WASHINGTON -- As the U.S. Environmental Protection Agency (EPA) plans for renewable fuel volumes for 2014 undergo review by the Office of Management & Budget (OMB) at the White House, U.S. refiners have made their position known in a letter sent to President Obama this week. Their message: Stick with the lower volumes EPA proposed last fall, which would cut the amount of renewable fuels required to be blended into gasoline under the Renewable Fuel Standard (RFS) by three billion gallons.
The letter comes after signs that the EPA may actually tweak the proposal upward because of a general uptick in gasoline demand over the past year.
Coordinated by the American Fuel & Petrochemical Manufacturers (AFPM), the letter is signed by more than 30 of the country's largest refiners, including Valero Energy, ExxonMobil, Marathon Petroleum, Phillips 66 and Motiva. In it, the refiners point to the need to respect consumer choice and recognize the market's limitations in absorbing additional ethanol as gasoline demand trends downward over the long term, or hitting the "blend wall." Biofuels proponents argue that the country can avoid the blend wall through higher ethanol blends such as E15 and E85, but detractors insist there is not enough demand to support their expansion.
"Although renewable fuels already have a place in the fuel supply, the federal government should not force consumers to use certain fuels, and particularly those that cannot be safely integrated into existing vehicles, small engines (such as lawn equipment and marine engines), and retail infrastructure," the letter said.
Under the RFS, refiners are required to blend a specific amount of ethanol into gasoline each year, with this amount designed to increase each year to keep pace with earlier assumptions that fuel demand would grow each year. However, the Energy Information Administration now projects a decline in gasoline demand over the next decades. If refiners cannot blend the mandated amount of ethanol into gasoline under the RFS, they must buy renewable identification numbers (RIN), essentially paper gallons that make good on meeting the mandate, but which cuts into their profits.
The refiners argue their point of consumer choice by pointing to the relatively small size of the E85 market and low demand for the high ethanol blend, as well as the costs associated with upgrading a fueling location to sell it. It also touches on E15's limited use to model-year 2001 and newer vehicles, and lingering liability concerns for underground storage tanks. And it highlights increasing demand for ethanol-free fuel among boaters, motorcyclists and others.
The refiners' letter also noted that other entities and groups have called out issues with higher ethanol blends, with concerns ranging from potential consumer misfueling to the impact the RFS would have on gasoline prices if volumes remain unchanged from the original statute. It concludes by asking the EPA to hold firm to its original proposal for lowering the mandate, arguing it addresses all of the government's goals for the RFS.
"EPA proposed a reasonable set of RFS standards for 2014 that will maintain ethanol's market share, addressed the issue of E10 blendwall, and provided cellulosic biofuel growth," said the letter. "Although Congress still needs to reform the RFS for the long term, EPA's proposal is doing the right thing for the short term. Now is not the time to backtrack on a proposal to avoid economic disruption. Doing so could send a signal to the market that EPA is willing to push the fuel supply past the blendwall, which could adversely impact consumers in the form of higher costs."
While acknowledging that biofuels have their place among transportation fuels, the refiners also warned in the letter that the government should not force the market.
"Technological and market limitations exist and consumers, not the federal government, should determine what goes in their cars."
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