Renewable Fuel Standard: EPA Retreats from Cutbacks

by Marlo Lewis on November 21, 2014

in Blog

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Greenwire (subscription required) reports that EPA will pull back from its November 2013 proposal to reduce this year’s Renewable Fuel Standard (RFS) blending targets. However, a final rule establishing RFS targets for 2014 is not expected until 2015.

By law, EPA was supposed to finalize the 2014 targets in November 2013.* EPA only proposed the 2014 targets last November, and things have been on hold since then.

Because the statutory blending target for 2014 exceeded the amount of ethanol that could actually be sold as E10 (motor fuel containing 10% ethanol, the maximum blend millions of vehicles can use without risk of engine damage and voided warranties), the agency proposed to trim the 18.15 billion gallon statutory target to 15.21 billion gallons, a 16% cutback. That ignited a firestorm of protest from the biofuel lobby, and EPA has been dithering ever since.

What’s the policy significance of today’s news?

It’s common knowledge that the RFS is a textbook study in the law of unintended consequences. The program inflates food and fuel costs, exacerbates world hunger, contributes to political instability and violence in developing countries, expands aquatic dead zones, accelerates wetlands conversion and habitat loss, and likely increases net greenhouse gas emissions.

EPA’s more-than-year-long delay in finalizing the 2014 targets reveals what may be the most damning unintended consequence yet: market unpredictability.

Congress’s purpose in establishing the 15-year production quota scheme for biofuel in 2007 was not just to prove that U.S. central planners are smarter than the commissars of old, who imposed only 5-year plans. Nor was it simply to provide corn growers with corporate welfare for life.

Part of the thinking was that a 15-year plan would facilitate long-term business planning and investment. All the players — corn farmers, biofuel producers, refiners, service stations — would know long in advance what was expected of them, so all could plan accordingly and the biofuel market would grow in a predictable, orderly fashion.

Here, too, the RFS backfired. The program now demands that refiners sell more ethanol than can be blended into each gallon of motor fuel sold (the blend wall problem noted above), and the gap between statutory targets and market conditions grows from year to year.

So EPA now has to make up the targets one year at a time. Worse, EPA’s decision (or indecision) is heavily influenced by interest-group lobbying. Each year’s target is a political football. Instead of creating a predictable market, the RFS has ushered in a reign of regulatory uncertainty.

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* Energy Independence and Security Act §202(a)(II)(B)(ii)(VI): “The Administrator shall promulgate rules establishing the applicable volumes under this clause no later than 14 months before the first year for which such applicable volume will apply.”

Update: On Friday, Nov. 21, EPA issued a Notice of Delay announcing that the agency “will not be finalizing 2014 applicable percentage standards under the Renewable Fuel Standard (RFS) program before the end of 2014.”


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