Renewable fuel standards distort markets, critics say

Renewable fuel standards are distorting the refining industry in ways  lawmakers didn’t foresee when they set the mandates,  industry representatives said Tuesday at a Houston conference.

Import of renewable  fuel from Brazil, production fraud and and a misinterpretation of rules governing the use of a 15 percent ethanol blend called E15 are among the problems that have arisen from existing  renewable fuel standards, said Charles Drevna, president of American Fuel and Petrochemical Manufacturers.

He spoke at the North American Refined Products conference sponsored at the Saint Regis Houston  by Platts, an energy information service.

Most domestic ethanol is made from corn, but imports of cheaper, sugar-based ethanol from Brazil have cut into demand for ethanol from domestic producers.

The resulting glut in domestic capacity  has prompted producers to advocate a 15 percent ethanol content in gasoline.

“E15 is the best answer for the corn ethanol industry,” said Andy Lipow, president of Lipow Oil Associates. “It is plagued with overcapacity and E15 is seen as the answer.”

But refiners and some consumer advocates contend older vehicle engines  can’t handle the higher blend.

The first renewable standard, which Congress passed in 2005, required all fuel sold in the United States  for transportation to contain a specified minimum volume of  fuel produced from renewable sources.

Then the  Energy Independence and Security Act of 2007 set minimums that must increase over time for four  different categories of biofuels .

The requirements have distorted the market, Drevna said.

“The dialogue should be to repeal the renewable targets and let the market decide,” Drevna said. “The renewable fuel is difficult to comprehend when you are in the business and see the impacts it has.”

Refiners oppose requirements to blend more renewables  into their fuels, saying they increase costs and ultimately consumer prices.

Supporters of renewable fuel standards argue that biofuels lower  tailpipe emissions and reduce dependency on fossil fuels.

Drevna said production fraud has grown as producers attempt to benefit from a $1.01 per gallon tax credit. He said  fraudulent production claims accounted for a third of the  the 1.2 billion gallons of domestic ethanol recorded in 2012.

Drevna  also predicted future conflict between producers of ethanol and of cellulosic biofuels — fuels made from non-food sources that also are mandated under the renewable fuel standard.

“The corn ethanol guys are always saying, ‘we will be a bridge to cellulosic,’” Drevna said. “But if biofuels really come along, ethanol will be the first guys fighting them.”