July 9, 2014 | Vol. 64, No. 13
Dear PEI Member:
The Renewable Fuel Standard (RFS) establishes minimum volumes of various types of renewable fuels that must be included in the United States’ supply of fuel for transportation. Those volumes—as defined by the Energy Independence and Security Act of 2007 (EISA)—are intended to grow each year through 2022.
In recent years, the requirements of the RFS have been met largely by blending gasoline with ethanol made from cornstarch. In the future, EISA requires the use of increasingly large amounts of “advanced biofuels,” which include diesel made from biomass, ethanol made from sugarcane, and cellulosic biofuels made by converting the cellulose in plant materials into fuel.
The original volume mandated by EISA for 2014 is 18.15 billion gallons. However, after recognizing severe challenges in meeting the EISA target, primarily due to the lack of cellulosic biofuels and the blend wall, EPA is proposing to lower the EISA 2014 mandate by 3 billion gallons to 15.21 billion gallons.
Members of Congress have raised concerns about the RFS, particularly the feasibility of complying with the standard, whether it increases the prices for food and transportation fuels, and whether it will lead to the intended reductions of greenhouse gas emissions. Because of those concerns, some members of Congress have proposed repealing or revising the RFS.
At the request of the Chairman of the House Committee on Energy and Commerce, the Congressional Budget Office (CBO) has analyzed these issues in a 35-page report entitled The Renewable Fuel Standard: Issues for 2014 and Beyond. The report evaluates how much the supply of various types of renewable fuels would have to increase over the next several years to comply with the RFS. CBO also examines how food prices, fuel prices and emissions would vary in an illustrative year, 2017, under three scenarios for the RFS. Under the first scenario, referred to as the EISA volumes scenario, fuel suppliers would have to meet the total requirement for renewable fuels, the requirement for advanced biofuels, and the cap on corn ethanol as stated in EISA. Meeting the cellulosic requirement would not be required because the capacity to produce enough cellulosic fuels is unlikely to be in place by 2017. The second scenario, called the 2014 volumes scenario, would keep the RFS requirements for the next several years at the same amounts proposed for 2014. The third scenario, referred to as the repeal scenario, assumes lawmakers abolish the RFS immediately.
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The CBO report says that the EISA volumes scenario would cause gasoline prices to climb by up to 26 cents per gallon, or 9 percent, in 2017. The report favors the 2014 volumes scenario since increasing the total percentage of ethanol in the nation’s gasoline supply—the EISA volumes scenario—would require “significant changes to the infrastructure of fueling stations.”
The CBO report was generally lauded by the petroleum industry but slammed by the biofuels industry. Biofuel advocates were particularly galled because the report did not weigh how the biofuel program has benefited consumers by reducing demand for diesel and gasoline and decreasing the need for foreign oil.
Although PEI does not have a dog in the fight between the oil and biofuels industries, we are interested in learning about any government program or legislative action that affects retail service stations. And, judging from the questions we receive from members who are thinking about the future of the retail fuel market, so are many of you. We, therefore, recommend the non-partisan CBO report to you but suggest you be open to the views of others whose interests were not particularly well served by the report.
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The TulsaLetter (ISSN 0193-9467) is published two or three times each month by the Petroleum Equipment Institute. Robert N. Renkes, Executive Vice President, Editor. Opinions expressed are the opinions of the Editor. Basic circulation confined to PEI members.