The Reformulated Fuel Standard (RFS) was established by the Energy Policy Act of 2005 and was expanded and extended by the Energy Independence and Security Act of 2007 (EISA). RFS requires set volumes of biofuel (ethanol, biodiesel, cellulosic ethanol and advanced biofuels) be blended into motor vehicle fuels.
Biofuel opponents are complaining that refiners are now crashing into what is called a “blend wall,” meaning that federal regulators have forced them to purchase more ethanol than they can safely put in their gasoline. Refiners are reluctant to blend more than 10% ethanol into gasoline because they believe that consumers don’t want it, and because a higher volume can damage the engines of older cars, boats and electrical equipment.
By requiring an absolute number of gallons of ethanol that must be blended into gasoline, the regulation did not allow for the sharp drop in gasoline consumption due to the recession. Improved fuel efficiency is also contributing to reduced demand for gasoline.
The Energy and Power Subcommittee of the House Energy and Commerce Committee held a hearing on June 26, to review issues associated with the Renewable Fuel Standard (RFS). The Committee heard testimony from officials from the Energy Information Administration (EIA), the Environmental Protection Agency (EPA), and US Department of Agriculture (USDA).
Adam Sieminski, EIA Administrator, stated that it is unlikely that US biofuel production levels will ever reach the RFS targets, that levels of ethanol consumption would likely stay steady if the RFS were repealed, and infrastructure constraints remain the key obstacle for higher blends (5% of vehicles and 2% of fueling stations are currently equipped for E15 and higher ethanol blends).
Christopher Grundler, director of EPA’s Office of Transportation and Air Quality, Office of Air and Radiation, testified that EPA agrees that the RFS requirements will lead to production of more ethanol than can be consumed if no more than 10 percent is used in gasoline. However, he suggests that refiners who are required to blend a larger volume of biofuel than they are able can buy credits, called RINs or renewable information numbers, from refiners who used more biofuel than required.
Dr. Joseph Glauber, chief economist at USDA reported that the increase in U.S. ethanol production was estimated to account for about 36 percent of the increase in corn prices over the period from 2006 to 2009. Corn-price increases help farmers’ income but also increase the number of food-insecure people globally. USDA expects increased corn prices to have little impact on US retail food prices.
Several bills that would revise or eliminate the RFS have been introduced in the House and Senate (S. 1195, H.R. 1482 and H.R. 1461), but none have made it out of their reviewing committees and none are expected to become law.
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