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API testimony at RFS hearing

Hydrocarbon Engineering,

At the Renewable Fuel Standards public hearing on 5th December, Bob Greco testified on behalf of the American Petroleum Institute. Extracts of his speech follow.

The blendwall

‘Our members’ primary RFS concern is the ethanol blendwall. There are serious vehicle and retail infrastructure compatibility issues associated with the usage of gasoline containing ethanol in excess of 10% by volume. Left untouched, the statutory mandates could cause fuel rationing, drive up the cost of diesel by 300% and the cost of gasoline by 30% by 2015, and lead to a US$ 770 billion decrease in US GDP and a US$ 580 billion decrease in take home pay for American workers, according to a study by NERA economic consulting.

‘The RFS mandates are based on the flawed presumption that gasoline use would continue to rise well into the future when in fact, the opposite is now occurring. These rigid requirements are obsolete and have no place in today’s energy market.

‘API is encouraged that, for the first time, EPA has acknowledge that the blendwall is a dangerous reality that must be addressed to avoid negative impacts on America’s fuel supply and to prevent harm to American consumers. However, we will continue our call for Congress to repeal the RFS to protect consumers from this outdates and unworkable program once and for all.

‘While the Agency’s proposal is an important step in the right direction, the proposal does not go far enough to address the blendwall. Based on the RFS volume ranges proposed by EPA, the resulting ethanol to gasoline blending ration could be as low as 9.8% or as high as 10.3%. As stated in our general waiver petition submitted earlier this year, API recommends that EPA set the ration at no more than 9.7% ethanol to ensure a fungible RIN market, and to preserve a market for those consumers that choose E9, or clear gasoline. The proposed standards represent a significant challenge if finalised, and would leave no tolerance to account for the difficulty of blending ethanol into every gallon. As a result, some of the negative impacts of the blendwall may not be fully avoided. We urge EPA to set the 2014 RFS volume standards so that the ethanol to gasoline blending ration stays sufficiently below 10%.’

Rulemaking timing

‘EPA also needs to take statutory deadline seriously and issue timely rules. EPA’s continual tardiness has real, adverse effects on our industry. Obligated parties need this information ahead of the compliance period to make operational, logistics and investment decisions. A biomass based diesel standard for 2014 should have been issued well over a year ago. At this point, EPA does not have the authority to increase the stringency of the biomass based diesel standard before 2016. The uncertainties created by the ethanol blendwall this year are enormous; and EPA is only adding to the uncertainty with retroactive rules. The Clean Air Act recognises the need for regulatory certainty and clearly defines these non-discretionary deadlines.’

Cellulosic biofuel

‘Finally, the Clean Air Act clearly requires EPA to determine the mandated volume of cellulosic biofuels each year at the ‘projected volume available.’ The DC Circuit Court vacated the 2012 cellulosic standard and EPA is taking appropriate steps to correct the invalid 2011 cellulosic standard. However, EPA’s proposal for 17 million gallons of cellulosic biofuel is once again aspirational and unreasonable. It shows EPA did not heed the DC Circuit’s admonishment to change its failed ‘self fulfilling prophesy’ approach to one which employs a neutral methodology for setting future cellulosic biofuel mandates. It is patently unfair and improper for EPA to keep setting unrealistic cellulosic mandates only to revise them after the compliance year in response to court action.

‘This year, EPA suggests an improved methodology; but the use of spurious statistical simulations based on unrealistic parameters is a feigned attempt at legitimacy. Continuing to mainly rely on forecasts prepared by cellulosic biofuel producers, which have been consistently wrong every year, is a failed approach and constitutes a stealth tax on refiners. In fact, EPA’s August assessment of 6 million gallons for 2013 appears to once again be a substantial overestimate of actual cellulosic production, which will likely be less than 1 million gallons. Clearly EPA still does not have an acceptable conceptual model for predicting cellulosic production capacity. API continues to recommend setting this standard at actual demonstrated production.’

Adapted from a speech by Claira Lloyd.

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