December 13, 2018

A bill that would require new cars to operate using more efficient gasoline and sunset the Renewable Fuel Standard drew praise and criticism at a House Subcommittee on Environment hearing Tuesday.

The 21^st Century Transportation Fuels Act (section-by-section summary here) requires manufacturers of light-duty vehicles model years 2023 and later to design motor vehicles to operate using gasoline with research octane number (RON) of 95 or higher and improve fuel economy connected to the use of 95 RON or higher level gasoline.

An octane number is a standard measure of the performance of an engine or aviation fuel. A higher octane number means the fuel can withstand more compression before detonating (igniting). The auto industry has advocated making 95 RON the new regular in the U.S. as an affordable way to increase fuel economy and reduce greenhouse gas emissions.

Steve Zimmer, Executive Director of the United States Council for Automotive Research, said 95 RON combined with engines designed to use it effectively could achieve an average 3 percent fuel efficiency “across the board.”

The bill also changes the Renewable Fuel Standard. As it exists today, the RFS requires certain volumes of biofuel to be blended into the fuel supply based on a schedule included in the Energy Independence and Security Act of 2007. That schedule only runs through 2022, after which the EPA is given broad authority to determine blend levels based on a variety of factors.

The new bill requires 15 billion gallons of conventional biofuel (ethanol) each calendar year through 2022, the same as current law. After that, the EPA would no longer establish required volumes of ethanol but would establish volumes of advanced biofuel, cellulosic biofuel, and biomass-based diesel for years 2023-2032 that are equal to the actual volume of those three fuels produced during the preceding calendar year. Those levels could be changed mid-year in the event that production increases. The RFS would then sunset at the end of 2032.

Critics of the bill—which included representatives from the National Corn Growers Association, Growth Energy, and the Renewable Fuels Association—praised the subcommittee’s ongoing efforts to develop high-efficiency vehicles and fuels but expressed two main concerns with the draft bill: first, they said oil refineries could meet a 95 RON standard without blending more biofuel, thereby reducing the market for their industry and limiting the impact of the 95 RON standard on greenhouse gas emissions if the RFS is sunset.

They point to an Energy Information Administration study released July 2018 which concluded that “introduction of the new 95 RON grade in 2022 reduces octane requirements because it replaces premium grades with up to 98 RON. As a result, existing domestic refineries should have no problem meeting the 2022 requirements based on the assumptions in this study.” The study assumed all domestic gasoline consumed in its 2022 and 2027 cases would contain 10 percent ethanol, which is the same average as in 2017.

The discussion draft “would not result in increased market opportunities for ethanol,” concluded Geoff Cooper, President and CEO of the Renewable Fuels Association. In fact, he said it could reduce demand for ethanol as refiners could meet the standard with other products, like aromatics.

Emil Skor, CEO of Growth Energy, echoed that sentiment, pointing out that the 95 RON standard is “easily met” with today’s gasoline, which costs 50 cents more per gallon than regular fuel with the current 10 percent ethanol blend.

“This draft will lead to reduced blending with biofuel,” she said.

Brooke Coleman, Executive Director of the Advanced Biofuels Business Council, called the draft bill an “open invitation for the oil industry to use less biofuel.”

The renewable fuels groups were not opposed to the 95 RON standard itself, but rather the fact that the 95 RON standard combined with a sunsetting of the RFS would eliminate policy certainty that a higher blending of renewable fuels, like 15 percent ethanol, would be how refineries would achieve it.

“By taking away the guardrails of the RFS, you’re closing the market from competition,” said Ms. Skor. “A high octane standard coupled with guardrails to ensure we’re using renewable octane should be the path forward.”

Second, critics claimed that using the previous year’s production levels to determine that year’s volumes does not properly factor in the growth of their industries, thereby limiting their ability to attract investment and continue to grow.

Kurt Kovarik, Vice President of Federal Affairs for the National Biodiesel Board, said the EPA “continually sets biomass-based diesel volumes well below our demonstrated capacity,” and that “limits growth of advanced biofuel volumes.”

Backward-looking volume requirements, he said, “may protect existing assets in the near-term, but would not drive growth.” He suggested instead that regulators look at the current market and include “reasonable, achievable levels of growth” such as five percent year over year.

Manning Feraci, Director of Federal Government Affairs for the Coalition for Renewable Natural Gas, agreed.

“You want to have a formula going forward that does drive growth,” Mr. Feraci said. “If you just look back at previous production, it can have the unintended consequence of production being flatter or even contract.”

While most of the witnesses on the two panels expressed opposition to one or both of these provisions, there were also those who support the idea of sunsetting the RFS in exchange for a 95 RON standard.

Among them was Chet Thompson, President of the American Fuel and Petrochemical Manufacturers, who said the group does not support the draft in the current form but that it “moves the ball” toward eliminating the RFS, which he called “unsustainable” and “bad for consumers” in its current form.

“The [RFS] program must end when a new RON standard takes effect in 2023,” he said.

He called other panelists’ claims that refineries would not use ethanol to meet the 95 RON standard without the RFS “inaccurate.”

“Ethanol is the cheapest source of octane, and we’re trying to put more octane in the fuel supply,” he explained.

Michael McAdams, President of the Advanced Biofuels Association, agreed that the changes in the bill would not erode market opportunities for ethanol.

“It has nothing to do with whether the oil industry will buy the fuels or not, because they’ll but it if it’s cheapest,” McAdams said.