IT has been a year since the Environmental Protection Agency proposed renewable fuel standard (RFS) volume targets for 2014, and this time, EPA tried to change the course of the RFS set by Congress, particularly for the corn-based ethanol levels, which now seems to have backfired.
EPA announced that it will not be finalizing the 2014 renewable volume obligation (RVO) levels this year and instead will wait until likely February 2015 to finalize 2014 levels and also to propose 2015 and 2016 levels.
Purdue University agricultural economist Wally Tyner said it's ironic that EPA is likely to propose lower corn-based biofuel levels because it was getting so much flak from Congress and others saying the RFS wasn't working well and the blend wall was problematic. By trying to reduce the RFS, though, it actually may have had the opposite effect.
"The RFS may be more in jeopardy than it was before," Tyner said.
He thinks that the maneuvers EPA tried to implement for 2014 have reduced the agency's credibility and that everybody trying to attack the agency now is going to up their attack.
A major reason EPA gave in and reduced the RFS levels was because of the blend wall, but Tyner said his own research and separate findings from Bruce Babcock at Iowa State University show that EPA's move was an "overreaction."
One of the fears is that if the price goes up for renewable identification numbers (RINs) — which are created for each gallon or equivalent of biofuels blended — it means there was not enough fuel to meet the RFS mandates.
Tyner said the uniquely designed RFS causes RIN prices to rise in order to stimulate production. In the case of the E85 fuel blend, he calculated that only about 3% of the flexible-fuel vehicles on the road today use E85, which means there is plenty more room to expand consumption for biofuels. Without the RIN market to encourage increased blending, though, there is no incentive to make E85 more competitive, which would result in more consumption.
Bill Lapp, president of Advanced Economic Solutions, said it appears likely that EPA's RVOs for 2014 will be closely aligned with the number of RINs produced for conventional and advanced biofuels.
"Biodiesel will be produced in excess of the likely mandate as biodiesel production and RIN values are being driven by their value in meeting the advanced biofuel mandate," Lapp said.
Tyner said he expects EPA to essentially ratify whatever RINs ended up being generated for 2014 as the RVO level, and when it proposes 2015 levels, he thinks the agency will provide a well-reasoned argument on the proposed levels, even if they don't make everyone happy.
Tyner added that it is important to recognize that when Congress approves a non-market solution for something such as clean air, fuel economy or, in this case, RFS levels, it is because Congress didn't believe that the market alone would provide the socially desired outcome.
"Congress wanted to have more renewable fuels, and EPA has the responsibility to accept that intent of Congress and come out with rules that achieve that," Tyner said.
Lapp has said he believes the RFS is in need of reform, if not a repeal. "However, Congress appears very reluctant to tackle any reform of the legislation in 2015," he said.
So, now we wait to see if EPA sets off another firestorm or if what Congress put on the books wins out over the agency's meddling.