U.S. Renewable Fuel Standard: Issues and Controversies Part 1

The U.S. Renewable Fuel Standard (RFS) is one of the most important government programs promoting the growth of the biofuel industry in the United States. This program, which establishes annual minimum volumes of different categories of renewable fuel, has created a guaranteed market for biofuels that is largely independent of pricing and fuel costs, thus reducing the risk associated with biofuels production. I’ve posted a fairly detailed summary of the major provisions of the RFS, and how the biofuels industry has benefited from this law, on my Advanced Biotechnology for Biofuels blog.

Although the renewable fuels industry and its supporters credit the RFS with stimulating the growth of the industry and with exponentially increasing the production of renewable fuels, the RFS is (and perhaps always been) controversial. The preferences the law created for non-fossil fuels naturally placed it in opposition to entrenched economic interests of the oil and gas industry, differences which have increasingly come to the fore as the RFS mandates have grown and the difficulties in meeting the mandated volumes have increased. Specifically, the law has been criticized for setting unrealistic volume mandates for cellulosic fuels, and in response to the U.S. drought of 2012 a number of state governments, trade associations and companies called for a waiver of the volume mandates for cornstarch-derived ethanol. These controversies have played out in the forum of public discussion, as well as Congress, the courts, and agency administrative proceedings. I’ll describe these controversies in this blog entry and the one that follows.

RFS and the 2012 drought: the corn ethanol mandates under siege

The RFS has generally seen opposition from environmental and other advocacy groups, who have been concerned that the main impact of the law has been the promotion of corn ethanol, a fuel which many environmental groups oppose on fuel vs. food issues and because of its alleged negative carbon footprint. More recently, as the 2012 U.S. drought has intensified, numerous observers have called for EPA to lower or waive the mandated volumes for corn ethanol for 2012 and 2013, out of a belief that the diversion of significant percentages of the nation’s corn crop to ethanol production will lead (or has already led) to higher food prices, exacerbated by the effect of the drought in depressing corn supplies.

The “food-vs.-fuel” debate is not a new one of course, but the severity of the 2012 drought intensified the calls by many interest groups as well as some NGOs and governmental entities for changes to the RFS. Because the majority of the U.S. corn crop is used for animal feed, the anti-RFS reactions largely came from animal agriculture trade associations, as well as politicians in states where animal agriculture is a major contributor to the economy, and from environmental groups that are generally opposed to corn ethanol on sustainability or other grounds. There were also international calls for revisions to the RFS. For example, On August 9, 2012, a high-ranking United Nations official, José Graziano da Silva, the director-general of the UN’s Food and Agriculture Organization, wrote in the Financial Times newspaper that an “immediate, temporary suspension” of the U.S. RFS corn ethanol mandate could help head off another world food crisis. On September 19, 2012, Carmel Cahill, a senior counselor in the OECD’s Trade and Agriculture directorate, said the demand for biofuel is a leading factor in tighter markets for the main commodity crops, including wheat and corn, and called for the abolishment of the U.S. RFS volume mandates.

This opposition became a constant drumbeat as the late summer and autumn of 2012 progressed, and included the following major activities by RFS opponents. On July 30, 2012, a coalition including the National Cattlemen’s Beef Association and National Pork Producers Council, sent a petition to the Environmental Protection Agency asking for a waiver “in whole or in substantial part” of the output requirements under the Renewable Fuels Standard for 12 months, because it is causing “severe economic harm” as corn prices surged to a record level due to the drought. On August 2, 2012, over 150 members of the House of Representatives wrote to EPA to urge the Agency to reduce the volume of renewable fuel that must be produced under the RFS, citing the rising corn prices resulting from the drought. The Congressmen based their request on a provision of the law that allows the EPA administrator to reduce the required volume of renewable fuel in any year based on “severe harm to the economy or environment of a state, a region or the United States”. On August 7, this group was joined by a bipartisan group of 26 senators. Then, beginning on August 14,  a growing coalition of state governors also formally requested that EPA grant  a waiver of the RFS in response to the drought. The governors of North Carolina, Arkansas, Maryland and Delaware filed such a request, which was later joined by the governors of Texas, Virginia, New Mexico, and Georgia.

In response to these various petitions, EPA announced on August 20, 2012 that it would open a 30-day public comment period on the issue of whether or not to waive or reduce the corn-starch ethanol mandate under the RFS. The comment period began upon formal publication in the Federal Register on August 27, although the comment period was later extended until October 11, 2012.

The ethanol industry has generally countered these accusations by noting that the 2012 mandates will be met by ethanol already distilled from last year’s corn crop, as well as use of excess RIN credits from prior years, and that 2012 corn-based ethanol production was down 10% from the previous year, as several plants have shut down or scaled back operations in view of the likely shortfalls of availability of corn feedstock. Industry representatives also stress that there is no evidence of a correlation between ethanol production and corn prices, and in fact a study from Purdue University issued in August 2012 showed that elimination of the RFS mandate would only result in minimal decreases in corn prices.

On November 16, 2012, EPA announced that it had denied the petitions to waive the 2012 or 2013 volume mandates under the RFS. EPA found that the evidence did not support the findings required under the law, specifically that implementation of the RFS mandate would itself severely harm the economy, and in fact that it was highly unlikely that the RFS volume mandates would have a significant effect on corn, food or fuel prices.

Although EPA’s action momentarily puts to rest the drought-based criticisms of the RFS volume mandates, this is not likely to end the debate for good. It is reasonable to expect further attention to be paid to the RFS in the new (113th)  Congress. In fact, there were already bills filed in the 112th Congress that would have revised the RFS mandates in response to the drought. One such bill was S. 3428, the Renewable Fuel Standard Flexibility Act, which was introduced in July 2012 by Senator Benjamin Cardin of Maryland, but which was not acted on by the Senate.

Fraudulent RINs

Another layer of concern over the RFS arose during 2012, upon the discovery that a small number of companies had been selling fraudulent (i.e. nonexistent) Renewable Identification Numbers (RINs), the unique identifiers attached to volumes of fuel qualifying as “renewable” under the RFS. . These companies pocketed large payments from fuel blenders and suppliers for the nonexistent RINs, who then found themselves out of compliance with the RFS, and subject to penalties, for failing to produce or purchase sufficient RINs to meet their volume obligations. The Federal Government has filed criminal charges against two companies alleged to have issued fraudulent RINs, and Cargill has filed a lawsuit against a broker of RINs from which it purchased 1.2 million RINs in 2010 which later proved to be fraudulent.

There have been legislative solutions proposed to meet this problem (e.g., H.R. 6444, introduced by two Republican legislators, that would have required EPA to adopt by January 1, 2013 a system to certify RIN validity). EPA has announced that they intend to issue a proposed rule to address this issue, and in late October 2012 the agency published a summary of the elements for a Draft Quality Assurance Plan which they intend to be the centerpiece of their proposed regulation. The EPA notice contemplated that the agency would propose a rule that established standards under which third parties could set up programs for independent verification and validation of RINs. A number of entities have already begun setting up such independent third-party validation programs, and so it appears that the likeliest outcome will be a system of third-party programs operating under the standards which EPA will eventually establish in its rule-making.

I’ll post Part 2 of this entry tomorrow, which will include discussion of the controversy over the cellulosic fuel volume mandates under the RFS.

D. Glass Associates, Inc. is a consulting company specializing in government and regulatory support for renewable fuels and industrial biotechnology. David Glass, Ph.D. is a veteran of over thirty years in the biotechnology industry, with expertise in industrial biotechnology regulatory affairs, U.S. and international renewable fuels regulation, patents, technology licensing, and market and technology assessments. Dr. Glass also serves as director of regulatory affairs for Joule Unlimited Technologies, Inc. More information on D. Glass Associates’ government and regulatory consulting capabilities, and copies of some of Dr. Glass’s prior presentations on biofuels and biotechnology regulation, are available at www.slideshare.net/djglass99 and at www.dglassassociates.com. The views expressed in this blog are those of Dr. Glass and D. Glass Associates and do not represent the views of Joule Unlimited Technologies, Inc. or any other organization with which Dr. Glass is affiliated. Please visit our other blog, Advanced Biotechnology for Biofuels

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