Industries spar over the future of renewable fuel subsidies

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Michael Bastasch DCNF Managing Editor
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Industries as wide-ranging as oil refiners, biofuel manufacturers, chain restaurants and chicken farmers sparred over the future of the federal ethanol mandate Tuesday.

The Renewable Fuel Standard (RFS) mandates that 13.8 billion gallons of ethanol be blended into gasoline this year, and 14.4 billion gallons in 2014.

Refiners, however, are reaching the limit of what they can safely blend into the fuel supply, which is putting pressure on the petroleum industry.

“The RFS isn’t just a relic of America’s bygone era of energy scarcity, it is a grave economic threat,” said Jack Gerard, president of the American Petroleum Institute, in his congressional testimony. “Unless it is immediately halted, it will unnecessarily cost our economy and consumers billions of dollars.”

Refiners are reaching what is called the “blend wall” — the outer limit of what refiners are willing to blend into gasoline — which has driven up renewable fuel credit prices more than 2300 percent this year.

“When refiners are unable to purchase sufficient RINs for compliance, they may be left with only bad options, which force them to reduce the amount of fuel they supply to the U.S. market. Likewise, importers of gasoline, also obligated parties, will look elsewhere to market their product,” warned Charles Drevna, president of the American Fuel & Petrochemical Manufacturers.

The ethanol industry has doggedly defended the RFS, arguing it is good for consumers and the economy.

“It has reduced our dependence on imported petroleum, stimulated investment in new technologies, reduced consumer gasoline prices, created jobs and economic opportunity across rural America, saved taxpayer dollars by lowering farm program payments, and is the only program we have that lowers greenhouse gas emissions from transportation fuels,” said Bob Dinneen, president of the Renewable Fuels Association.

However, RFS critics argue that the federal mandate is raising fuel and food costs which is hurting consumers.

“The Energy Policy Research Foundation… estimate the program could increase the price of gasoline from 20 cents per gallon to as much as $1.00 per gallon by next year,” Gerard said. “Further, according to a study conducted by NERA Economic Consulting, exceeding the blend wall could result in diesel fuel costs rising by as much as 300 percent and a 30 percent increase in gasoline costs by 2015.”

More than 40 percent of the U.S. corn crop goes toward ethanol production which has put increased costs in other areas of the food industry, including chicken farmers.

“Rising feed costs for much of the past six years have out-paced the ability of companies to pass on these higher feed costs in the form of higher prices these companies receive for their chicken products,” William Roenigk testified on behalf of the National Chicken Council. “At least a dozen companies have succumbed to the severe cost-price squeeze by ceasing operations or having to sell their assets at fire-sale values, in some cases to foreign owners.”

Republicans on Capitol Hill have been pushing to end the renewable fuel standard, arguing it has raised food and fuel prices. A full repeal bill was recently introduced in the Senate, but opposition from corn growing states could put the bill in jeopardy.

“While the oil industry would like to re-litigate the RFS today because its continued implementation will mean a further loss of market share, doing so would devastate investments that have been made in next generation biofuels technologies and stop the evolution of the transportation fuels market just as it is getting started,” Dinneen added.

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