The U.S. government is shut down until the U.S. Senate and House of Representatives approve the same version of legislation to fund it and the President then signs it into law. House Republicans have been trying to tie funding the government with defunding certain parts of the Affordable Care Act (ACA), which went into effect on October 1. The Senate has rejected every funding bill sent to it by the House because each has contained provisions to marginalize the ACA. The Senate has also rejected a piecemeal approach to funding the government. This has created a very high stakes game of ping pong between the two chambers of Congress.
Aside from the impact on the entire economy, the government shutdown directly impacts all regulatory and legislative efforts affecting the biofuels and renewable chemicals industries, including work on the Toxic Substances Control Act (TSCA) and the Renewable Fuel Standard (RFS). It will almost certainly delay upcoming expected rulemakings, including the U.S. Environmental Protection Agency's (EPA) proposed rule setting the 2014 renewable volume obligations (RVO) under the RFS. It is reported that nearly 95 percent of EPA's staff has been furloughed during the shutdown, leaving only 17 employees working in EPA's Office of Air and Radiation and three working in the Office of Water.
The shutdown also postpones hearings and other legislative efforts impacting industry, including the hearing scheduled October 3, 2013, before the Senate Agriculture, Nutrition and Forestry Committee on "Advanced Biofuels: Creating Jobs and Lower Prices at the Pump."
All legislative and regulatory efforts on the federal RFS are at a standstill until the government re-opens. RFS legislative and regulatory efforts, however, were strong in the days before the government shutdown.
Last week, the Biotechnology Industry Organization (BIO) sent a letter to EPA Administrator Gina McCarthy urging EPA to deny the joint petition by the American Petroleum Institute and American Fuel & Petrochemical Manufacturers requesting EPA grant a partial waiver of the 2014 RVOs under the RFS. Petitioners had argued that waiving the RVOs for 2014 to 9.7 percent of the U.S. gasoline supply is necessary so their members may fulfill their volume obligations under the RFS without exceeding the 10 percent ethanol "blend wall."
In its letter, BIO argued that petitioners may not make the waiver request because the RVO requirements do not apply to them as trade associations and, in any case, the joint petition is premature since EPA has not even yet released its proposed 2014 RVOs. In addition, BIO argued that the projected harm by the petitioners due to the blend wall is the result of "ongoing dilatory tactics of the very parties seeking the waivers" and that there exist ample options for obligated parties to comply with the 2014 RVOs. The Renewable Fuels Association (RFA) sent a similar letter to EPA opposing the joint petition.
Also last week, the heads of six biofuel trade associations met with Republican staff of the House Energy and Commerce Committee about Committee Chair Fred Upton's (R-MI) efforts to reform the federal RFS law. The six associations represented were: BIO; the National Biodiesel Board; Growth Energy; RFA; the Advanced Ethanol Council; and the National Corn Growers Association. The associations were unified in their message to staff that the RFS should remain intact as-is, with no changes. The associations argue that the consistency and stability of the RFS law drives investment in biofuels, especially advanced and cellulosic biofuels, and it contains sufficient administrative flexibility to enable EPA to make appropriate adjustments to its implementation, including any necessary lowering of annual RVO requirements for obligated parties. It is reported that the biofuels groups were told not to expect any legislative proposal to be released before EPA issues its proposed rule to set the 2014 RVOs.
In addition, last week, 20 conservative leaning business groups sent a letter to Congress urging the repeal of the RFS. Also, Americans for Tax Reform, a conservative anti-tax group led by Grover Norquist, began a letter writing campaign to Congress advocating for RFS repeal.
Finally, biofuels supporter Senator Chuck Grassley (R-IA) sent a letter to EPA asking what measures EPA is taking to investigate claims of RFS Renewable Identification Number (RIN) market manipulation and speculation.
Last week, federal securities regulators charged Imperial Petroleum, Inc. and its subsidiary, Indiana-based E-Biofuels LLC, with carrying out a fraudulent federal RFS renewable identification number (RIN) and tax credit scheme. It is alleged that from November 2009 to January 2012, this scheme generated 52 million fraudulent RIN credits and $35 million in false tax credits, and cost investors approximately $60 million. More information is available online.
This is the fourth major biodiesel RIN fraud case, but the industry's leading voice in Washington, D.C., the National Biodiesel Board (NBB), reportedly argues it should not change anything with respect to RFS RIN enforcement because the alleged illegal activities occurred before NBB and others worked with EPA on a new RIN enforcement proposal, which is expected to be promulgated this year.
This week, Senator Debbie Stabenow (D-MI) sent a letter to the Commodity Futures Trading Commission (CFTC) asking for an investigation into claims that speculators are manipulating the RIN market in which RIN credits are bought and sold to help obligated parties meet their annual renewable volume obligations (RVO) under the federal RFS. Senator Stabenow expressed concern with the lack of transparency in the RIN market.
Ethanol RIN prices have dramatically risen this year and there have been allegations that the increase has been the result of speculation.
The group of four Republican members of the House Energy and Commerce Committee tasked with examining proposals to reform the federal Renewable Fuel Standard (RFS) are reportedly still considering options for reform and compromise. This week, one of the members of the task force, Representative John Shimkus (R-IL), stated publicly that there may be avenues for compromise under the RFS' Renewable Identification Number (RIN) credit trading program. Other members of the task force include Representatives Lee Terry (R-NE), Cory Gardner (R-CO), and Steve Scalise (R-LA). The Biobased and Renewable Products Advocacy Group's (BRAG™) previous report on the task force is available online.
The U.S. Environmental Protection Agency (EPA) reportedly has completed its proposed rule setting the 2014 renewable volume obligations (RVO) for obligated parties under the federal Renewable Fuel Standard (RFS). The proposal is now being reviewed by the Office of Management and Budget before being published in the Federal Register, which will open the public comment period. By law, EPA is required to set the following year's RFS RVOs by November 30. The 2013 RVOs were not prepared in final until August of this year, which was likely due to EPA concerns about setting the volumes amidst legal, legislative, and regulatory challenges by obligated parties to the final 2011 and 2012 RVOs.
EPA included language in the final 2013 RFS rule indicating that it may reduce the overall RVOs in its upcoming 2014 RFS rulemaking. Just before EPA issued the 2013 final rule containing this language, leading trade groups representing the oil and gas industry, the American Petroleum Institute (API) and American Fuel & Petrochemical Manufacturers (AFPM), filed a joint waiver petition with EPA requesting that the Agency reduce the overall 2014 statutory RVOs to 9.7 percent of the U.S. transportation fuel supply due to what they argue are their blend wall concerns. The joint waiver petition is available online. This week, Valero Energy Corporation, the world's largest independent refiner, also sent in a petition requesting that EPA waive the 2014 RVOs. Valero cited the burdensome and high costs of Renewable Identification Numbers (RIN) needed for RFS compliance.
Several members of the biofuels industry have stated publicly that they believe there are several options that could, at least in part, address the impending so-called blend wall. The Renewable Fuels Association made this point in its letter to EPA urging the Agency to deny the waiver petition. RFA's letter is available online.
On September 6, 2013, EPA's Office of the Inspector General (IG) issued a report finding that the Agency does not meet the control standards for monitoring some of the new programs and activities designed to prevent and reduce instances of fraudulently generated RINs under the federal RFS. EPA's one-page report summary is available online and its 23-page full report is available online.
The EPA IG findings come at a vulnerable time for the RFS and its allies. Trade groups representing the oil and gas industry, among others, have called on EPA to modify the RFS in several ways, including to protect against RIN fraud. Those groups, as well as the National Biodiesel Board, worked with EPA to design a new plan to help protect against RIN fraud. EPA issued a proposed rule outlining the plan in February of this year. A copy of the proposed rule as published in the Federal Register is available online. The plan is expected to be completed soon.
The group of four House Energy and Commerce Committee Members tasked with examining ways to reform the federal RFS met this week for the first time since the August recess. The group was named by Committee Chair Fred Upton (R-MI) and includes Representatives John Shimkus (R-IL), Cory Gardner (R-CO), Lee Terry (R-NE), and Steve Scalise (R-LA).
Reportedly, the group is looking at potential proposals that could be released this fall. In general, the biofuels industry is working hard to advocate that the RFS is working as it was intended and the best course of action would be to leave the law in place as is to allow it to continue to drive investment in the industry. The next few weeks will be telling in terms of what, if any, proposals may be introduced or considered by the House of Representatives. There is no similar organized activity in the Senate. Senate Committee on the Environment and Public Works Chair Barbara Boxer (D-CA) has stated publicly, however, that she may hold a hearing on the RFS early this fall.
This week, the National Advanced Biofuels Conference and Expo was held in Omaha, Nebraska. During the three-day conference, industry leaders presented on and discussed major issues facing the industry, from legal considerations to advancing the aviation biofuels industry, supply, and feedstock successes and challenges. During the conference, Michael McAdams, President of the Advanced Biofuels Association, and Joe Jobe, CEO of the National Biodiesel Board, discussed some of their current federal policy priorities and work. Both spoke about the importance of the federal RFS to the industry and stressed the need for industry to unite at this time when it is increasingly under attack.
McAdams addressed the work this year of the House Energy and Commerce Committee to examine and reform the RFS. He mentioned that Committee's two-day hearing this summer on the subject during which he testified on the importance of the policy. He stated his expectation that legislation to reform the RFS could be drafted and considered by the House of Representatives by mid-October. He urged everyone to contact their Members of Congress on behalf of the RFS, if their trade associations asked them to do so.
Jobe made similarly supportive statements of the RFS and the need for the industry to unite. In addition, he stated the importance to the biodiesel industry of not only the RFS, but of maintaining the biodiesel tax credit. He attributed both policies to the industry's recent substantial growth, and cited them as important to achieving the industry's new goal of making up 10 billion gallons of the fuel supply by 2022.
Also during the conference, on behalf of Agriculture Secretary Tom Vilsack, Rural Development Acting Under Secretary Doug O'Brien announced that the U.S. Department of Agriculture (USDA) is making payments to support the production of advanced biofuel. USDA is making nearly $15.5 million in payments to 188 producers through the Advanced Biofuel Payment Program. USDA remains focused on carrying out its mission, despite a time of significant budget uncertainty. This announcement is one part of the Department's efforts to strengthen the rural economy. The funding is being provided through USDA's Advanced Biofuel Payment Program, which was established in the 2008 Farm Bill. Under this program, payments are made to eligible producers based on the amount of advanced biofuels produced from renewable biomass, other than corn kernel starch. Examples of eligible feedstocks include but are not limited to: crop residue; animal, food, and yard waste; vegetable oil; and animal fat. Through the Advanced Biofuel Payment Program and other USDA programs, USDA is working to support the research, investment, and infrastructure necessary to build a strong biofuels industry that creates jobs and broadens the range of feedstocks used to produce renewable fuel. More than 290 producers in 47 states and territories have received $211 million in payments since the program's inception. It has supported the production of more than three billion gallons of advanced biofuel and the equivalent of more than 36 billion kilowatt hours of electric energy.
Renewable fuel and chemical company Aemetis, Inc. announced this week that EPA has approved its Renewable Fuel Standard (RFS) pathway to produce ethanol using grain sorghum and biogas with the Company's existing Combined Heat & Power system to generate D5 Advanced Biofuels Renewable Identification Numbers (RIN). This announcement means that additional fuel will qualify to fulfill the annual renewable volumetric targets under the federal RFS statute. It comes as EPA is preparing its proposed RFS volumes for 2014, which the Agency indicated it would likely reduce from those set in the statute to adjust for supply and the impending ethanol blendwall.
Aemetis' press release on the announcement is available online.