Senate Hearing Questions EPA’s Rationale on Renewable Fuel Volumes

On June 18, the Senate Subcommittee on Regulatory Affairs & Federal Management held a marathon hearing on the Renewable Fuel Standard (RFS) and EPA’s management of the program.  The hearing was the first on the RFS since EPA’s proposal for renewable fuels was announced in late May. During the hearing, Senators expressed frustration at EPA’s delays in setting fuel volumes for almost two years.  Additionally, several lawmakers questioned if EPA is indeed carrying out Congressional intent in its administration and interpretation of the law.

In an announcement that left everyone grumbling, the EPA’s proposed three-year standard pegs renewable fuel volumes to approximately 10 percent of the gasoline supply, preserving the so-called “blend wall,” the point at which some infrastructure and vehicle changes are needed to utilize higher blends.  The oil industry claims that the proposal doesn’t go far enough to cut renewable fuels: the renewable fuels industry counters that setting annual volumes near actual production volumes provides no real incentive to investors, providing a slow death to investment and production of advanced fuels in the United States.

Theories abound as to why the EPA decided to propose cutting the volumes for the first time in 2013. Escalating prices of RINs used for compliance, slower than expected growth in the advanced fuels sector, lagging infrastructure investments for higher ethanol blends, and incredible pressure from oil companies and some environmental groups are all potential factors that led to EPA’s re-visiting renewable fuel volumes.   

Since that time, the fuels sector has been in ‘suspended animation’, waiting for EPA to finalize volumes for 2014.  And now, 2015 volumes are late as well.  Ranking Member Heitkamp (D-ND) pointed out the effect of these delays, saying that in 2014, nearly 80 percent of U.S. biofuels producers scaled back production, and nearly 6 in 10 idled production all together at some point last year. As for investments in the sector, the industry organization BIO claims that $13.7 billion in investments have been lost due to the uncertainties around the RFS.

At the hearing, lawmakers asked EPA Acting Administrator of Air and Radiation Janet McCabe if the three year proposal and new EPA methodology will put the program back on track.  McCabe assured lawmakers that, “We are committed to implementing the program in a way that responsibly pushes forward and grows renewable fuels over time, as Congress intended.”

Ranking Member Heitkamp (D-ND) questioned EPA’s commitment, stating, “The proposal continues to ignore Congressional intent, and reduces Congressionally mandated blended volumes, citing availability of distribution capacity.”  Senator Peters (D-MI) echoed Heitkamp’s concern, commenting, “These targets don’t fully reflect Congress’ intended goals … the goal of setting ambitious and aggressive targets, to spur innovations.” Senator Sasse (R-NE) went one step further, asking McCabe pointed questions on whether or not EPA has coordinated with other agencies across the administration who remain bullish on renewable fuels, including the Department of Energy, the Department of Defense, and the U.S. Department of Agriculture.

Others expressed broader frustration at EPA’s handling of the program, even claiming the direction of the program is incongruous with the President’s priorities on climate. Senator Ernst (R-IA) remarked, “I find it very ironic that this administration’s public focus has been very much on clean environment and reducing greenhouse emissions, and yet, what you’re proposing is a direction that will increase those carbon emissions by less utilization of these biofuels.”

Senators reminded McCabe of the 17.4 million FlexFuel vehicles on the road today but a disconnect between fueling stations offering higher blends that these vehicles can utilize. During the discussion on infrastructure, the role of the oil industry was notably absent from the discussion. The oil industry’s insistence on sticking to an E10 (10 percent ethanol, 90 percent gasoline) “blend wall,” and its cartel-like hold over the U.S. fuels marketplace was perhaps the elephant in the room.

The Big Five (Shell, BP, Chevron, ExxonMobil, and ConocoPhillips) have repeatedly claimed that they have no control over the offerings at individual retail gas stations, saying they are mostly individually and not refinery-owned.  However, a Renewable Fuels Association white paper in 2014 showed that the Big Five refineries hold extremely restrictive fuel contracts containing prohibitions or, at best, disincentives to prevent gas station owners from offering mid-blends to consumers, thus contributing to the E10 “blend wall”.  In essence, individual gas station owners are required to sell “only the fuels that the oil companies choose to make available.”

On Wednesday, the American Petroleum Institute (API) held a press call on the RFS with the American Motorcyclist Association, the Environmental Working Group and the National Council of Chain Restaurants.  API maintained that, “the renewable fuels requirements have marginalized the product [petroleum] in favor of E10 or higher blends.”  Yet taxpayers continue to support this “marginalized” [petroleum] product with $4.8 billion in tax breaks a year, according to the Congressional Budget Office. Perhaps with increasing fuel efficiency, electrification (EVs), hybrid plug-ins, biodiesel, ethanol, other advanced biofuels including renewable jet fuel, and renewable chemical feedstocks, the oil industry someday will become marginalized.  

For more information see:

Re-examining EPA’s Management of the Renewable Fuel Standard Program, Subcommittee on Regulatory Affairs and Federal Management (RAFM)

Protecting the Monopoly, How Big Oil Covertly Blocks the Sale of Renewable Fuels, RFA