RFS report draws industry questions about CBO 'assumptions'
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WASHINGTON, July 2, 2014 - Biofuel advocates are questioning why a Congressional Budget Office (CBO) report requested by the chairman of the House Energy Committee and claiming the Renewable Fuel Standard (RFS) will drive up fuel prices omits what they say are the beneficial economic impacts of substituting biofuels for gasoline and diesel.
Critics also say the authors of the CBO report, which says gas prices could go up 9 percent by 2017 under the RFS, and diesel by up to 14 percent, fail to consider more recent and credible research from groups like Iowa State University and the Food and Agricultural Policy Research Institute at the University of Missouri that demonstrates biofuels bring petroleum-based fuel prices down.
“The CBO's conclusions are largely based on a careless analysis that relies on unsupported assumptions,” said Geoff Cooper, senior vice president with the Renewable Fuels Association (RFA).
The report, which was requested by Rep. Fred Upton, R-Mich. - he has called for changes to the RFS and said the CBO analysis “highlights the significant challenges facing the RFS” - comes at a time when biofuel advocates are bracing for a final rule from EPA that would severely reduce 2014 RFS biofuel blending requirements. That rule, which was expected to be announced this month, is now not expected to be released much before the end of September.
Embracing the report are groups opposed to the RFS who are lobbying Congress for its repeal, including livestock organizations who say grain prices are high because of corn being used for ethanol instead of feed; food processors who claim ethanol production drives up corn prices, and subsequently food prices; and the oil industry. Through June 27, the price of corn slumped 11 percent this quarter on forecasts that U.S. production will reach record levels.
The National Turkey Federation (NTF) said Monday it believes the CBO report justifies an expectation that EPA will keep the amount of ethanol required under the RFS through 2017 at about the 13-billion-gallon level called for in the pending proposal for 2014, arguing that to keep the mandate at EISA-authorized levels would drastically increase the price of corn.
If EPA allowed the higher targets of the original [RFS] to remain unchecked, CBO estimates the corn ethanol mandate's impact on corn prices would cause a dramatic increase, the NTF said.
“However, CBO reasons that EPA will not increase the RFS for corn ethanol above what could be absorbed at the maximum blending of E10,” or 10 percent, the group said, adding that it believes CBO thinks higher corn prices would boost corn production, but reduce food and animal uses of corn.
A bipartisan group of House members, led by long-time RFS critic, Rep. Bob Goodlatte, R-Va., issued a statement Friday that said the CBO report “confirms what a bipartisan majority in Congress already know - we must reform the [RFS].” The statement, which was also signed by Reps. Jim Costa, D-Calif.; Peter Welch, D-Vt., and Steve Womack, R-Ark., said the report “underscores the hardship that full implementation of the RFS would have on everyday Americans, and the unfeasibility of reaching the full mandate by 2022.”
The lawmakers say the “statutory challenges and inflexibilities in the law” EPA faces when implementing the RFS is highlighted “by the fact that over six months into the calendar year, EPA has still yet to finalize renewable fuel obligations for 2014.” The group said it was “vital that Congress provide a legislative fix to the RFS. Congress created this artificial ethanol market that is distorting the food and feed market, and Congress must provide relief from its unintended consequences.”
CBO analysts considered three scenarios, including one calling for the original biofuel blending requirements for 2017 by the 2007 Energy Independence and Security Act (EISA). Another scenario considered would extend to 2017 the reduced blending levels set in the EPA proposal now pending, while a third is based on a complete repeal of the RFS.
In a lengthy rebuttal to the report, the RFA's Cooper notes the CBO's EISA scenario calls for the consumption of 9 billion gallons of advanced biofuel and 15 billion gallons of conventional renewable fuel as required by the 2007 statute. Yet, much of the cellulosic biofuel requirement over the past several years has been waived due to delays in full-scale, affordable development of biofuels made from non-food crops, Cooper said, adding that CBO “improperly assumes” that EPA will require the cellulosic biofuel volumes that have been waivered to be entirely offset by other advanced biofuels.
The CBO, the RFA research chief says, fails to recognize that EPA has the statutory authority to waive the advanced biofuel standard and total RFS by the same, or lesser, amount as the waiver of the cellulosic biofuel standard. For example, if only 300 million gallons of cellulosic biofuel are available in 2017, EPA could - and likely would - reduce the cellulosic biofuel standard from 5.5 billion gallons to 300 million gallons, reduce the advanced biofuel standard from 9.0 billion gallons to 3.8 billion gallons, and reduce the total RFS from 24 billion gallons to 18.8 billion gallons.
“Biodiesel and renewable diesel could very likely account for most of the 3.8 billion gallons advanced biofuel requirement, while primarily ethanol would be used to fulfill the statutory 15 billion gallons requirement for renewable fuel,” Cooper said. His example, which entirely comports with EPA's statutory authority, requires that renewable fuel blending would be 5.2 billion gallons lower, a 22 percent reduction from the extreme scenario used by CBO, he said.
"On the bright side," Cooper says, “the CBO report gets two things right.” He praised the agency's finding that changes to the RFS would not have any effect on food prices, and that EPA's recent management of the RFS program - specifically the proposal to reduce RFS blending requirements - has significantly discouraged investment in next generation biofuels and retail infrastructure to dispense higher volumes of renewable fuels.
A CBO spokesperson declined a request to publicly respond to the criticism.
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