It’s a welcome surprise that the latest attack on the Renewable Fuels Standard mandate was recently launched by the head of Valero Energy Corp, which is the nation’s third largest corn-ethanol producer.
Valero CEO Bill Klesse 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 10 corn-ethanol plants. Klesse told the Senators the eight-year-old 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 fuel standard was passed in 2005 and set the volume of alternative fuels required, refiners were mandated to meet renewable volume obligations through the submission of renewable identification numbers. The numbers provided a method of tracking the program as well as some flexibility because they could be bought and sold. But, the numbers market has caused significant unintended consequences.
When the fuel standard was revised in 2007, it greatly increased the renewable volume obligations and that set the stage for big trouble. The requirement for much higher obligations at the same time the nation’s demand for gasoline was dropping has resulted in renewable identification numbers becoming a huge cost being passed on to consumers. For example, the price of corn ethanol renewable identification numbers was $0.05 in late 2012, now it’s as high as $1.16. Notably, at the outset of the fuel standard, the EPA stated in its regulatory preamble that renewable identification number cost would be “negligible.” Talk about being wrong.
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 renewable identification number market itself has been beset by allegations of fraud, raising serious questions about the 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 E15, a debacle with which we in the marine industry are all too familiar. 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 E15. While Valero supports ethanol and is a leading producer, experts have repeatedly noted that the E15 blend is not warranted for use by 95 percent of cars on the road today. E15 reduces engine life and prompts fuel pump failures and consumer misfuelings. The American Automobile Association even called on EPA ‘to suspend the sale of E15 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.”
Having failed to get the courts to consider that the EPA is in violation of the Clean Air Act by allowing E15 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 renewable fuel standard. The standard is clearly out of touch with today’s realities and we must push Congress to take the right actions.