The Renewable Fuel Standard: Despite Partial Success, Now Facing Political Headwinds

Recent analysis finds that the Renewable Fuel Standard (RFS) contributed significantly to the U.S. economy and to reducing oil dependence in 2012. More progress in further reducing the greenhouse gas intensity of transportation fuels is coming soon under the RFS. However, political headwinds against the RFS are now intensifying in Washington from many corners.

Congress expanded the RFS in 2007 as part of the Energy Independence and Security Act of 2007 (P.L. 110-140) to reduce oil imports, to stimulate rural economies, and to reduce climate-changing carbon emissions from transportation fuels. The statute requires a total of 36 billion gallons of renewable biofuel to be blended into the nation’s fuel supply annually by 2022, of which at least 21 billion gallons must be "advanced biofuels" (i.e., not made from cornstarch). Advanced biofuels in 2022 must include a minimum of one billion gallons per year of biomass-based diesel and 16 billion gallons per year of biofuel made from cellulosic biomass.

Since then, the U.S. biofuels industry has grown rapidly. In a report commissioned by the Renewable Fuels Association, Cardno-ENTRIX found that in 2012 the ethanol industry supported more than 380,000 jobs (direct, indirect and induced); contributed more than $43 billion to the U.S. economy; provided more than $30 billion in household income; reduced demand for oil imports by 465 million barrels and thereby reduced the trade deficit by about $47 billion; and contributed almost $8.0 billion in federal, state and local taxes. In 2012, the industry produced 13.3 billion gallons of ethanol, primarily from corn. This was five percent less than in 2011, due to both the historic drought, which affected corn production and prices, and to the weakening overall demand for transportation fuels. You can read the full analysis, Contribution of the Ethanol Industry to the Economy of the United States, which was released January 31, here .

In addition, the biodiesel industry contributed in a similar way, but at a lesser scale, to the economy, employment, household incomes, and energy security, through the production of about one billion gallons in 2012. A recent economic study commissioned by the National Biodiesel Board found that "biodiesel production of 1 billion gallons supports 39,027 jobs across the country and more than $2.1 billion in household income."

While the economic and energy security dimensions of the RFS are important, Congress also intended to reduce overall greenhouse gas (GHG) emissions from U.S. transportation fuels. Corn ethanol produced by plants constructed since the law was enacted must meet a minimum lifecycle GHG emission reduction standard that is 20 percent less than GHG emissions associated with conventional gasoline production and consumption. Since then, many corn ethanol plants have achieved emissions reductions well beyond that minimum requirement. But Congress wanted to go still further, so it put a cap on the amount of ethanol that could be made from cornstarch (15 billion gallons per year by 2015) and required that the next generation of advanced biorefineries, which will use other much less resource-intensive biomass feedstocks than corn, would meet a much higher standard for emission reductions – 50 percent less for "advanced biofuels" and 60 percent less for "cellulosic biofuels."

In 2013, the first of these advanced biorefineries are expected to begin producing biofuels at commercial scale in Mississippi and Florida. Although these new plants are behind the schedule called for in the RFS, they nonetheless reflect the best efforts of a new industry, emerging out of difficult economic times, to meet the challenging goals set by Congress. For snapshots of 16 of the first pioneering advanced biorefineries now under construction or in advanced stages of development, see this recent report from the Advanced Ethanol Council, Cellulosic Biofuels Industry Progress Report 2012-2013 .

In another analysis released this past week, Advanced Biofuel Companies Now in More than Half of U.S. States , Environmental Entrepreneurs (E2) reports " there are now more than 80 advanced biofuel companies, refineries and related operations located in at least 27 states. Beyond California [which has about 30], the top four states for biofuel companies are: Illinois (eight), Colorado (six), Texas (five) and Iowa (four). . . . As detailed at www.fuelinggrowth.org the biofuel market could be worth more than $60 billion within the next decade and more than 18,000 jobs could be created by the 26 biorefineries that are expected to open by 2015. "

Each of these projects represents substantial public and private sector investment to advance to the next generation of renewable fuels and meet the goals of the RFS. By 2022, under the RFS, most biofuels produced in the U.S. will come from these types of advanced biorefineries using biomass feedstocks other than cornstarch.

The question is: Will Congress stay the course on the RFS?

As we reported in our last SBFF post, "EPA Proposes Renewable Fuel Standards for 2013," the American Petroleum Institute (API) and other RFS opponents are increasingly challenging the EPA’s implementation of the RFS in the courts, and API has launched a public campaign to repeal the RFS.

This past week RFS opponents appear to have gained some traction in Congress where legislation has been introduced in both the House (H.R. 550, introduced by Reps. Gregg Harper (R-MS) and Jim Matheson (D-UT)) and Senate (S. 251, introduced by Sens. Mike Crapo (R-ID), Jeff Flake (R-AZ), and David Vitter (R-LA)) to require the EPA to base annual RFS standards for advanced biofuels on actual available production rather than on estimates of anticipated production from new plants expected to come on line in the next 12 months. The oil industry is concerned that when the EPA has set the standard higher than the actual amount produced in a given year, the industry must pay for fuel that is not being produced. Advanced biofuel proponents, however, are concerned that such legislation could dramatically slow, if not shut down, the expansion of the industry when it is just getting started and ramping up commercial scale production.

In addition, The Hill reports that the ranking member of the Senate Energy and Natural Resources Committee, Senator Lisa Murkowski (R-AK), believes that it is time to re-evaluate the RFS. And, from another political corner, the Environmental Working Group has also joined in the call to reform the RFS, primarily based upon their concern for the environmental harm caused by rapidly expanding corn production (which we have reported on elsewhere ).

Much hangs in the balance economically and environmentally.