Ethanol industry mobilizes on 15th anniversary of RFS

Fifteen years after the passage of the Renewable Fuel Standard, which required that certain volumes of renewable fuel (from corn, cane sugar or other renewable sources) replace or reduce the quantity of petroleum-based transportation fuel, heating oil or jet fuel, the ethanol industry feels under siege.

The drop in driving due to coronavirus lockdowns and travel restrictions has severely affected both the oil industry itself and ethanol suppliers and refiners that supply blends to gasoline. President Donald Trump has shown apparent willingness to listen to the oil industry’s requests to exempt some refineries from the RFS mandate, further denting ethanol demand.

The reason given for Trump’s exemptions is to lessen the pressures on refineries and oil producers not just from COVID-19, but also from the oil price war between Russia and Saudi Arabia that sent oil prices plunging and caused a massive backup of supplies. But the exemptions have created “uncertainty and confusion” regarding the RFS, according to ethanol promoters.

To celebrate the 15th anniversary of the RFS, and to fight for its continuation past its current 2022 expiration date, the Renewable Fuels Association released a report detailing the history of the RFS and its growth and contributions to the economy.

The report:

• Claims “[T]he RFS has been a smashing success. In addition to decreasing reliance on imported petroleum, the RFS has reduced emissions of harmful tailpipe pollutants and greenhouse gases, lowered consumer fuel prices, supported hundreds of thousands of jobs in rural America, and boosted the agricultural economy by adding value to the crops produced by our nation’s farmers.”

• Denies that the RFS distorts markets, arguing instead that it “has been remarkably effective in stimulating market competition and giving consumers more choices. Simply put, the RFS ensures renewable fuels are able to gain access to a fuel market that had been monopolized for nearly a century and would otherwise be closed to competition.”

• Denies that the program will totally end or “sunset” in 2022, arguing that “Congress clearly intended for the RFS to continue driving innovation and growth in renewable fuels production and usage well beyond 2022.”

The RFS was under preparation for seven years, and almost passed several times before 2005. The 10% ethanol mandate replaced an earlier mandate for oxygen in gasoline, but the additive used to boost oxygen, MTBE, was blamed for dangerous pollution.

Geoff Cooper, president and CEO of the RFA, said the RFS is a “perfect example of how policy can drive markets and innovation.” In a conference call to mark the report’s release, he said the RFA stimulated investments in renewable fuel resources across the country. Neil Koehler, CEO of Pacific Ethanol, said that in 2005, there was only one ethanol plant in the western United States. Between 2006 and 2009, four plants were built representing $500 million of investment and thousands of high-paid jobs. Pacific Ethanol recently bought ethanol facilities in Nebraska and Illinois, expanding its reach.

Koehler became known for spearheading the industry’s drive to end direct subsidies to ethanol producers in 2011, although critics still call the RFS itself a form of subsidy.

Scott Richman, the RFA’s chief economist, said the ethanol industry has had a “very challenging year.” The Energy Information Administration estimates that U.S. liquid fuels consumption averaged 16.2 million barrels per day in the second quarter of 2020, down 4.1 million barrels per day (20%) from the same period in 2019.

The RFS “continues to boost consumption, despite exemptions,” said Richman. Since the RFS was passed, ethanol production increased on an annual basis from 4 billion gallons to 16 billion in 2019. He said ethanol keeps farmland in production agriculture, but without increasing acreage. Ethanol uses about 40% of each year’s corn crop, a percentage that has steadily grown without expanding acreage, but has come from yield increases. He said that despite challenges to farming, the value of the ethanol crop and of livestock has risen considerably since 2005.

The ethanol industry gave rise to the use of dried distillers’ grains—the high-protein, low-carb residue from ethanol production—as a high-quality animal feed. Since 2005, said Richman, 125 million fewer people around the globe are undernourished.

On the environmental front, Richman said ethanol blends have reduced CO2 emissions by 54 million tons since the RFS was passed.

During the Q&A period, Cooper admitted that the industry was in trouble before COVID-19 hit, due to the trade war with China and the loss of key export markets. He said about half of the ethanol industry was offline in April, but added, “We’re not done building demand for ethanol in the U.S.,” and said the promotion of E15 (15% ethanol) fuel will build long-term demand.

“We have the largest gasoline market in the world,” said Koehler. He noted that some farmers are self-blending E30 fuel for their pickup trucks “and these are not flex engines.”

David Murray can be reached at [email protected].