As Congress continues to debate the merits of the renewable fuel standard, what impact would a repeal of the law have on the future of cellulosic ethanol? During today's OnPoint, Bob Greco, group director of downstream and industry operations at the American Petroleum Institute, discusses his industry's investments in second-generation biofuels and why the current RFS targets cannot be met. He calls on U.S. EPA and Congress to change the short-term targets of the RFS and eventually follow with a full repeal of the law.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi, joining me today is Bob Greco, group director of downstream and industry operations at the American Petroleum Institute. Bob, thanks for joining me.
Bob Greco: Thank you for having me.
Monica Trauzzi: Bob, with Congress back in town this week, the discussions over reworking the renewable fuel standard are likely to come back into focus. What have you heard in your conversations with members and their staffs about what the likelihood of some kind of reworking of the RFS is?
Bob Greco: I think there's a lot of interest right now in revisiting the RFS, for a lot of reasons. You're hearing the livestock industry, the food and feed industry concerned about high corn prices. From our perspective, we're very much worried about being able to blend enough ethanol into the fuels where we're approaching this blend wall where we're going to be running out of fuel to put ethanol into at this point. So you're starting to see a broad variety of concerns, and we're frankly joining the chorus of groups that are starting to ask for this to be revisited. And we at API feel the program is fundamentally broken and just needs to be scrapped and started over at this point.
Monica Trauzzi: So very basic question here, do you believe that renewable fuels should play a significant role in our future energy policy?
Bob Greco: Oh yeah. The oil and natural gas industry supports the use of renewable fuels. We're some of the biggest investors in advanced biofuels. You've got oil and natural gas companies looking at cellulosic ethanol, cellulosic biofuels, fuels from algae. So companies in the oil and gas space are looking at what these next generation fuels will look like. And we're also blending ethanol into gasoline right now. Nearly every gallon of gasoline in the country contains 10 percent ethanol. Ethanol is a desirable blending product. It improves octane, it helps with environmental compliance. So there's value in blending in ethanol, and ethanol would be blended in gasoline without an RFS. The problem is the current renewable fuel standard is fundamentally flawed and needs to be repealed.
Monica Trauzzi: So then what are the critical issues that you have with the current RFS, and what specific changes do you wish to see?
Bob Greco: The biggest problem is that the RFS mandates gallons of ethanol and other biofuels to be blended each and every year regardless of the amount of gasoline demand. And back when this was passed in 2007, the world was different. We thought gasoline demand was going to increase for the foreseeable future. People were worried about peak oil. There was also talk that these advanced fuels were just around the corner, they would be here any time. That's all changed since 2007. We realize that these advanced fuels have not come along as quickly as we thought they would. Gasoline demand has dropped, and we're now approaching this issue where we're having to blend more ethanol into gasoline than we can safely blend. So there are a lot of problems with Congress trying to dictate fuel use, when in fact we should have the market decide and let the customer choose what fuel they get.
Monica Trauzzi: So when you take a look at cellulosic ethanol's current storyline, what considerations does your industry need to make from a business standpoint when you think about 10 to 15 years from now, your business structure? I mean, with the future of cellulosics so uncertain, what are you to do?
Bob Greco: Well, companies are investing with the long term in mind, so they're looking at whether these fuels will be commercially viable in 5, 10 years or more. But the problem with the renewable fuel standard is, Congress assumed these fuels would be here now, and they assumed they would be here in increasing quantities now, and they just haven't been there. We're still at the point we have zero commercial cellulosic production available.
Monica Trauzzi: The administration has been fairly open to hearing your industry's concerns, what has occurred in those meetings with administration officials when you talk about reworking the RFS? Are they fairly receptive to the idea?
Bob Greco: I think EPA and the administration is trying to understand what tools they have at their disposal. They do have some flexibility to make some adjustments on this. In the past, EPA hasn't frankly used those as efficiently as they could have. They have not lowered the cellulosic mandates to reflect actual production, and in fact just this year in 2013 they proposed yet another increase in the cellulosic mandate despite the fact that there is zero available currently. So we think the administration can and should be using the tools at their disposal to at least address the short term problems. It doesn't address the fundamental problem with the RFS, but they can make some adjustments to take some pressure off the system.
Monica Trauzzi: So regardless of whether the administration acts or not, Congress will still need to take a step to address sort of the longer term issues?
Bob Greco: That's correct. Because right now we have to rely on EPA to make year by year adjustments, and here we are in middle of 2013 and we still don't know what the 2013 mandate is. So we need EPA to use its authority to fix the mandate in 2013, send a signal for what they're going to do in 2014, because they can do that, but at the same time, we still need Congress to revisit and we feel repeal the entire RFS.
Monica Trauzzi: So we've already seen a bill introduced in the House that focuses on reworking the RFS. What's your view of that bill and does it do what you think it needs to be doing?
Bob Greco: Well, there have been bills to both rework and also to repeal the RFS. The bills to rework it I think are a good first step, but they don't address the fundamental problem in our minds. We think again, they start the dialogue, but we are fully supportive of efforts to repeal the entire RFS and feel Congress should focus its energies in that area.
Monica Trauzzi: How much of a focus do your member companies put on building the alternative fuels sections of their businesses?
Bob Greco: Well, it's going to vary from company to company. Again, these are industries that are still growing. We're still trying to determine if these fuels can be commercially produced and be produced economically. So companies are spending billions of dollars on that. But these are in the context of multibillion-dollar companies, which are clearly focused on oil and natural gas. And they are looking at the fuels that our future customers will want, and renewables will be in that mix. But clearly oil and natural gas will be providing the majority of our energy needs for the foreseeable future.
Monica Trauzzi: OK, we'll end it right there. Thank you for coming on the show, nice to see you.
Bob Greco: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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