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October 17, 2014
On October 14, the American Fuel & Petrochemical Manufacturers (AFPM) sent a letter to President Obama in support of EPA’s proposed 16 percent reduction of the 2014 Renewable Fuel Standards (RFS). Throughout the letter, the industry executives evoke the E10 “blend wall” – the amount of fuel that can be blended into the existing transportation fuel supply without changes to retail gasoline station and vehicle infrastructure – as their main argument. Signed by 31 oil and gas executives, it urges the administration to stick with the original reduction, which “maintained ethanol’s market share, addressed the issue of the E10 blend wall, and provided cellulosic biofuel growth.”
AFPM’s letter is not surprising, since it is likely that EPA’s proposed reduction released last November was orchestrated by the refineries themselves. AFPM may have many of the facts correct about the challenges presented by the “blend wall” – but it ignores the elephant in the room: the “blend wall” has been carefully crafted by the petroleum industry itself. While there are millions of FlexFuel vehicles on the road today, very few of them are filling up on ethanol blends higher than E10. The petroleum industry claims the onus is on individual retail gas stations to expand their offerings, and not on the refineries. The Big Five (Shell, BP, Chevron, ExxonMobil, and ConocoPhillips) have repeatedly claimed that they have no control over the offerings at retail gas stations, because they are individually and not refinery-owned. However, a report released this summer by the Renewable Fuels Association shows that extremely restrictive fuel contracts with Big Five refineries disincentivizes gas station owners from offering mid-blends to consumers, thus contributing to the E10 “blend wall.” Their strategy is certainly clever – the cheapest and most effective method the petroleum industry has to continue its market stranglehold is to obstruct the modest infrastructure investments needed to distribute renewable fuels.
The final targets in the 2014 RFS are expected to be somewhat above last November’s proposed reduction. These anticipated higher numbers could account for the slight uptick in gasoline use earlier this year, as well as an increased capacity over last year from some advanced renewable fuel sectors, especially biodiesel. The 2014 targets, which are being held in administrative review, are now looking like they could also serve as de facto 2015 targets. According to EPA Air and Radiation administrator Janet McCabe, “we need to be mindful of where we are in the year,” when the final numbers are released. Whatever the numbers are, they will be considered a loss by both the petroleum industry and the renewable fuels sector. According to biofuel industry insiders, all signals – including holding off on the RFS until just before or after the elections – point towards a relative gutting of the standard. This is despite the stalwart efforts of several Democratic Senators and Representatives in support of renewable fuels. Looking forward and building Congressional support on both sides of the aisle for renewable fuels in the new legislative session is now critical. If the Republicans take control of the Senate, it becomes critical to have strong Republican supporters of the RFS within the new Senate leadership.
Meanwhile, the oil industry continues to dump millions into protecting their market share. According to the renewable fuels industry group Fuels America and OpenSecrets.org, the oil industry has spent $961 million lobbying Congress and $146 million in campaign donations since 2008. The petroleum industry openly admits that much of this money was spent to “block renewable fuels.” The petroleum industry has good reason to attempt to protect their market share; the Renewable Fuels Association has calculated that if the proposed reduction to the RFS was approved, the petroleum industry would stand to gain anywhere from $9.2 to $15.2 billion in fuel sales, about 10 percent of the industry’s’ 2012 profits.
Sources:
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