Answers: The monthly mortgage payment, the carpool getting you to your first day at work, the flight to your Tahiti vacation, that Mother’s Day card. And … finalizing annual ethanol requirements under the Renewable Fuel Standard (RFS).
Question: What are some things that shouldn’t be late?
OK, so most people understand the importance of timeliness in the first four items above. Yet, for the nation’s refining sector, EPA’s annual responsibility to establish how much ethanol must be blended into the nation’s fuel supply under the RFS also is a big deal.
The RFS tasks EPA with setting ethanol requirements for the next calendar year by Nov. 30 of the preceding year. That way, refiners can make plans to comply with the RFS. Setting the requirements, on time, is EPA’s job. So, how’s the agency been doing lately? Not too well, as this graphic illustrates:
EPA hasn’t actually managed to meet the statutory deadline a single time in the past five years – but the 2011 rule was only nine days late, so we can call that close enough to be considered “on time.” The more recent delays have exacerbated RFS dysfunctions, including the approach of the ethanol “blend wall.” Ethanol requirements for 2013 weren’t finalized until August of 2013, eight months late. Requirements for ethanol use in the current year still aren’t done, and some think they won’t be completed until September or October – or perhaps even later. Clearly, ethanol requirement setting under the RFS is broken. Bob Greco, API downstream group director, recently noted:
“We’re concerned that this delay means EPA will further delay the final RFS requirements for this year. More than half of 2014 is behind us, yet EPA still hasn’t finalized the ethanol requirements for this year. The administration’s inability to meet the congressionally-mandated deadline of November 30 is a clear example of how unworkable the RFS is. And given the rule has yet to be submitted to the White House for interagency review, it most likely won’t be finalized anytime soon. … Right now, EPA should be proposing the 2015 requirements, but we’re still waiting for them to finalize requirements for this year. Unfortunately, this has become the rule rather than the exception when it comes to implementation of the RFS under this administration.”
The delay means multi-faceted problems for refiners:
- The lateness of ethanol requirements for the current year means they will have to be applied retroactively.
- While the RFS was supposed to generate regulatory certainty for the refining sector, issuing final ethanol standards after half the year is over does the opposite, sowing uncertainty. Refiners are in the untenable position of having to guess what this year’s standards will be.
- Whenever final standards are set, EPA’s delay likely impacts decisions regarding carryover Renewable Identification Numbers, or RINs, the federal credits refiners receive for blending each gallon of ethanol. When EPA issues the rule companies will learn whether they guessed right on their compliance plans, so EPA’s untimeliness potentially affects RIN prices and ultimately impacts the supply of gasoline and diesel fuel.
- As mandated ethanol volumes continue to escalate beyond the ethanol blend wall, EPA will have to continue to rely on its general waiver authority to adjust the standards down to feasible levels to avoid the adverse economic consequences. Timely issuance of the standards is becoming even more important as the volumes outlined in the law escalate.
More than a year ago Greco outlined the harm from EPA missing the RFS deadline in a letter to the leaders of the U.S. House Energy and Commerce Committee:
One and only one conclusion is clear … EPA has not taken statutory deadlines seriously. An annual RVO (renewable fuel volume obligation) standard-setting process that should be routine by now has been moving more and more slowly with each passing year, resulting in retroactive rules. This has created regulatory uncertainty which, in turn, has been both disruptive and potentially costly for the obligated parties who must plan for and demonstrate compliance with the rules, and it has likely been a factor contributing to the market volatility … In short, the annual RVO-setting process is flawed. The Agency has repeatedly missed the statutory deadlines and, as will be discussed next, has set aspirational standards. These issues create uncertainty for all of the program stakeholders.
For a number of reasons the RFS is broken and should be repealed. Among those is the basic regulatory function of telling those who must comply with the law what is required of them in a timely manner, as the law requires. Ethanol use requirements for this year, 2014, are eight months late already, helping cement the RFS as a towering example of the general difficulties associated with central economic planning and specifically in attempting to create artificial markets in a free-market system.