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Should RFS Quit Cellulosic?

April 19, 2013

Should RFS Quit Cellulosic?

Industry Official Suggests Negotiating to Freeze RFS Levels

OMAHA (DTN) -- It's a tough environment in Washington, but it's even worse if you're working on behalf of ethanol, Clean Fuels Development Coalition director Doug Durante told an ethanol forum Thursday in Omaha.

"We are under an all-out assault by the petroleum industry, and it's taking a toll," he said.

The days of broad, sweeping energy bills are gone. The ethanol industry, which owes much of its growth to 2005 and 2007 energy bills, has to defend its market share and engineer a way past the blend wall -- the level in which the industry's production meets the federally-mandated blend levels for refiners.

Ethanol and the renewable fuel standard are at a critical juncture, Nebraska Ethanol Board administrator Todd Sneller told DTN on the sidelines of the Ethanol 2013: Emerging Issues Forum.

"We'll look back at this in two years, and the question will be, how did we respond?" Sneller said.

Last year's skyrocketing corn prices increased political pressure to roll back the mandates. Then the cost skyrocketed over $1 each earlier this year for Renewable Identification Numbers, or RINs, a credit petroleum producers must buy if they don't purchase and blend a set amount of biofuel. The oil industry blamed RINs for higher gas prices, luring several legislators to their side.

Durante said the industry needs to be open to adjusting the RFS or risk losing it all together.

Two big criticisms of the Renewable Fuels Standard are that cellulosic ethanol production hasn't materialized and neither has a vibrant flex-fuel market like the law envisioned.

"Is there a deal to be made? What if we agree to freeze the RFS at 2013 levels? That would then give us time to go to the obligated parties and really force infrastructure development," Durante said.

An obligated party is any company that produces or imports petroleum, and under RFS, they're required to either blend biofuel or purchase RIN credits. Many of these companies have been reluctant to invest in pumps, pipelines and other infrastructure needed to expand access to ethanol blends. People will be more likely to buy cars that can handle higher ethanol blends if there are more flex fuel and E85 pumps, he said, which will build ethanol demand and break through the blend wall.

The cellulosic ethanol mandate escalated quicker than production, and some people want to see that column of the RFS wiped out completely, Durante said. The RFS mandates that 16 million gallons of cellulosic biofuel be blended into gasoline by 2022. The mandate also calls for 5 million gallons of advanced biofuels and 15 million gallons of conventional, or corn-based, biofuel.

"I think Congress was sold a bill of goods on cellulosic that they wanted to believe. Many of the companies that pushed that mandate don't exist anymore," Durante said. Instead of cutting the cellulosic requirement, Durante suggested combining it with the advanced biofuel category.

Not all ethanol industry groups agree with Durante's stance towards negotiating on the RFS, Sneller said. Ethanol's history is a case in point for why the industry needs to think outside the box, he added.

In 1990, the Clean Air Act required oxygenated fuels to be used during the winter months. Ethanol became one of the most popular ways to meet that requirement. Prominent leaders in the ethanol industry resisted the renewable fuel standard in 2005, Sneller said.

Growth-focused elements of the ethanol industry thought it was preposterous to keep ethanol as a seasonal fuel, and they successfully pushed for RFS.

"We're at that point again when those in control of the industry might be wrong," Sneller said. "If we don't do anything, we may be conceding defeat. It shouldn't be inappropriate to discuss alternative solutions."

Katie Micik can be reached at Katie.micik@telventdtn.com