By Douglas Durante
It has been an interesting exercise in political theatre since the November elections as Washington scrambles to figure out how to adapt to something they have never had to adapt to before. There is no playbook and there is no science to call on to understand what will clearly be unprecedented change under the Trump Administration.
Not to be overlooked is the fact that Republicans have regained full control of Congress and we can expect them to keep moving in the direction of small government and less regulation. For the ethanol industry that is not a bad thing, which I will explain further.
No issue has received more early scrutiny than the Renewable Fuel Standard as pundits speculate how Mr. Trump can honor campaign promises to fully support ethanol while some of his well-heeled oil supporters clearly take issue with ethanol and the RFS.
But there are lots of things to consider when sorting through all this. First of all the RFS is not the end all and be all of the ethanol industry. It is but one program, albeit an important one, that creates demand. For the corn ethanol industry however, its job is done as corn ethanol has reached its cap of 15 billion gallons annually. That does not mean we cannot produce and use more ethanol – quite the opposite. The RFS may finally be what it was supposed to be, which is a floor rather than a ceiling. Our gasoline market is inching back to levels of years past and why would we be content with just 15 billion gallons in a market of 125 billion or more?
Secondly, the complaints and criticisms of the RFS are things that can be addressed, there is no need to blow it up. The RIN issue has received a great deal of attention and there are solutions that might not make everyone happy but could potentially be a trade off and keep the program intact. The lack of production from the advanced biofuel sector which is running billions of gallons behind schedule could be addressed with more reasonable volumes issued on time and perhaps for a multi year period. The fact that this program has been handcuffed to annual turn-into-a-pumpkin-at-midnight deadlines is an unnecessary provision that if spread across a period of time might alleviate much of the uncertainty the advanced sector faces.
A third thing to keep in mind is that other than EPA, the other government agencies really have little, if any, jurisdiction over the RFS. Sure, the Department of Energy Labs have been instrumental in recent years in validating higher blends and the Department of Agriculture has always been a firewall for ethanol in terms of support and programs. But neither could significantly impact the use of ethanol the way EPA can, and EPA is being made into the poster child for de-regulation.
Our focus at the Clean Fuels Development Coalition and through our work with the Urban Air Initiative is to keep demand up for corn while providing a cleaner fuel and to do that we need to move beyond volumes of the RFS. A knee jerk, ‘free market’ response from opponents and skeptics would be to say what’s stopping you?
Well, that brings us back to my earlier point – regulatory reform could be a good thing for ethanol. I have been of the opinion for years that the seasonal restriction on E15 and blends above E10 due to an illogical interpretation of vapor pressure regulations is one of, if not the, single biggest impediment to growth. I think back to the early days of the ethanol industry when carbon monoxide was effectively reduced by ethanol and its high oxygen content but as a winter-time only program it failed to stimulate ethanol production. However, when we succeeded in developing federal reformulated gasoline with its year round oxygen requirement, ethanol production took off.
A simple rule change by EPA could have the same impact and there is certainly justification to do so since vapor pressure actually goes down as we increase ethanol volumes.
The motor fuel pool has easily and efficiently absorbed the 15 billion gallons of ethanol we produce annually, the RFS is a backstop or an insurance policy that we want to maintain but really could become irrelevant as we break down other regulatory barriers that would allow ethanol to utilize its high octane to produce cheaper, cleaner, and more efficient fuels. With faulty emission models corrected and artificial barriers like the Reid vapor pressure issue addressed, automakers could make new cars capable of higher blends and improve efficiency in doing so.
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