Ken Silverstein | Nov 12, 2013

When it leaked that the federal government may curtail its Renewable Fuels Standard (RFS), the words started to pour from the mouths of the agricultural and oil communities.

The U.S. Environmental Protection Agency is now trying to reconfigure the biofuels’ mandate used for cars that was established in 2007.  According to news reports, it could set that target around 3 billion gallons less than what had earlier been done, for 2014. The new level, at 15 billion gallons -- and potentially as low as 6 million gallons -- would need to get the thumb’s up from the White House.

President Obama has touted and supported such ethanol blends in gasoline. But if he would change course, it would then signal that corn-based ethanol is not living up to promises while advanced cellulosic ethanol has not yet arrived. Businesses making advanced fuel additives want to increase scale and bring down the cost to about $2 a gallon — a tough proposition in current market conditions.

“Rigid mandates of the RFS have no place in today’s energy market. . .The RFS was based on gasoline use rising significantly when the opposite is occurring. . . In what is termed the ethanol blend wall, consumers are now faced with putting more ethanol in their tanks than their engines were designed to accommodate. . . That’s why we need EPA to act immediately to provide relief for consumers while we continue to work with Congress to enact a full repeal,” says Bob Greco, with the American Petroleum Institute, in a conference call.

The discussion is interesting on a multitude of levels. Firstly, two powerful lobbies are going head-to-head on this issue, which are oil and farming. Secondly, it’s a good question as to whether ethanol has proven to be a boondoggle or an environmentally-friendly additive and lastly, the debate is also indicative of just what role the federal government has in setting fuel standards and in providing subsidies -- policies that have had bipartisan support.

RFS‘ origins are in a 2005 law that was amended in 2007. At the time of its creation, oil consumption had been on an upswing and the law was designed to curb some of that foreign consumption. Corn-based ethanol was the primary beneficiary, which caused critics to say that farmers were getting paid to grow corn instead of feed people. To comport with that legitimate concern, U.S. lawmakers have limited such uses and have instead, tried to incentivize the production of cellulosic ethanol that is made from such things as wood and grasses.

Political Play

Proponents of RFS have said that their products do not cause oil spills and that they blend well with today’s automotive products. Advocates, furthermore, are framing the debate as one in which Big Oil is unable to accept other fuel alternatives and that it is trying to use its political clout to block the competition. It’s a $450 billion gasoline market, say news reports -- something that the oil lobby is unwilling to “give away” to those who receive federal supports.

Globally, there’s some promise for biofuels. According to the International Energy Agency in Paris, such additives could equal 4.5 million barrels of oil per day in 20 years. That’s notably more than the 1.3 million equivalent today. Moreover advanced cellulosic ethanol blends will eventually get commercialized.

“The oil industry is expending a lot of resources to create anxiety over the Renewable Fuel Standard, which in fact has been extremely successful. We are confident that when all the facts are assessed, the efficacy of the RFS will be affirmed. Americans want to decrease our reliance on petroleum. Americans need relief at the pump. This policy is generating jobs and stimulating investment in the new energy technology that will drive our future,” says Bob Dinneen, chief executive of the Renewable Fuels Association.

Beyond the oil sector’s economic argument, those groups are making a technical point and saying that many vehicles can’t operate at ethanol levels of greater than 10 percent. That’s something, however, that the U.S. Department of Energy disputes, which has released its own studies that conclude otherwise. Moreover, the EPA has approved the 15 percent blend in cars built after 2001.

Congress is now considering a rollback of the Renewable Fuels Standard. Big Oil’s deep pockets may prevent more aggressive mandates, especially in today’s market. But oil’s involvement is unlikely to cause a major overhaul in the law, given the agriculture lobby’s political prowess.

"Industries are built on stable expectations," says Riggs Eckelberry, chief executive of OriginOil. "That's how the oil industry developed over 150 years. Clean energy deserves nothing less."

Market position in the gasoline-blend industry is a big business play that will potentially have huge ramifications for the economy and the environment. In the end, the law may bend but it won't break, or sputter.

Twitter: @Ken_Silverstein

 

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