Energy Policy:

Refiners' Drevna says RFS should be scrapped

Should policymakers revisit the renewable fuel standard to account for the changing dynamics of the renewable fuels and oil markets? During today's OnPoint, Charles Drevna, president of the American Fuel and Petrochemical Manufacturers, explains why he believes the RFS should be scrapped. He also discusses the impact that fluctuating renewable identification number (RIN) prices are having on the refining industry.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Charles Drevna, president of the American Fuel and Petrochemical Manufacturers. Charles, good to have you back on the show.

Charles Drevna: Thanks for having me, Monica. Good to be here.

Monica Trauzzi: Charles, lets jump right in and have you respond directly to comments made by the Renewables Fuels Association's Bob Dinneen when he was on the show last week, relating to the Renewable Identification Number issue. He said, "If refiners are trading amongst themselves, if one company's making a little money, another company might be losing a little bit of money. The consumer shouldn't be affected any in the overall scheme of things." What impact are RIN prices, volatile RIN prices, having on gasoline prices?

Charles Drevna: Well, right now, Monica, the gasoline price, as you see, has actually decreased because the price of crude's decreased, but let's talk about the RINs, what they mean and what they don't mean. I understand that Mr. Dinneen has said RINs are free. Well, RINs were trading at 2-3 cents in January and early February. They shot up to well over $1.00 in days, hours, indicative of the fact that the market is saying that the system is broke, that the system is inexorably broke, and we're hitting the E10 blend wall where we cannot safely supply the blend stock for an additional 50 percent ethanol to be put in gasoline. The marketers can't afford the $200,000.00 per station to put it in. The consumers can't afford to put it in their engines, whether they're automobile engines or off-road engines, because it's simply not certified to do so. EPA says it's certified. The manufacturers of those engines say absolutely not. So the problem is we're at the E10 blend wall. We can't go any further. We have to buy these RINs to make up for the fact that we can't blend more ethanol into the system. So what we're saying is that the increase in the RIN price was the earthquake. If this is not soon fixed first by EPA short-term, longer-term Congress, we're going to see the tsunami.

Monica Trauzzi: But isn't this just a mechanism of having a new policy in place. Isn't this a growing pain, perhaps? Could it be considered that, and that we're not going to see this type of volatility once the market sort of understands the policy a little better?

Charles Drevna: To call it a growing pain after four, five, six years of trying to work this thing out, if you go back in 2007, the euphoria that Congress and the ethanol folks and the renewables were passing, if you look at everything that they said, it's going to lower gas prices. It's going to increase employment. It's going to help the environment, and it's going to get us off of foreign oil -- wrong, wrong, wrong, and wrong. It's the system, Monica. The whole bill is inexorably broken, and the only thing that really can fix it is a total repeal because we're still going to use ethanol. We're not anti-ethanol, but we cannot safely put more and more ethanol into the system the way it's constructed today. The consumers don't want it. The marketers don't want to sell it. And there are folks that have said, "Well, if you just do more E15 or E85 everything will be fine," but that's not true. Right today on a energy equivalent basis, AAA is saying that E85 is selling for 55 cents more per gallon than regular gasoline. How does that help the consumer?

Monica Trauzzi: So you think the policy should be repealed. There are discussions in Congress about taking another look at the RFS and maybe reworking it. If it were to be repealed, what then should the policy look like if they were to sit down and write something new?

Charles Drevna: The policy should look like, let's do what's best for the consumer. Let's do what's best for the environment. Let's do what's best for energy and national security.

Monica Trauzzi: But you acknowledge that biofuels will be playing a role in our future energy policy.

Charles Drevna: Absolutely. The trouble is you can't force-fit something into a system that won't take it, and that's what the RFS tried to do. Remember when the RFS was first past. As wrong as it is today, the assumption was gasoline consumptions was going to continue to increase 1-1.5 percent a year. Well, we saw that that has just been turned on its head. Gasoline demand is down, but the inexorable march toward more and more and more mandated ethanol, we've hit this blend wall two or three years faster than we thought it would. We've always thought we were going to be sitting here talking about this, Monica. Didn't think we were going to be doing it in 2013.

Monica Trauzzi: So talk to me a bit about what happens on the refiner's end when the price of a RIN goes up. Take us behind the scenes, the mechanics of it of what happens.

Charles Drevna: Well, as you know, it's not a question of producing more ethanol. It's a question of how much ethanol can you put safely into the system. So if you can only put up to E10 in the system, and you're required to put more and more in, you've got to go out in the open market and buy these RINs, i.e. credits. Well, it's supply and demand. When they were selling at 2, 3, 4 cents, the supply of RINs were lower than the demand, so there was more out there, so that was greater than demand. Now what you're seeing is this thing has flip-flopped on its head because we hit that blend wall. So refiners have some choices. They can offer a blend stock that you can blend E15 that the consumer doesn't want, that they shouldn't have to use. You can cut runs, or you can export or do both of the latter, the problem being that is going to impact the consumer. We as refiners can't continue to spend billions of dollars on nothing. That's what we're doing. This is a mirror image of cap and trade, and we've looked at this thing, and we said there are only a couple of choices, none of which are good for the consumer.

Monica Trauzzi: So the argument that RFA makes that more ethanol should be purchased by refiners and then you wouldn't have this issue of volatility because you would be just dealing with more ethanol, is that not valid? Is that not a valid solution?

Charles Drevna: What are you going to do with the ethanol you purchase? They're exporting ethanol, and they're importing more Brazilian ethanol because of the advanced ethanol requirements. That's what I'm saying. This whole RFS makes absolutely no sense. I think the thing you have to really look at, the thing that the whole county, and right now Congress, has to look at, we're not the only ones out there saying this. 2007 the refiners said this is going to be a problem. It's a problem. We're not any great fortune tellers, but you've got the poultry, cattle, pork producers, grocery manufacturers, motorcycle enthusiasts, restaurant owners, food processor, environmental groups and world-hunger groups all coming together, Monica, saying the same thing. This thing is broken.

Monica Trauzzi: So Congress is taking a look at this. Talk about politics for a second, though. How likely is it that something actually gets changed this year?

Charles Drevna: I'm very optimistic. I'm very optimistic because, as you know, this never was a partisan issue, and when you have both sides of the aisles in both chambers saying, "We've got to take a look at this thing," when you have the chair and the ranking member of the Energy and Commerce Committee putting out white papers saying, "OK, the first one was on the blend wall. We submitted 20 pages of comments on the blend wall. The second one is on ag policy. There's going to be more." On the senate side, you have the new Chairman of the Energy and Natural Resources Committee, Senator Wyden, saying, "What's going on here? There's a problem." We've been saying there's a problem. You can't take a policy that we think is inexorably broken and try to work on the margins to fix it. It has to be repealed. That's longer term. Short term the market is looking at EPA directly saying, "You've got to do something now 'cause we're looking at what you're going to do now, and depending upon what you do, whether you're going to take volatility out or keep it in is the question."

Monica Trauzzi: All right. The debate continues. We'll end it there. Thank you for coming on the show.

Charles Drevna: My pleasure, Monica. Always a pleasure to be here.

Monica Trauzzi: Thank you. And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

Latest Selected Headlines

More headlines&nbspMore headlines

More headlines&nbspMore headlines

More headlines&nbspMore headlines

More headlines&nbspMore headlines

Latest E&ETV Videos