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There was good discussion of the Renewable Fuels Standard (RFS) during a Hill hearing this week. API supports the appropriate use of ethanol, biodiesel and other biofuels in transportation fuels, but, unfortunately, in some ways the standard is bearing out the law of unintended consequences.

API President and CEO Jack Gerard addressed the House energy and power subcommittee, noting that U.S. refiners have primary responsibility for meeting the RFS requirements, blending nearly 15 billion gallons of ethanol in gasoline. But the RFS’ requirements are producing some bad policy, Gerard said:

“EPA has allowed the RFS law’s volume requirements to drive decisions that are inappropriate and unwise.  The law has become increasingly unrealistic, unworkable, and a threat to consumers.  It needs an overhaul, especially with respect to the volume requirements.” 

Gerard detailed ill effects stemming from the RFS’s volume mandates:

E10 “Blend Wall” – 10 percent ethanol content in fuel is safe for U.S. vehicle engines, service station pumps and storage tanks. But under the law, the ethanol volume in the overall fuel supply is required to increase and could exceed 10 percent as early as 2013. That’s the so-called “blend wall.” At that point refiners will have only two options: produce E15 (15 percent ethanol) and flexfuel or E85 – a blend of between 51 percent and 83 percent ethanol by volume that can be used only in flexfuel vehicles, which make up about 5 percent of the U.S. vehicle fleet today. More on E15 below. The problem with E85 is that it has a lower fuel economy than gasoline, and less than 2 percent of retail stations offer it.

E15 – EPA has approved the use of E15 for part of the vehicle fleet to help accommodate increases in the RFS volume requirement. But a recent study showed that E15 could damage engines that weren’t designed to use it, as well as gasoline station pump equipment. The risk can be measured in the billions of dollars. The Auto Alliance weighed in on E15, here. U.S. Rep. James Sensenbrenner shared the concerns of auto makers in a letter to EPA Administrator Lisa Jackson last summer. Gerard:

“EPA should not have proceeded with E15, especially before a thorough evaluation was conducted to assess the full range of short- and long-term impacts of increasing the amount of ethanol in gasoline on the environment, on engine and vehicle performance, and on consumer safety.”

Cellulosic ethanol – A 2007 law requires increasing use of this advanced form of ethanol that theoretically can be made from a broader range of feedstocks. But it isn’t available, because no one is making it commercially. The Competitive Enterprise Institute’s Brian McGraw has more details, here. Even so, EPA continues to assert that aggressive mandates, not based on actual production, will somehow stimulate production. EPA could waive the provision but instead is insisting that refiners buy credits for a non-existent fuel, which will drive up costs and might harm consumers.

RINS – This stands for renewable identification numbers, which are used with renewable fuel credits that some refiners have purchased under a program created by EPA. Some refiners became fraud victims after buying invalid credits in good faith. EPA’s initial response was that the bad credits were the refiners’ problem, and that they’d have to buy more. This adds more costs to making gasoline. Industry currently is trying to work out the problem with EPA.

Again, industry supports renewable fuels. But the RFS as written threatens to become counterproductive. Gerard:

“The RFS law needs to be altered to fix what isn’t working and take into account the ability of the vehicle fleet and fueling infrastructure to safely use renewable blends. Mandates must have periodic technology/feasibility reviews to allow for appropriate adjustments. Biofuels are an important part of the nation’s energy mix.  But current law and how it is implemented have become increasingly problematic.  This could eventually hurt consumers and erode support for the RFS program.”  

The answer is commonsense problem-solving, including positive collaboration between government and industry. While the goals of the RFS are well-intentioned, the marketplace realities are concerning, with potentially negative effects on companies and consumers that should be fixed.

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