This article was originally published in The Hill.
Congress is making its first serious attempt to reform the Renewable Fuel Standard (RFS), the mainstay of U.S. biofuels policy, since the current program was authorized in the Energy Independence and Security Act (EISA) of 2007.
Under the RFS, the amount of biofuels blended into the fuel supply has doubled, displacing roughly 1 million barrels per day of refined petroleum product as part of efforts to support farm incomes, enhance energy security, and reduce greenhouse gas emissions.
However, the RFS is fraught with regulatory uncertainty and high and volatile compliance costs. For comprehensive RFS reform to provide real and positive impact, it must meet three goals: reduce compliance costs for refiners, provide agricultural interests with a way to expand corn ethanol sales, and address environmental concerns by fixing the way the program supports low greenhouse gas second-generation fuels.
So far, refiners and agricultural interests have been driving reform efforts. It’s time for the environmental community to engage as well.
Refiners object to the cost of the RFS program, in particular to the high and volatile price of the electronic certificates (RINs) companies need to show compliance. Today, 97 percent of compliance costs stem from the parts of the program dealing with first generation fuels, mainly corn ethanol and biodiesel. Some point to high prices of RINs as contributing to the January bankruptcy filing of the largest East coast refiner, Philadelphia Energy Solutions.
Although corn ethanol comprises 10 percent of gasoline sales nationally, agricultural interests are frustrated by the program’s failure to stimulate sales of ethanol blends with an ethanol content exceeding 10 percent, without which their industry cannot grow.
Environmental interests also have reason for dismay, because the program has failed to live up to the promise of commercializing low-greenhouse gas second-generation fuels made from non-food feedstocks.
Low-greenhouse gas liquid fuels are part of the suite of technologies that can decarbonize the transportation sector, but they do not yet exist in meaningful quantities or at a realistic price. Despite the advances in electric vehicles, it is hard to imagine replacements for high energy-density liquid fuels for air and marine transport and for remote vehicle applications.
Intrinsic flaws in the RFS have kept the program from providing the support to second-generation fuels envisioned in 2007. The annual rulemakings and EPA discretion granted by the EISA politicize the annual volumetric rulemaking process, creating regulatory uncertainty.
Moreover, the value of financial support is based on arbitrary feedstock considerations. Instead, it should be based on objective performance measures. It is no wonder that commercialization of second-generation fuels has been so slow.
These problems are only likely to get worse. Because of electric vehicles, fuel economy improvements, and changing driving habits, the Energy Information Administration projects gasoline demand to fall. Unless something changes, this implies declining domestic demand for ethanol (bad for farmers), higher RIN prices (bad for refiners), increasing imports of biodiesel (bad for domestic producers and, because it places pressure on palm oil, bad for environmentalists), and continued lack of progress on second-generation liquid fuels (also bad for environmentalists).
Some environmentalists oppose the RFS because of its reliance on food-competing row crops for first-generation biofuels. However, this position needs to incorporate current facts. Corn ethanol is the cheapest octane booster available, so even if the RFS were to disappear, 10 percent of U.S. gasoline would come from corn ethanol. And because of steady increases in agricultural yields, total corn acreage peaked in 2013 and was less last year than in 2007.
Sunsetting the RFS will not hasten the contraction of corn acreage, but it will close this opportunity to transition to lower-carbon second-generation fuels with non-food feedstocks.
Remarkably, mutually compatible solutions to all three sets of concerns — by refiners, corn interests, and environmentalists focused on the need for second generation reform — are within reach.
A reformed RFS could sharply reduce compliance costs while enabling the sale of higher blends. A reformed RFS can also provide reliable financial support — support that can be “taken to the bank” — for new liquid fuel technologies that will help support a made-in-America transition to a low-carbon economy.
It might seem impossible to find common ground among the petroleum industry, agricultural interests, and the environmental community, but these groups reached an agreement in 2007 when the EISA was passed, and there is reason to believe it can be done again. For a new — and better — deal, environmentalists need to engage and seize the opportunity to provide reliable support to the second-generation fuels that will be needed in the decades to come.
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