Biofuels

Refiners group's Thompson says industry cannot meet 2016 blend wall proposal

As a broad range of stakeholders express concern over U.S. EPA's proposed renewable fuel standard volume obligations for 2014 through 2016, how will the agency respond to the resistance in its final rule? During today's OnPoint, Chet Thompson, president of the American Fuel and Petrochemical Manufacturers and a former deputy general counsel at EPA, discusses the legal considerations made by the agency as it crafted its draft volume obligation proposal. He also explains why he believes the 2016 volume obligation will pose a technological challenge for the biofuels industry.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Chet Thompson, president of the American Fuel and Petrochemical Manufacturers. Chet, it's nice to have you here.

Chet Thompson: Nice to be here.

Monica Trauzzi: Welcome. Chet, last month, EPA released its draft RFS volume obligations for 2014 through 2016. Many stakeholders have said that EPA was working hard to strike a fair balance but that they didn't quite meet the mark. What's your sense of the numbers and the strategy used by the agency?

Chet Thompson: Well, first, we're just happy to see it out, frankly. And, you know, EPA got parts of it right and they got parts of it wrong. We're happy that they recognize the E10 blend wall, that it's real. We're happy that they recognize that they have the legal authority to readjust the mandates to -- in light of the blend wall, but we're happy with respect to some of the volumes, particularly 2016. We think that their projections, their assumptions they used were divorced from reality and could cause us problems.

Monica Trauzzi: Divorced from reality how?

Chet Thompson: Well, if you look at, you know, the basis for why they believe they can -- first of all, in 2016, they break the blend wall. And so if you look at the basis why they believe how we can overcome the blend wall, they rely very heavily on greater demand for E85. So right now, E85 demand's about 75 million. EPA projects it has to get to about 600 million in order to, you know, meet the demand wall. And we just don't, you know, believe demand is there. We believe that there's nothing in the record that would suggest in a few short months demand's going to go from 75 to 600, so that's a real concern.

Monica Trauzzi: Growth Energy's Tom Buis was on the show earlier this week, and he said what they've done, EPA, is just basically given to oil the keys to the candy store by saying, OK, you only have to blend as much as you want to blend, you're not going to be forced to ever adopt higher blends into the marketplace, which was the goal of the RFS at the very beginning. So does this mean that Big Oil wins?

Chet Thompson: No, not at all. Like we just said, you know, our main concern was making sure that EPA did not come out with a rule that broke the blend wall. Because if you break the blend wall and we can't meet the blend wall, there's a real problem or negative effect for consumers, and so that's our No. 1 concern. If we had been given the keys to the candy store, we would be well below the blend wall and that's not the case. And so our concern is, if there's not a realistic way to meet this alleged demand, then refiners are going to have one of two choices. They're either going to have to scale back production or they're going to have to export more, and neither of those is in the best interest of the consumer.

Monica Trauzzi: But the renewable fuels folks say that they can meet the increased numbers and that the thing that's actually holding them back from increasing production is the blend wall.

Chet Thompson: Well, a couple things. You know, their rhetoric, you know, really hasn't borne fruit over the years, meaning that we're 10 years into this program, or nearabouts, and the promises of particularly the advanced folks simply haven't, you know, materialized. And inherent in some of these arguments is that we somehow control demand or we -- you know, our guys only control about 5 percent of the retail stations, OK. We don't control price, we don't control demand, and we don't control the infrastructure to promote E85. And until demand increases, you know, there's never going to be able to be a way to meet -- you know, get past the blend wall.

Monica Trauzzi: Considering all the resistance we've seen to the draft, how much of a change are you expecting from the agency in its final?

Chet Thompson: Well, it's hard to say. I mean, clearly, you know, they're getting hit from both sides. All I can tell you is what we're going to do. We're going to work hard during the comment period to develop our technical comments, bring our expertise to bear, meet with the agency and hopefully convince them that this blend wall is real and that their projections are too aggressive.

Monica Trauzzi: As a former deputy general counsel at EPA, you're quite familiar with the mechanics of how these rules and proposals come together, the legal considerations that go into them. Is your sense that the agency gave clear thought to what the legal impacts and legal implications of this proposal could be?

Chet Thompson: Well, I'm happy where they ended up in their proposal, right. There's this big debate as to whether EPA has the legal authority to scale back the mandate, right, in light of the fact of the blend wall, and clearly they do, right. This notion they don't is a red herring. There's several vehicles in the Clean Air Act, either through a cellulosic waiver and the general waiver for EPA to readjust the mandate. We're just happy that EPA's standing its ground and recognize that authority.

Monica Trauzzi: You recently took over as head of AFPM. What are you hoping to bring to the organization and how might you change things up?

Chet Thompson: Well, you know, no real reason to change. You know, it's a great organization. We represent a great, you know, industry. I'm thrilled and proud to be a part of it. Literally this industry has helped power us back from the brink of the last, you know, few years, and so we're just hoping to continue to bring facts to bear in the public policy debate.

Monica Trauzzi: All right, we'll end it there. Thank you for coming on the show. Nice to see you.

Chet Thompson: Thank you.

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

[End of Audio]

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