What the EPA's Latest Announcement Means

  • Friday, 21 November 2014 00:00

The EPA's long-awaited announcement on the RFS targets for 2014 were finally announced today. And the announcement? No decision on the 2014 RFS targets would be made in 2014.

But what does this announcement mean? At first glance, it appears as though the EPA's announcement was a major non-event. But a closer look reveals a few positives and negatives for the biofuel industry.

Positives

By not making a decision on the 2014 RFS targets, the EPA effectively threw out it's ill-advised proposal that was made in November 2013 to reduce the renewable volume obligations (RVOs) stipulated in the RFS. By not making a decision this year, the EPA has essentially admitted that that proposal is null and void.

In previous months, speculation was rife that the EPA would scale back on its original proposal to set ethanol consumption under the RFS this year at 13.01 billion gallons. Several reports indicated that the new target was set at 13.6 billion gallons. But, considering that there are five and a half weeks left in 2014, it made no sense for the EPA to set any new target for this year.

Negatives

The EPA may have thrown out its original proposal to reduce ethanol consumption in 2014 but the fact that that decision was made on Nov 21 does not bode well for the ethanol industry. The original RVO for this year was 14.4 billion gallons. If the EPA hadn't made it's ill-informed proposal last year, would ethanol production be higher than it currently is? Would some ethanol producers have scaled back on expanding their plants? What does this mean for investments in second generation biofuels?

And by not making a decision (which essentially is what the EPA did), what does that mean for the years ahead? Shouldn't the EPA have already released the RVO targets for 2015? Perhaps the EPA feels it can step back and let the market sort itself out, as it did this year. But if that's the case, what are we to make of next year's targets?

Based on the RVOs under the RFS, ethanol consumption in 2015 is supposed to hit 15 billion gallons. Will the EPA stick to this or will it once again let the market dictate what it should be? And if the EPA chooses that path, doesn't that go against the whole point of the RFS? As stated in its notice, the goals of the RFS is to reduce greenhouse gas emissions and diversify our nation's fuel supply. But without sticking to the RVOs in the RFS, will we ever achieve that goal?