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House Subcommittee Holds Hearing on RFS Reform Draft

 

On Tuesday, the House Energy and Commerce Subcommittee on Environment held a hearing examining the “21st Century Transportation Fuels Act,” a discussion draft introduced by Subcommittee Chairman John Shimkus (R-IL) and Rep. Bill Flores (R-TX) to revamp the Renewable Fuel Standard (RFS) by moving towards a fuel performance standard to reduce emissions and preserve the liquid fuels industry. The discussion draft would nix the 15-billion-gallon corn ethanol mandate in 2022 and transition to a national octane standard. In other words, the legislation would swap out a government mandate for a performance standard that autos, refiners and petroleum marketers would need to meet.

The draft legislation aims to encourage the production of high compression engines (HCEs) warrantied up to E20 and refiners to produce higher octane fuels known as 95 research octane number (RON) that would be compatible with HCEs. 95 RON is similar to today’s premium fuel that would lower emissions and preserve the liquid fuels distribution network. Although PMAA is concerned that implementing a higher-octane fuel may be used as an excuse to mandate E15 or higher ethanol blends, moving towards a performance standard versus a government-imposed mandate may have its benefits. 95 RON can be produced with an E0 blend, but given ethanol’s octane boost, E10 would likely be used to meet the 95 RON standard.

Referring to the discussion draft during the hearing, Rep. Flores stated, "We have to put consumers and the environment first, not our own self-interests. Either we can go with the status quo that everyone says is broken or have a compromise solution. There's not going to be a solution that makes everyone 100 percent happy."

Testifying before the Committee included Chet Thompson, President of the American Fuel and Petrochemical Manufacturers (AFPM), who said that “if implemented correctly, a transition from the RFS to a fuel-neutral, 95-RON performance standard has the potential to better address the needs of all stakeholders: the auto industry, marketers, biofuel producers, farmers, refiners, and most importantly consumers.” However, he stated that AFPM cannot support the draft as it is currently written because some provisions “fail to promote free market competition for fuels” and doesn’t do enough to fix the RFS.

Tim Columbus, general counsel for NACS and SIGMA, outlined several issues with the draft. He stated that the text of the draft must state that misfuelling technology must be cost-effective for retailers, not just auto manufacturers and said that the associations have cost concerns related to the size of the nozzles used to dispense fuels. He also said that the associations were pleased to see the draft include misfuelling liability protections but said that retailers who comply with the misfuelling prevention requirements must be protected from “all liability under state, federal, and common law with regard to any damages resulting from the misfuelling activity of a consumer.” Also, in his testimony, Columbus stated, “Currently, NACS and SIGMA have no position on the draft legislation.”

Geoff Cooper, President and CEO of the Renewable Fuels Association (RFA), stated that RFA cannot the support the draft because eliminating the RFS “would undermine the considerable progress our nation has made toward greater energy security, economic vitality and environmental health.” Cooper also stated that RFA does not support a 95 RON standard because it “is not a suitable replacement for the RFS beyond 2022.”

David Fialkov, Vice President of Government Relations for NATSO, stated that the small refinery waivers have “resulted in more volatility in RIN markets and lower demand for advanced biofuels.” Kurt Kovarik, Vice President of Federal Affairs with the National Biodiesel Board (NBB), echoed those comments and said that the draft doesn’t do enough to address the fact that EPA has negatively affected the demand for biodiesel by issuing small refinery waivers that allow small refineries to be exempted from obligations under the RFS.

Ethanol groups argue that their members are being hurt by the RFS small refinery exemptions because it indirectly reduces the corn ethanol mandate which drives down the value of RINs and negatively impacts their ability to make E15 a viable fuel in the marketplace.

PMAA applauds Reps. Shimkus and Flores’ work on trying to find common ground between the corn, refining and marketing interests. While this legislation may be a mixed bag for petroleum marketers, keep in mind that current law puts the responsibility of the RFS in the hands of the EPA to set yearly RVOs following 2022. Therefore, this bill is the first step that serves as a blueprint for future legislation where all parties must give something up to preserve the liquid fuels industry. PMAA will continue to monitor the progress of the draft.

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