BIOFUELS

Beleaguered EPA vows to get RFS 'back on track'

GRAPEVINE, Texas -- A top U.S. EPA official told a gathering of ethanol producers here yesterday that his agency would put the renewable fuel standard "back on track" after failing last year to set biofuel mandates.

EPA transportation chief Christopher Grundler said the agency would combine three years' worth of standards -- for 2014, 2015 and 2016 -- into a single regulatory action. EPA plans to release a proposal this spring and finalize it by the end of November.

"I wanted to come to Texas and personally tell you all how sorry I am that we did not get our work done," said Grundler, who directs the Office of Transportation and Air Quality. "To me, it's simply mission critical that the RFS get back on track and we have a long-term trajectory in this country for lowering the carbon content of transportation fuels."

His speech to the annual Renewable Fuels Association conference was the biggest indication in recent months of EPA's plans for the RFS. But the standard remains one of the most contentious energy issues in Washington, D.C., and already stakeholders are raising doubts that EPA can complete its work in the time frame.

"I don't see this getting finalized quickly," said Bob Greco, director of downstream activities for the American Petroleum Institute. "It's going to be as contentious. It's not like this is less controversial than it was last year, particularly when you're doing three years' worth."

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In late 2013, EPA proposed to roll back annual mandates for conventional ethanol and advanced biofuels for the first time. In its proposal, EPA called for 15.21 billion gallons of total renewable fuels in 2014 -- a decrease of 16 percent from the level Congress anticipated when it passed the RFS into law in 2007.

The proposal drew criticism from the biofuels industry, which said EPA was using a novel interpretation of the RFS to ratchet down the targets, and the oil industry, which urged deeper cuts to keep total ethanol use below 10 percent of the gasoline market.

EPA received 340,000 public comments and in November abruptly announced it would not be finalizing 2014 renewable fuel standards before the end of the year.

By law, EPA is supposed to finalize the following year's mandates for conventional ethanol and most advanced biofuels by Nov. 30 of the previous year. The annual target for biodiesel -- an advanced biofuel made of soybean oil, used cooking grease and animal fats -- is supposed to be finalized 14 months before it goes into effect.

Renewable Fuels Association President and CEO Bob Dinneen yesterday slammed the agency in a fiery speech for its delay in setting the annual standard.

"Every day the agency allows the RFS to drift in a sea of uncertainty is a day the agency is in violation of the law," he said. "It is not a trivial violation."

EPA 'regrouping'

Grundler said that he was also frustrated by the delays and that implementing the RFS as Congress intended has turned out to be "very challenging" for EPA.

The agency is "regrouping," he said, in preparation for issuing its new proposal in the spring. Grundler told reporters the agency is considering basing the 2014 target on the volume of biofuels that was actually produced last year and then estimating how much renewable fuel would be produced in 2015 and 2016.

"We have to accept the fact that 2014 is over. 2014 happened. And so we'll be looking at what actually happened, what will be the starting point," he said.

One of the fundamental issues EPA grappled with last year was how to fit changing market realities into the policy Congress passed. Instead of going up, as Congress expected in 2007, gasoline demand in the United States has since decreased.

RFS opponents in the oil industry argue that, in the new reality of lower demand, the RFS has caused them to go above the blend wall, or the technically feasible limit to the amount of ethanol that can be used in gasoline. They've urged EPA to take into account the blend wall in setting the annual targets.

Grundler said the agency continues to struggle with how it can legally address the blend wall within the context of the RFS. Last year, EPA attempted to fit the blend wall into its authority to waive RFS targets based on inadequate supply -- a move that was harshly criticized by the biofuels industry.

"We can't ignore those facts," Grundler said to the ethanol audience. "One of the big questions is whether, and if so, how would we adjust the statutory numbers with the tools Congress gave us?"

Ethanol groups have called on EPA to retain the levels of the RFS, which in 2014 called for 14.4 billion gallons of corn ethanol to be used in petroleum gasoline. Dinneen of the Renewable Fuels Association yesterday urged EPA to meet the statutory deadline of Nov. 30 for its three-year rule.

"2014 was a lost opportunity as far as the RFS is concerned. 2015 may well be the same as the agency remains paralyzed," he said. "But if the agency is able to promulgate a rule for 2016 soon, it will have an opportunity to send a signal that it will not be held hostage by an imaginary blend wall and get the renewable fuels renaissance moving again."

API's Greco, on the other hand, called on EPA to view the RFS as more of a "floor" for ethanol production and set the targets at no higher than the blend wall. The market, he said, would decide how much ethanol beyond that to blend into gasoline.

Environmentalists are also calling for a decrease to the corn ethanol mandate but are looking for EPA to maintain a commitment to advanced biofuels.

"As it prepares to release three-year volume levels, the only question is whether the EPA will use its statutory authority take a stand against climate-busting corn ethanol and other dirty biofuels," said Lukas Ross, climate and energy campaigner for Friends of the Earth, in an emailed comment.

'Distractions'

Grundler acknowledged the agency had many "distractions" that could push back the rollout of a proposal and its finalization.

Among the potential delay-causing factors: several pending lawsuits by oil industry groups over the delays in issuing the standard. Both the American Petroleum Institute and American Fuel & Petrochemical Manufacturers notified EPA more than 60 days ago that they intend to sue if the agency does not complete its work.

Ethanol groups and supporters have also filed lawsuits against EPA over the treatment of ethanol in EPA's latest low-sulfur gasoline standards and new transportation emissions model.

"Defending those lawsuits will take up my people's time and our lawyers' time," Grundler said.

Along with lawsuits, oil industry groups have filed petitions to waive past standards that are already on the books and to delay compliance requirements. About a dozen small refiners have asked EPA to grant them regulatory relief from the RFS standards.

Grundler said the agency also has at least three large ongoing Freedom of Information Act requests for documents related to the renewable fuel standard, along with maintenance to the electronic system that tracks renewable fuel credits.

About a dozen staffers handle RFS-related work at EPA, a team that has shrunk in recent years with the across-the-board budgets cuts instituted by Congress, Grundler told reporters.

"Sequestration has not been kind to EPA," he said. "We have had attrition, particularly from that team, because over the last couple of years it hasn't exactly been rewarding work, when you're kind of a punching bag for the world. And we haven't been able to hire because of the budget situation."

State of ethanol industry still strong

Even without a 2014 mandate, the corn ethanol industry had its most profitable year ever last year, largely thanks to cheap corn. Ethanol producers generated 14.3 billion gallons, sending more than 800 million abroad.

The industry was responsible for nearly 84,000 direct jobs last year and added $52.7 billion to the national gross domestic product, according to a report yesterday by biofuels economics firm ABF Economics.

The advanced biofuels industry, on the other hand, says investors have turned away in the face of uncertainty over the RFS. Cellulosic ethanol companies, which make ethanol out of non-food crops, say they're looking overseas for expansion plans instead of in the United States.

"You just can't go out and pull the plug on a program halfway through the program," said Christopher Standlee, vice president of Abengoa, which opened a large-scale cellulosic ethanol plant in Kansas last year. "We are working and hoping we can convince the Legislature and the EPA to stay the course on the renewable fuel standard."

Despite the delays in the annual standards, EPA last year did streamline the process for new biofuels to qualify for credit under the RFS. For some types of fuels, the streamlining has cut down on the time it takes to get approved by 80 percent, according to Grundler.

Biofuels are part of a broader push for a sustainable transportation future, Grundler added, touting other accomplishments within EPA's transportation office in recent years, including setting new gasoline standards and greenhouse gas regulations for cars and trucks.

"The RFS debate in Washington, D.C., has become overheated," he said. "It's gotten ugly at times, and my hope is that we can find a way to have a civil discourse with all sides of this debate and that we can find a practical way forward."

Twitter: @apeterka | Email: apeterka@eenews.net

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