RFS Decision On The Horizon?

  • Wednesday, 30 July 2014 00:00

For the last seven months, the biofuel industry has been left in limbo with regards to the Renewable Volume Obligations (RVO) under the Renewable Fuel Standard (RFS) for 2014. The fact that it has taken this long has had a negative effect on ethanol producers as well as investments into advanced biofuels. Uncertainty has done the industry no good. 

The EPA had originally planned to announce its final rule on the 2014 RVO in June. But something happened in May that may have postponed the decision. A Reuters report, citing unnamed sources from the biofuels industry, said that the EPA had revised the RVO for 2014 from its original proposal of 13.01 billion gallons.

The new figure, according to the report, was 13.6 billion gallons, well below the original target of 14.4 billion gallons as stipulated in the RFS. (For more information on annual RVO targets under the RFS, click here)

What was more alarming was the fact that the new target of 13.6 billion gallons was even lower than the target for 2013 which was 13.8 billion gallons. Needless to say, alarm bells rang following the report and once again pressure began mounting on Washington and the EPA to stick the original RVO levels in the RFS.

Then last week, Sen. Al Franken said that the EPA's final rule for 2014 RVOs would be higher than the targets it proposed in November 2013, adding the EPA would be making an announcement soon.

But at the same time, EPA administrator, Gina McCarthy, was quoted in AgWeek this week that a date hasn't been set to release the volumetric requirements. 

"I realize that this particular year is a difficult one. EPA tried to get all the numbers out in the supply system. I think the biofuels industry knows we are working hard, otherwise it wouldn’t take so long," she said, according to the report.

What are we supposed to make of these mixed signals from Washington?

For one, we can hope that the delay in announcing the RVO targets is an indication that the target for 2014 will be revised upwards of 13.6 billion gallons. 

Secondly, a lot has transpired in the past two months that may have some effect on the EPA and, in turn, the White House' decision-making process. The summer season saw gas prices soaring high as a result of the turmoil in Iraq and Ukraine respectively and both conflicts don't seem set to be resolved anytime soon.

Those gas prices could have been higher if it wasn't for the fact that most gasoline sold at the pump is E10. This then made the prospect of E15 even more attractive due to its discount to regular E10. And let's not forget the fact that 80 percent of the cars on the road today can use E15.

Then came RFA's explosive report that details some of the strong-arm tactics deployed by oil companies in preventing retailers from selling E85 and E15. Thanks to this report, Senators Amy Klobuchar and Chuck Grassley have written to the U.S. Attorney General and the Federal Trade Commission to launch an investigation into alleged anticompetitive behaviour by some oil companies.

More importantly, the RFA report flies in the face of the oil industry's claims of a "blend wall." Or, depending on how you look at it, the "blend wall" is not just a ficitious term but an actual strategy that's been undertaken by the oil industry to prevent ethanol consumption from growing.

With all these factors in play, as well as the countless number of petitions it recieved from the ethanol and agriculture industries, it's clear that the EPA has to revise its 2014 RVO proposal. 

But judging by Franken's comments, it's unlikely that this year's RVO will be 14.4 billion gallons. So the question now is whether the new targets will at least be higher than 2013's target of 13.8 billion gallons.