Dinneen: Thank you, Monica.
Monica Trauzzi: Nice to see you. And thanks for watching. We'll see you back here tomorrow.
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