Repealing ethanol mandate would hike gas prices, congressman says

If Congress axes the federal renewable fuel mandate, gasoline prices will climb and motorists would have fewer choices when they fill up, Rep. Steve King warned Wednesday.

The Corn Belt Republican, who has represented parts of Iowa in the House for a decade, said removing the eight-year-old renewable fuel standard would leave the U.S. with a defacto mandate for petroleum-based gasoline. The federal rule has come under fire from the oil and restaurant industries, which have called for its repeal because they say it  drives up the cost of gasoline and food.

A tariff on imported ethanol and a tax credit for blending biofuels into gasoline ended on Dec. 31, 2011. Now, King noted, the primary federal policy support for corn-based ethanol and other alternative fuels is the renewable fuel standard, which requires refiners to blend in steadily escalating volumes of biofuel.

“If they should be successful in bringing the renewable fuel standard to an end, that would mean the petroleum industry would lock ethanol out of the market,” King said at a policy event organized by National Journal. “It would drive your gas prices up significantly. It would drive your corn prices down significantly. In a short period of time, there would have to be an adjustment in those markets.”

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Decades of regulations have been built up around petroleum-based fuels, effectively blocking would-be competitors from entering the marketplace, King said.

Under intense lobbying, lawmakers are now considering whether — and how — to revamp the mandate, ranging from a complete repeal to much more modest changes.

Some lawmakers support freezing the renewable fuel standard at mandated levels, while continuing and implementing other policies to keep propelling work to bring advanced cellulosic biofuels made from non-edible plant materials to market. Advanced biofuel plants are under construction now, but they are not likely to produce the 6 million gallons of cellulosic ethanol that the Environmental Protection Agency said refiners are obligated to use this year.

King said the federal ethanol mandate is rightly characterized as a tool to provide market access to alternative fuels — not a subsidy.

“We need competition in the petroleum industry,” King said.

“If you want to end the renewable fuel standard, you have to find a way that there is open access to the distribution system in the country,” King added. “And since petroleum companies own that retail market — it’s their nozzle — you can’t get there unless you have an RFS.”

Proposals to provide government support for blender pumps and other renewable fuel infrastructure have been tough to move on Capitol Hill.

Oil industry leaders have said that even without a renewable fuel mandate, they would continue to use ethanol as an additive and oxygenator.

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Refiners insist changes are necessary now because they are hitting a “blend wall,” a point where adding enough ethanol to gasoline supplies to meet the requirements  would result in blends exceeding the 10 percent cap approved for use in all vehicles. On Tuesday, the American Petroleum Institute went to federal court to challenge the 2013 renewable fuel quotas established by the Environmental Protection Agency.

Biofuels backers say the Environmental Protection Agency has enough flexibility under current law to match annual quotas to predicted production levels and other market conditions.

King raised the specter of spiking oil industry tax breaks — or at least subjecting them to heavy scrutiny — if the RFS were repealed.

“If you want to declare the RFS to be some kind of subsidy, where it’s really not, it’s a market tool . . . then you need to look at the entire tax structure for the oil industry,” King said, before quickly emphasizing he supports all forms of energy, competition in the fuels marketplace and oil.

“I want them to succeed,” King said of the oil industry. “And I want to be able to compete against them in an open marketplace. That’s what the RFS does.”

Although there is wide disagreement about how to revamp the renewable fuel standard, Rep. Peter Welch, D-Vt., said there is growing consensus that the eight-year-old mandates haven’t worked as intended.

The tenor of the debate is “moving toward the elimination of the mandate,” Welch said.
But Peter Lehner, executive director of the Natural Resources Defense Council, was skeptical.

Given the logjam on Capitol Hill on even routine legislative matters, “the notion that we can fine tune this in Congress is a dream,” Lehner said. “So either chum it entirely or make it work.”

Most criticism of the RFS is directed at corn-based ethanol that helps fulfill the mandates. But Lehner stressed that the policy “is driving some movement forward on cellulosic and advanced biofuels” that eventually could satisfy renewable quotas. “The RFS is moving us toward where we want to be,” he said.

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