Aug. 8 marks the 15-year anniversary of the signing of the first Renewable Fuel Standard (RFS). A new report released by the Renewable Fuels Assn. (RFA) to commemorate the anniversary noted that the goals of the original RFS have been remarkably effective, but RFA president Geoff Cooper said it will be important to lay the framework for what happens after 2022.
Precisely because the RFS has worked and because its succeeded in replacing petroleum, it is perpetually in the crosshairs with the oil industry, Cooper said. “While the 15th anniversary provides an opportunity to pause, it also gives us a chance to look forward,” he said. “Contrary to the narrative, the RFS does not end or sunset in year 2023.”
He added that Congress “clearly intended” for the RFS to continue to encourage investment and increase ethanol blending well beyond 2022 to further diversify the fuel mix.
In a media call on Aug. 6, Cooper said the goals initially laid out for the legislation of cleaner air, building the rural economy and decreasing reliance on foreign oil have all “far exceeded expectations.”
Scott Richman, RFA chief economist, noted that since passage of the RFS, ethanol output has quadrupled from 4 billion gal. then to more than 16 billion gal. today and increased the number of jobs in the industry from 150,000 to 350,000.
Corn production has increased nearly 25%, while planted acreage is up 10%. The report details that corn prices have been supported, while inventories have been ample. In fact, Richman said total U.S. cropland area actually fell 5% between 2005 and 2019-20, and in the last decade, increases in yields have allowed the number of acres for ethanol production to remain flat over time.
RFA chairman and co-founder Neil Koehler, chief executive officer of Pacific Ethanol, said his West Coast-based company is a testament to the remarkable steps RFS the has taken to send a “clear market signal to invest” in ethanol and as a replacement for MTBE. The company built four ethanol plants between 2006 and 2009. However, today, he said because of actions taken by the Environmental Protection Agency and the political stalemate around small refinery exemptions, there is “no longer that very clear long-term market signal to continue to build that industry.”
Ethanol companies have been losing money for more than 18 months, and the Omaha World Herald quoted Iowa State University economist David Swenson as saying there is only one path to survival for the ethanol industry: “Growth will come from exports, period.”
When asked about the statement on the call, Cooper agreed with the assessment that the ethanol industry is not in good shape and said part of that is dealing with the impacts of the small refinery exemptions, which softened domestic demand for ethanol. In addition, the trade war with China as well as issues with Brazil and Peru also added to softness in export demand.
“The industry is in rough shape, probably worse than pre-COVID, but I strongly disagree that the only way out of this mess is with more exports,” Cooper said. “Exports are one piece of the puzzle. We need continued expansion and other higher-level blends.”
He said this will be important with redirecting longer-term focus on the next chapter of the RFS and capturing and taking advantage of higher octane values. “We’re not done building demand for ethanol. We see a lot of room for growth long term,” he noted.
Cooper said RFA is interacting with the Administration, EPA specifically, on what the RFS might look like after 2022. The RFS2 – updated in 2007 – set specific blending targets through 2022, but beginning in 2023, it gives EPA a lot of discretion moving forward.
“We are weighing in with the agency and [Capitol] Hill to make sure they understand the RFS must continue to provide for growth,” he said.
Cooper added that EPA is unlikely to get serious about the rule-making process to set the guideposts for 2022 and beyond until after the national election this fall.
Recent reports indicate that the U.S. Department of Energy may have suggested at least partial approvals for some of the outstanding 58 waiver requests for small refinery exemptions on which EPA must make final determinations.
Cooper stated that it’s “absolutely insane” for DOE to recommend approval of any of those gap-year waivers from as far back as 2012, for example.
Cooper warned that if EPA continues to hand out these exemptions, it essentially locks in E10 fuels and blocks the RFS from doing its job of pushing use beyond the E10 level. “The big risk we see with continued granting of small refinery exemptions is it takes the pressure off and removes the incentive to expand into higher-level blends,” he said.