Biofuel industry shocked by Obama administration move to cut fuel mandate

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EPA,PennAve,Energy and Environment,Bob Goodlatte,Zack Colman

The re-evaluation for the biofuel industry started weeks ago, when a leaked document indicated the Obama administration planned to make cuts to the policy underpinning the U.S. renewable fuel market.

Industry groups and insiders thought they had friends inside the administration who would act as a firewall to any changes to the Renewable Fuel Standard. So the industry concentrated its resources — complete with a new, unified lobbying campaign — on Congress to block changes to the biofuel blending mandate.

In the end, that belief in the White House proved to be false confidence. On Friday, the Environmental Protection Agency proposed cuts to next year's blending target that the biofuel industry contends could threaten long-term growth in next-generation technologies.

Biofuel groups searched for the words to describe the administration's gut punch. They found few.

"I think it's fair to say we thought we had more support in the administration than we did. And we thought that based on public statements and private assurances from the administration," an industry source said.

"It clearly caught folks by surprise," said Michael McAdams, president of the Advanced Biofuels Association.

The biofuel industry felt it didn't have to worry about the White House, sensing it had several key allies in the Obama administration.

Heather Zichal, the president's climate adviser until last week, is an Iowa native who often touted biofuels in speeches. Agriculture Secretary Tom Vilsack is a former Iowa governor who champions the Renewable Fuel Standard. And Gina McCarthy, the new Environmental Protection Agency chief, oversaw implementation of the fuel rule when she headed the EPA's air quality division until assuming the top post this summer.

But the EPA officially proposed cutting the renewable fuel target for 2014 to 15.21 billion gallons — down from 16.65 billion gallons this year and a scheduled 18.21 billion gallons for next year.

"Since that leaked document, everybody in the administration has heard from the biofuel industry," McAdams said. "It woke us up big time. If we were surprised then, we are in full throttle now."

Privately, industry sources recently said the administration's support of biofuels had grown tamer over the years — particularly when it comes to the purported greenhouse gas emissions benefits of corn ethanol. The environmental community has lobbied against corn ethanol, saying it's a net loser for emissions.

"I think that the work that the environmental community has been doing really tells the truth about corn ethanol and really cuts through the propaganda," said Craig Cox, senior vice president for agriculture and natural resources with the Environmental Working Group. "I really do think that the Image of corn ethanol has changed."

The blending rule, passed by Congress in 2005, intended to develop a domestic biofuel industry as a means to reduce greenhouse gas emissions and oil imports by setting requirements for refiners to blend that fuel into conventional petroleum. Those targets accelerate annually, ending with 36 billion gallons by 2022.

There was still a perception of administration support for the Renewable Fuel Standard as a means to expand next-generation biofuels, which can be produced from replenishable stocks such as algae and switchgrass.

That pushed the biofuels industry to focus its efforts on the Senate when it unified under the Glover Park Group-led Fuels America umbrella late in 2012, although without McAdams' group.

Capitol Hill dialogue on the Renewable Fuel Standard was reaching a fever pitch following the sweltering summer of 2012, which left the corn-growing Midwest ravaged by drought. The livestock and oil industry were hammering the Renewable Fuel Standard, saying it was driving up corn prices.

Lawmakers in both chambers on both sides of the aisle began introducing legislation to change or repeal the mandate. Industry insiders said Glover Park Group suggested the Senate, believing it was friendlier to the Renewable Fuel Standard.

Whether that proves for naught is not clear. But the blow dealt by the administration — once believed to be in the biofuel industry's camp — has delivered momentum to the standard's congressional opponents.

"While the EPA's slight reduction of the RFS for 2014 acknowledges that the mandate is unworkable, it is not enough to provide the much-needed relief businesses, farmers and consumers need," said Rep. Bob Goodlatte, R-Va., who is pushing legislation to repeal the blending mandate.

On Friday, the EPA argued the rule had become untenable in the face of declining gasoline demand — a result of more efficient vehicles and the economic downturn — and that refiners were approaching a "blend wall" in which they would need to churn out gasoline with higher-than-normal ethanol concentrations to meet the target.

That the administration even mentioned the blend wall was a shock to the biofuel industry. The oil industry, which opposes the fuel rule, uses that term to describe the point at which refiners must produce higher ethanol blends to meet the Renewable Fuel Standard's increasing marks.

"I am surprised that the administration has adopted the oil industry's message," Renewable Fuels Association President and CEO Bob Dinneen said. "But I believe the administration is still committed to biofuels."

Vilsack, perhaps the biggest Renewable Fuel Standard booster in the administration, said the White House "remains committed" to biofuels. But he added, "It's important to take the long-term approach to the RFS," saying more must be done to improve distribution — hinting at concerns about the lack of infrastructure for E15, a midlevel ethanol blend.

The biofuel industry says that the proposed changes would be devastating.

It contends the new levels would threaten investment in the next-generation biofuels the rule was designed to encourage when Congress expanded it in 2007. Some of those facilities, which have been slow to develop, are expected to come online next year.

"A lot of entrepreneurs and small businesses in our industry have invested significant amounts of money based on the administration's stated support, so to them it is incredibly disappointing to see numbers like this," Anne Steckel, vice president of federal affairs with the National Biodiesel Board, said in an email.

Dinneen added, "I hope that they're not intending to throw us under the bus, because farmers have invested in this industry."

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