The day before Thanksgiving, the Obama Administration released its final biofuel requirements for 2017, raising the required biofuel levels from those proposed earlier this year. The new levels are above the blend wall, i.e. where the level of biofuels required exceeds 10 percent of motor fuel demand. Exceeding the blend wall matters because many automobile manufacturers will not warranty vehicles using gasoline with ethanol volumes greater than 10 percent. Besides increasing the blend wall, refiners must purchase renewable identification numbers when they do not meet the biofuel levels stipulated by the Environmental Protection Agency (EPA). Those renewable identification numbers have been increasing in value and the costs are passed onto the consumer, which results in higher gasoline prices for Americans.
The New Requirements for 2017
Refiners will be forced to blend 19.28 billion gallons of ethanol, biomass-based diesel and other biofuels into the gasoline and diesel supply in 2017. This is a record amount. The corn-based ethanol requirement increases to 15 billion gallons, which is the level required by the Energy Independence and Security Act of 2007 that created the Renewable Fuel Standard (RFS). The RFS rule for 2017 is 1.2 billion gallons higher than the amount of renewable fuels that EPA required to be blended into the fuel supply for 2016–a 6 percent increase.[i]
To summarize, the new RFS rule requires that:
- Conventional renewable fuel increases to 15 billion-gallons, which was the congressional target in the 2007 legislation.
- Biomass-based biodiesel increases by 100 million gallons–the required volume for 2017 is twice that of the minimum congressional target.
- Cellulosic biofuel increases by 35 percent over the 2016 standard.
- Advanced biofuels, comprised of biomass-based diesel, cellulosic biofuel, and other biofuel increases by 19 percent over the 2016 standard.
The EPA required renewable fuel volumes for 2014 to 2018 are listed below. The only requirement that is provided for 2018 is the volume for biomass-based diesel.[ii]
Renewable Fuel Volume Requirements for 2014-2018
|Cellulosic biofuel (million gallons)||33||123||230||311||n/a|
|Biomass-based diesel (billion gallons)||1.63||1.73||1.9||2.0||2.1|
|Advanced biofuel (billion gallons)||2.67||2.88||3.61||4.28||n/a|
|Renewable fuel (billion gallons)||16.28||16.93||18.11||19.28||n/a|
Final Levels Are Higher Than EPA Proposed Levels
Earlier this year, EPA proposed its 2017 biofuel requirements and provided them for comment. The proposed volumes were as follows: 14.8 billion gallons for conventional or corn-based biofuel and 4.0 billion gallons for advanced biofuels for a total of 18.8 billion gallons. The final levels released on November 23, 2016, are 2.6 percent higher than those proposed earlier this year.[iii]
According to the Energy Information Administration, ethanol’s share of the U.S. gasoline market has already exceeded 10 percent a couple of times this fall.[iv] EPA’s proposed levels for 2017 were expected to exceed the blend wall with an expected share of 10.44 percent.[v] With the final required amounts for 2017 even higher at 19.28 billion gallons, those requirements will surely exceed the blend wall by an even higher percentage.
As mentioned earlier, many automobile manufacturers will not warranty vehicles that use greater than 10 percent ethanol. Further, any amount of ethanol in motor fuel can damage small engines such as lawn mowers, snow blowers, and boats. And, because corn is used in ethanol production which competes with food uses, the National Council of Chain Restaurants claims that ethanol drives up the cost of food and causes market volatility that impacts both industry and consumers.[vi]
Costs Increase When Required Biofuel Levels Are Not Met
Refiners that are not able to meet the renewable fuel requirement must purchase Renewable Identification Numbers (RINs)–credits that allow them to make up the difference between what is mandated and what is actually used. While RINs had originally cost a few cents when biofuel requirements were low, RINs have now escalated in cost. RINs tracking ethanol use have doubled to 91 cents in a year, and RINs tracking biodiesel have increased 59 percent to 95.5 cents during the same period. Due to the large increase in the cost of RINs, refiners are incurring huge costs: Valero Energy Corp. expects its cost for RINs to total $850 million this year; CVR Refining expects the cost to total $250 million; PBF Energy expects an increased cost burden of 15 percent.[vii]
RINs will either bankrupt our small, merchant refiners and/or be passed onto gasoline and diesel prices which will hurt American consumers. Either way, RIN costs of this magnitude are not good for the American economy. While ethanol has benefits to refiners as an octane booster and oxygenate, mandated levels that exceed the blend wall just drive up prices for everyone. There is bipartisan legislation (H.R. 5180) in the House to limit EPA ethanol requirements in total transportation fuel at 9.7 percent, which could help to reduce the market volatility that RINs produce.[viii]
The Obama Administration seems to strive to set rules that intentionally drive up the cost of energy and hurt our economy without achieving any major benefit. This is the case for the Clean Power Plan and it is the case for biofuel requirements. Exceeding the blend wall, which is the case for the 2017 biofuel requirements mandated by EPA, causes harm to vehicles, small engines, merchant refiners, and American consumers.
[i] The Hill, Feds Boost Biofuel Mandate for 2017, November 23, 2016, http://thehill.com/policy/energy-environment/307348-feds-boost-biofuels-mandate-for-2017
[ii] National Law Review, EPA Finalizes Increase in Renewable Fuel Volumes, November 26, 2016, http://www.natlawreview.com/article/epa-finalizes-increase-renewable-fuel-volumes
[iii] National Law Review, EPA Delivers Proposed Renewable Fuel Standard Requirements to OMB, November 4, 2016, http://www.natlawreview.com/article/epa-delivers-proposed-renewable-fuel-standard-requirements-to-omb
[iv] Des Moines Register, Ethanol advocates, opponents brace for ruling, November 2, 2016, http://www.desmoinesregister.com/story/money/2016/11/02/ethanol-advocates-opponents-brace-ruling/93170002/
[v] Washington Times, EPA’s move to raise ethanol mix in gasoline fuels alarm over engine damage, May 20, 2016, http://www.washingtontimes.com/news/2016/may/20/epas-move-raise-ethanol-mix-gasoline-fuels-alarm-o/
[vi] Farm and Diary, EPA issues final renewable fuel Standard volumes for ethanol, November 26, 2016, http://www.farmanddairy.com/news/epa-issues-final-renewable-fuel-standard-volumes-for-ethanol/384221.html
[vii] Oil Price, Trump’s Election Is Great News For Independent Refiners, November 18, 2016, http://oilprice.com/Energy/Energy-General/Trumps-Election-Is-Great-News-For-Independent-Refiners.html
[viii] BNA, Biofuel Mandate Opponents Build Overhaul Momentum, November 17, 2016, http://www.bna.com/biofuel-mandate-opponents-n57982082935/