Point by Point on the RFS
Posted June 26, 2015
API Downstream Group Director Bob Greco traveled this week to EPA’s field hearing on the Renewable Fuel Standard (RFS) in Kansas City, to detail concerns over the flawed program, with its market-distorting mandates for ever-increasing use of ethanol in the national fuel supply. His remarks, as prepared for delivery:
The Ethanol Blend Wall
Our members’ primary RFS concern is the ethanol blend wall. Serious vehicle and retail infrastructure compatibility issues exist with gasoline containing more than 10 percent ethanol. We are encouraged that EPA has proposed to address this reality.
Gasoline demand increases projected in 2007 did not materialize, and Congress granted EPA the authority to balance its aspirational goals with reality. API supports EPA’s use of its explicit RFS waiver authorities in 2014, ‘15, ‘16, and beyond to avoid negative impacts on America’s fuel supply and to prevent harm to American consumers.
E85 is not the answer to the ethanol blend wall. We remain very concerned that EPA presumes E85 demand will drive total ethanol volumes to exceed 10 percent of gasoline supply in 2016 and beyond. History demonstrates that motorists have largely rejected E85 because – according to AAA data – the fuel economy penalty ends up costing consumers more money in the long run.
It is unrealistic for EPA to assume any significant near-term E85 volume increases. EPA’s unrealistic market scenarios fail to account for the significant retail investments that are needed, particularly when only 6 to 7 percent of vehicles on the road can even use the fuel, and federal action to sunset the CAFE credit removes the future incentive for automakers to produce flex-fuel vehicles.
The ethanol-to-gasoline ratio should not exceed 9.7 percent through 2016. This small tolerance is needed to account for the difficulty of blending ethanol into every gallon, to ensure a fungible RIN market, and to preserve a market for consumers that choose E0, or clear gasoline. EPA minimizes the demand for E0 when in fact consumers clearly prefer clear gasoline to both E85 and E15.
It is also inappropriate and invalid for EPA to increase the biomass-based diesel standard before 2017. The statute requires any increase in biomass-based diesel volumes to be finalized at least 14 months prior to the start of the compliance year.
Finally, EPA still does not have an acceptable model for predicting cellulosic production capacity and the time it takes to ramp-up production. API recommends EPA use actual demonstrated production, and demonstrated ramp-up rates.
In closing, we support EPA’s proposal to waive the RFS volumes in recognition of the blend wall. This action is appropriate and necessary to avoid near-term economic harm. Until Congress repeals or significantly reforms the RFS, EPA must continue to address the obsolete volume requirements by exercising its waiver authorities, and revert to the timeline required by the statute.