As U.S. EPA prepares its final rule for 2014 renewable fuel targets, will the intense lobbying push from the biofuels industry sway the agency to shift from its draft proposal? During today's OnPoint, Brian Jennings, executive vice president of the American Coalition for Ethanol, discusses the challenges facing his industry as it awaits EPA's final determination.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Brian Jennings, executive vice president of the American Coalition for Ethanol. Brian, thanks for coming back on the show.
Brian Jennings: Nice to be with you again.
Monica Trauzzi: Brian, you're in town speaking with administration officials and members of Congress as EPA prepares its final rule for the 2014 renewable fuel targets. The draft rule that the agency proposed back in November outlined a drop in targets for 2014. How has the discussion evolved since EPA released that draft?
Brian Jennings: Well, I think EPA was surprised with the amount of opposition there was to this rule, and certainly we and others were very concerned with the proposal to reduce ethanol use. We've had several meetings with them over the course of the time between when the proposed rule came out and the comment period concluded, including this week, and I think one of the things going for us that's helping drive the conversation between now and the issuance of a final rule is that there's more progress being made with respect to E15 and E85 than contemplated.
The proposed rule from EPA essentially dismisses E15 as a viable option, and that's not OK and that overlooks a lot of the real-world activity taking place in 20-some states, where retailers are offering this product. And so, we tried to provide a lot of information to the agency when we met with them this week about the progress being made. Independent retailers came to Washington with us, who are selling E15 and E85, and I think EPA took a genuine interest in that information, but they certainly aren't telegraphing to use where they're going with this final rule, so I have no confidence, frankly, yet that this cut will be restored.
Monica Trauzzi: And it would be pretty remarkable if there was a dramatic change from the draft rule to the final.
Brian Jennings: I think that's true. That's pretty routine when an agency has done their homework to recommend going in one direction than overturning that, and going back the other direction is a very difficult challenge. Nonetheless, we have a lot of reservations with this. I mean, this is akin to you or me, Monica, saying that the IRS better give us a tax refund because we've refused to pay our taxes, and we hope EPA thinks carefully about the precedent that they're about to set here. If they allow oil companies to refuse to comply with the RFS in terms of higher blends of ethanol being introduced onto the market, what's to say that a power plant will refuse to comply with a future carbon pollution limit? They have to think very carefully about the precedent that they're about to set if they go down this road.
Monica Trauzzi: So one of the challenges facing your industry is the lack of consumer demand for E85. What is the strategy for addressing that, because E85 is a critical component to being able to meet targets moving forward.
Brian Jennings: It is, and we're focused both on E15 and E85. 2013 was a phenomenal year for E85. Over 200 retailers across the country added E85 at their stations. States that've traditionally sold E85 historically and have sort of a wealth of information upon which to make some projections, Minnesota and Iowa, for instance, sold records amount of E85 last year, so we want to make sure that we continue to make progress there, and that's what a lot of retailers are doing. They're looking at the blending economics. They're looking at the affordability of ethanol. They're able to acquire RINs, in some cases, and either put a little value in their pocket or use the value of that RIN to pay for a blender pump or an upgrade to E15.
And so, we're trying to focus on both E15 and E85, and I think the data that these retailers provided to the White House and to EPA and to Congress this week about how they've overcome the blend wall -- it wasn't cost-prohibitive. Customers want this product. It's lower-cost. I think that's helping, but we're not quite where we need to be.
Monica Trauzzi: So, in terms of economics, what do you see happening in the short term if the final rule looks like the draft?
Brian Jennings: Well, first of all, I think, I mean, beyond the economics, this is a dangerous precedent, and I can't make that point enough. I mean, this is a big problem if EPA goes down this road of allowing the oil companies to refuse to blend these E15 and E85, but ...
Monica Trauzzi: But is that what they're doing? I mean, they're revisiting something that was established years ago.
Brian Jennings: The EPA?
Monica Trauzzi: Yeah.
Brian Jennings: Well, I think what EPA is actually doing is saying, "We're going to develop a new methodology from 2014 and going forward." And the new methodology is going to say, "Oh, no, gasoline use is on the decline. Oil companies tell us they can't possibly blend E15 and E85 with gas use on the decline. We need to take a look at this and then set the limit below 10 percent of gasoline demand going forward." That's not what the statute says, and that's going to be a big problem if they do that. To your question about the economic impacts, I think most acutely for cellulosic and advanced biofuel, they need a market beyond 10 percent if indeed investors are going to have confidence that they can move forward in cellulosic ethanol. And so, I think that's the immediate concern. Long term, that will pose a problem for consumers, because gas prices could go up. It'll pose a problem for the ethanol producers that I represent.
Monica Trauzzi: So, a bit of positive news: EPA announced that it plans to update its decisionmaking process for reviewing renewable fuels. How will that impact the ability of projects to get off the ground and keep momentum going?
Brian Jennings: That's our concern, and it appears as if EPA is going to place priority on some of the pathways that would qualify for cellulosic RINs, and so we're still discovering from them how exactly that's going to work so they'll allow those to continue to move forward during the six-month period in which everything else sort of pauses while they streamline things. Streamlining things is good. There are a lot of pathways that have been waiting for a very long time to get approved, so overall what we know about this, we think they're moving in the right direction, as long as they continue to move these through the pipeline.
Monica Trauzzi: We'll end it there. Thank you for coming back on the show.
Brian Jennings: Thanks. Appreciate it.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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