Is U.S. EPA's move to finalize its 2014 and 2015 renewable fuel standard targets by Nov. 30 a signal from the agency that it will work to address broader issues with the RFS swiftly? During today's OnPoint, Brooke Coleman, executive director at the Advanced Ethanol Council, talks about the impact of EPA's update on biofuels producers. He also addresses disagreement within the biofuels community on whether a legislative "fix" to the RFS is appropriate.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Brooke Coleman, executive director of the Advanced Ethanol Council. Brooke, thanks for coming on the show.
Brooke Coleman: Thanks for having me.
Monica Trauzzi: Brooke, last week EPA agreed to finalize its 2014 and 2015 RFS targets by November 30th of this year. This came as a response to a legal challenge by producers and refiners. How significant is this, and do you take it as a signal from the agency that they will address broader issues with the RFS swiftly?
Brooke Coleman: We do. We look at it as a good emerging issue for us because we now have a timeline for when this'll be resolved. We don't have the substance, of course, but one of the things that's happening in our space is investors don't know when the issue and the policy uncertainty will be resolved, and now we know that it will be resolved quickly.
Monica Trauzzi: So just having this timeline in place, does it have a direct immediate impact on biofuels producers?
Brooke Coleman: I think -- what we're seeing is it gives our investors an opportunity to know when they have to act, and so they can tee up investments, they can get ready in the event that the outcome is good, but we have to make sure that the outcome is good substantively.
Monica Trauzzi: OK, so what does that mean? What does a good outcome mean on volume requirements?
Brooke Coleman: Well, it's not just about the numbers. The volumes themselves have to be growth markets, so investors are attracted to growth markets. They're not attracted to retracting markets. That's true whether you're talking about real estate or social media or what have you. So that's number one. Number two is you can't have waivers that allow the oil industry to get out of the box, and the thing that really stuck out in terms of the 2014 proposal, that was pulled, was that they wanted to add waiver language that would have allowed the rules to be waived if the renewable fuel was not distributed by the oil industry, and that's like saying to any obligated party under the Clean Air Act, if you don't do it, we won't make you do it. And so not only is it -- it's not just an issue for us. This is a Clean Air Act program, and so if that's the precedent, well, when things get difficult, just don't do it and we'll waive the requirement, the Clean Air Act itself is in trouble.
Monica Trauzzi: Are biofuels producers able to keep up with a growth market, though?
Brooke Coleman: Absolutely. I mean, you have a situation here -- I mean, this entire controversy came from actually a corn ethanol issue, and corn ethanol, there was plenty of corn ethanol supply. It was available to the oil companies, and they refused to use it. And instead of saying no, the oil -- saying to the oil industry you guys have to use it, the Obama administration went the other way and tried to figure out a way to slow the -- slow things down. The problem from the advanced biofuel perspective, if you do that for conventional biofuel, that's going to have an impact in terms of whether the oil companies use our fuel.
Monica Trauzzi: So there's a lot of talk about whether the RFS should be reformed, how to reform it, who should be reforming it. The Advanced Biofuels Association caused controversy last month when they released recommendations for legislative reforms of cellulosic biofuels provisions of the RFS. So what is the issue with their approach, and why not a legislative fix?
Brooke Coleman: Well, so there's a couple things. The first is we don't have a legislative problem, plain and simple, and so the law gives EPA the discretion it needs, the power it needs, to make the RFS work and work aggressively to the benefit of advanced biofuels. So if you don't have a legislative problem, the fix is not legislative 'cause you could come up with the best rule in the world legislatively, and if EPA's not going to enforce it, that's not going to solve your problem, so that's one.
Two, we have a fundamental disagreement about the politics. Our politics in 2007 when we got the RFS passed couldn't have been better, and we got a great rule. And the issue now is how EPA's administering it. If we go back to Congress now, ABFA can say what it wants. We're not going to get a better RFS. And when the chairman of the committee of jurisdiction, Senator Inhofe, says I want to fully repeal the RFS, that is your starting point. So the idea that we're going to go back there and get a better, stronger RFS for the advanced biofuels industry is -- is actually politically negligent.
Monica Trauzzi: But isn't there an actual issue with the current RFS with the way that it's written and how it's working? I mean, some would argue that it's not working very well.
Brooke Coleman: Well, it worked quite well, actually. Through 2012, the RFS was whole, and so what that means is we hit every statutory requirement in the RFS. In 2013, that was the year when the Obama administration decided to propose to change the program, and that slowed everything down. Investment in advanced biofuels stopped, and so since then, we've been awaiting resolution of this administrative issue. The RFS legislatively is a political compromise. You can point to any part of it and say, well, that's not perfect, but it's the most -- it's the gold standard for advanced biofuels policy in the world. It's the best policy in the world for advanced biofuels. And so to think that we can go back and change it and make it better, it's actually a fool's ... and so it's these things that we need in terms of making the market pressurize on the ... markets pressurize and -- and getting the investments back into advanced, but that's all administrative, and EPA can solve those problems.
Monica Trauzzi: Are smaller producers, though, facing different challenges than the larger guys? And do they need that quick solution, no matter how it comes?
Brooke Coleman: Smaller producers of biofuels?
Monica Trauzzi: Yeah.
Brooke Coleman: Well, so one of the things that -- that this other group is saying is that they represent the little guy and that, you know, the big guys are OK. We represent little guys. BIO represents little guys. Growth Energy, Renewable Fuels Association, National Biodiesel Board, you go through the pieces of the biofuels industry that are -- that actually matter in terms of representing those who are producing cellulosic biofuels and advanced biofuels, and they all say the fix is not congressional. ABFA does not represent the little guy. If you look at their executive team, it's not the little guy, and so we represent, you know, small trashed ethanol companies, and we're all unified as saying, look, we don't have a legislative problem; we have an administrative one. Let's fix this there.
Monica Trauzzi: Is it important, though, to at least initiate a conversation among lawmakers about the RFS?
Brooke Coleman: It's actually a distraction. You know if you're -- I'm from Boston, and what the coach of the Patriots, Bill Belichick, always says is we're on to San Diego, we're on to San Diego. You focus on the team that you're playing that week, right. You don't talk about other teams. It's not our problem, and so when you start talking about Congress getting involved, Congress then tees up all sorts of different problems. They have bad bills. They want Clean Air Act amendments that could affect 111(d) smokestack rules, which I know the president doesn't want, and it moves the conversation over to a place where it can't be solved, and that's not good for our industry.
Monica Trauzzi: Are you looking for any changes to the RFS?
Brooke Coleman: We are looking -- we are asking EPA to do a variety of different things administratively to fix the RFS. We have an issue right now where the oil companies are trying to sit out the cellulosic biofuel -- sit out that piece of the program and not buy cellulosic biofuel. And we have what are called D3 ... that are not being pressurized by demand by the obligated parties, and the reason the oil companies are doing it is because the rules don't push them and force them to do it. But again, the solution to that is just EPA going back and saying, well, we're going to slightly adjust how we administer this piece of it, and then you will see an oil industry turnaround and then comply with the rule once it realizes it can't get out of the box for free.
Monica Trauzzi: All right, Brooke. This is not going to go away anytime soon.
Brooke Coleman: No, it isn't.
Monica Trauzzi: Thank you for coming on the show.
Brooke Coleman: Thank you for having me.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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