A group of oil state senators is asking biofuel and agricultural producers to accept changes to the renewable fuel standard (RFS) that are intended to help a small group of refiners comply with the program. The bipartisan RFS program has been U.S. law since 2005, requiring production and use of annually increasing volumes of biofuel in the U.S. transportation market.
The refiners want to lower the price of renewable identification numbers, or RINs, which are the credits they must accumulate to prove compliance with the program — every gallon of biofuel that is blended into transportation fuel generates one of these RIN credits.
{mosads}It is important to note that past changes to the RFS program — made at the request of those same refiners — have done nothing at all to change the price of the compliance credits. One compliance strategy, though, has proven successful. Refiners that made modest investments in blending capacity, or in advanced and cellulosic biofuel technologies, have been able to comply with the program by generating their own RIN credits.
Congress has tried to give relief to small refiners that are unable to blend biofuels. Most recently, the Senate Appropriations Subcommittee for Interior, Environment and Related Agencies firmly directed the U.S. Environmental Protection Agency (EPA) to grant small refiners exemptions from the program to ensure they “remain both competitive and profitable.” The agency has followed that direction and eased requirements for these hardship exemptions.
But EPA has also recognized — and categorically stated in the most recent RFS rule — that refiners are not harmed by complying with the program. Independent refiners recoup their compliance costs when they price their product for blenders; fuel blenders, in turn, recover their cost by blending biofuels and acquiring RIN credits. The refiners’ protests about high RIN costs are, in the agency’s understated opinion, unsupported by evidence and “unconvincing.”
Fortunately, EPA seems to have learned important lessons from when refiners cried wolf over the so-called blend wall. In 2013, independent refiners activated their champions in state governments, Congress and the White House to demand limits on ethanol blending because of high RIN prices.
In response, EPA delayed issuing RFS rules for two years as it sorted out the claims. The agency then used its authority to waive the biofuel blending requirements for those years and to create staggeringly large banks of surplus compliance credits. Those reserve RIN banks come from actual gallons of advanced biofuels produced and blended into the U.S. fuel supply — even though the agency’s waiver authority was based on a claim that there was an “inadequate supply” of the fuel.
The number of reserve advanced biofuel RIN credits that refiners have accumulated and rolled forward from year to year now exceeds the number that they can legally use to meet the 2018 biofuel blending requirements. And yet that RIN bank has no impact on the price of the credits.
Many refiners have made smart business decisions and investments in biofuel production and blending capacity to capture the value of fuel diversification and the RFS program. For example, Flint Hills Resources has acquired several ethanol biorefineries and worked with biotech company Edeniq to launch new technology to produce cellulosic ethanol in those same facilities. The RFS was designed to support that type of innovation and it has been a success. Although it’s legal for refiners to comply with the program simply by purchasing RIN credits from others who innovate (and blend biofuels beyond the compliance targets), it isn’t necessarily a good business decision.
The RFS was designed to encourage biofuel blending. Biotechnology and biorefinery companies have invested hundreds of millions of dollars in advanced biofuel R&D and innovation. A new RIN credit price control scheme to reward such recalcitrance on the part of a few refiners will only disrupt the market and further derail new technology and investment in advanced and cellulosic fuels. Moreover, it’s likely to hurt rather than help small refiners.
Our recommendation for a win-win solution for oil refiners and the biofuel industry is for more oil to should invest in blending infrastructure and advanced and cellulosic biofuel production capacity to capture RIN credit values. The refiners can diversify their product offering and improve their competitiveness by working to meet the goals of the RFS, rather than digging their heels in against it. The benefit of improved energy security and market competition would also provide a win for U.S. motor fuel consumers.
James C. Greenwood is president and CEO of the Biotechnology Innovation Organization. He represented Pennsylvania’s 8th District in the U.S. House of Representatives from 1993 to 2005.