Ethanol Producer Says Renewable Fuel Standard Is Broken
Soundings Trade Only
September & October 2013
It's a welcome surprise that the latest attack on the Renewable
Fuels Standard (RFS) mandates has been launched by the head of the
nation's third largest corn-ethanol producer, Valero Energy Corp.
Bill Klesse, CEO of Valero, has called on lawmakers to scrap and
rewrite the country's renewable energy policy. Testifying before
the Senate Energy and Natural Resources Committee, Klesse said:
the RFS is broken. We should repeal it and start over. The
situation has completely changed." He couldn't be more right!
Valero operates 15 refineries and ten corn-ethanol plants. Klesse
told the senators the 8-year-old RFS law that requires refiners to
produce alternative fuels to help reduce the country's dependence
on foreign energy is "out of control" and needs to be overhauled
to better reflect today's marketplace.
Specifically, when the RFS was passed in 2005 and set the volume
of alternative fuels required, refiners were mandated to meet
renewable volume obligations (RVOs) through the submission of
renewable identification numbers (RINs). The RINS provided a
method of tracking the program as well as some flexibility because
they could be bought and sold. But, the RINS market has caused
significant unintended consequences.
When the RFS was revised in 2007, it greatly increased the RVOs
and that set the stage for big trouble. The requirement for much
higher RVOs at the same time the nation's demand for gasoline was
dropping has resulted in RINS becoming a huge cost being passed on
to consumers. For example, the price of corn ethanol RINS was
$0.05 in late 2012, now it's as high as $1.16. Notably, at the
outset of the RFS, EPA stated in its regulatory preamble that
RIN's cost would be "negligible." Talk about being profoundly
Moreover, given the projected future demand for gasoline, there
simply aren't enough gallons of gas in which to put all of the
required gallons of ethanol! What's more, even the RINs market
itself has been beset by allegations of fraud, raising serious
questions about EPA's ability to administer the program.
Now, if you're an ethanol producer and the gallons of gasoline are
not increasing while your gallons of ethanol are, what do you do?
Well, how about getting the EPA to pander to your interests by
allowing an increase in the amount of ethanol in each gallon of
gas. Hello E-15, a debacle we in the marine industry are all too
familiar with! But Klesse didn't mince words about this, either.
He told the Senate panel: Some have suggested, including the EPA,
that the refining sector should move the percentage of ethanol
blended from 10 percent to as high as 15 percent, a blend called
E-15. While Valero supports ethanol and is a leading producer,
experts have repeatedly noted that the E-15 blend is not warranted
for use by 95 percent of cars on the road today.
E-15 reduces engine life and prompts fuel pump failures and
consumer misfuelings. The American Automobile Association (AAA)
even called on EPA 'to suspend the sale of E-15 until motorists
are better protected.' There are also issues with boats, lawn
mowers, motorcycles, and other small engines. Greater reliance on
higher ethanol blends is not the way to go and would likely
undermine consumer confidence in alternative fuels. Plus, we must
all consider the effect corn ethanol in fuel has had on world food
prices," he further emphasized.
Having failed to get the courts to consider that EPA is in
violation of the Clean Air Act by allowing E-15 into the
marketplace, the marine industry, in concert with others in the
power products and petroleum industries, is pursuing the repeal
and revision of the RFS. The RFS is clearly out-of-touch with
today's realities and we must push Congress to take the right