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Petroleum Refiners Express Contempt for RFS

February 10, 2012
At the National Biodiesel Conference earlier this week, AFPM President Charles Drevna called the Renewable Fuel Standard (RFS) an “anachronism” and claimed that “it’s not working as intended.” Should he be believed?

Congress established the RFS with steadily increasing volume mandates for cellulosic biofuels in order to open the petroleum-dominated market to alternatives and spur growth in the industry. Despite the resistance to innovation from the petroleum refiners, that purpose in not an anachronism. Moreover, new cellulosic biofuel technology is being developed faster than would have been possible without the RFS in place.

Any consumer filling up at the pump today should readily recognize that America is still addicted to foreign oil. In 2011, consumers spent a record $481 billion on gasoline. That record amount consumers spent on gasoline in 2011 came despite the fact that overall gasoline use was down – consumers spent about $0.78 more per gallon, while using several billion fewer gallons of gas.

The petroleum refiners have made questionable claims to bolster their opposition to the program. A Wall Street Journal editorial, for instance, echoed petroleum refiners’ talking points: “In 2010 and this year, the EPA has forced oil companies to pay about $10 million for these credits. Since these costs are eventually passed on to consumers, the biofuels mandate is an invisible tax paid at the gas pump.” Even the New York Times led with the refiners’ talking point: “When the companies that supply motor fuel close the books on 2011, they will pay about $6.8 million in penalties to the Treasury because they failed to mix a special type of biofuel into their gasoline and diesel as required by law. But there was none to be had.” A little fact checking is in order on these claims.

It may surprise many that cellulosic biofuels are available in the marketplace. Under the 2006 Renewable Fuel Standard (known as RFS1), “cellulosic biomass ethanol” – ethanol produced in biorefineries that used biomass for heat and power – qualified as cellulosic biofuel. This definition changed in July 2010, when RFS2 came into force. But enough of the cellulosic biomass ethanol was produced to satisfy the 2010 obligation for cellulosic biofuel and up to 20 percent of 2011 obligation. In 2010 and 2011, using or purchasing the cellulosic biomass ethanol was the lowest cost means of complying with the RFS and the one that refiners and blender favored.

What Is the Cellulosic Waiver Credit?

Refiners and blenders (obligated parties) have several options for complying with the cellulosic biofuel mandate under RFS2 and can choose the lowest cost method. BIO outlined this in a widely available article, published in Industrial Biotechnology Journal. Purchasing a cellulosic waiver credit is not a “fine,” it’s just one of several compliance options for refiners. The price of these waiver credits is set before the beginning of a compliance year, giving refiners advance notice of the cost of this compliance method. Since the price of the credit is tied to the cost of gasoline, it pushes cellulosic biofuels to be cost competitive with petroleum gasoline around the $3.00 per gallon mark.

In 2011, obligated parties purchased 12,186 cellulosic waiver credits to meet their 2010 obligation at a total cost of $19,010.16 – far from the millions of dollars claimed.
An additional option for obligated parties is to simply defer their obligation for one year. So, whether cellulosic biofuel producers generate gallons or not, refiners may still choose one of the other options.

Is This a Hidden Tax on Consumers?

Consider the very real cost to consumers of continued addiction to foreign oil. For each dollar consumers spent at the pump in 2011, the cost of the cellulosic waiver credits purchased by refiners and blenders added $0.00000004. Each U.S. household spent on average $4,155 for gasoline last year, making the total cost of the cellulosic biofuel credit for each household less than $0.0002.

In contrast, biofuels produced and consumed in the United States reduced oil imports by more than 200 million barrels in 2011, keeping $22 billion here in the United States.
While advanced biofuels have not achieved “commercial” status in the two years since the RFS has been in force, the fact is that the current rules have yet to provide the long-term stability and predictability necessary for all parties. It’s premature to claim that the RFS doesn’t work. And implementing additional changes will simply continue the pattern of policy instability that has slowed commercialization to date. Forward looking, long-term stable energy policy is needed to break the cycle and bring new technologies into the marketplace.