The political world is buzzing in the wake of the president’s FY 2018 budget as many question what potential cuts or regulatory changes could mean for their industry. In Kansas, the corn ethanol industry, which plays a major role in our state’s economic future, is quickly becoming a political focus due to impending changes to the Renewable Fuel Standard (RFS) that could be disastrous for Kansas’ ethanol and Ag community.
For those that may not know, the RFS was created in 2005 as an effort to boost demand for domestic renewable fuels. The RFS mandates certain volumes of corn ethanol and other advanced biofuels be blended into our nation’s fuel supply.
In 2023, the Environmental Protection Agency (EPA) will assume complete control over the RFS. With that control, the agency could completely dismantle the successful corn ethanol industry that has played a major part in Kansas’ economic growth. The agency’s only requirement for setting biofuel blending volumes will be to set a floor for advanced biofuels. The EPA will have no obligation to include requisite amounts of corn ethanol for biofuel blending and could essentially eliminate corn ethanol from the RFS entirely. The threat is concerning to ethanol producers and corn farmers, as history shows the EPA has always seen conventional ethanol as merely a bridge to greater reliance on advanced biofuels, which could lead to a national low carbon fuel standard implemented by unelected bureaucrats.
For example, in the EPA’s Renewable Volume Obligation (RVO) rule for 2017, the agency seemed to meet the statutory volume of 15 billion gallons for corn ethanol. However, a closer reading reveals that the EPA assumes that only 14.3 billion gallons will be used in 2017 and additional non-corn based advanced biofuels will “spill over” to meet the total renewable fuel category. Furthermore, the RFS continues to restrict the percentage of ethanol in gasoline at approximately 10 percent, hindering any further growth. In addition, the EPA is currently considering changing which entity has to comply with the RFS from the petroleum refiner and importer to the terminal position holder. If the EPA grants this change being advocated by the likes of billionaire refinery investor, Carl Icahn, it would take away the incentive for retailers to continue to add higher blends of ethanol, such as E15, and make the RFS more complex, creating even more uncertainty for the corn ethanol market.
These grievances compound the extreme business uncertainty that a post-2022 RFS would cause for farmers and ethanol producers in the state. With their businesses on the line, many in the Ag community and ethanol industry are searching for new solutions to a post-2022 RFS that would allow the industry an opportunity to continue to grow domestically and through foreign exports. One leading proposition would be to take the EPA out of the process entirely and create a free fuel market without blending restrictions, which would allow corn ethanol to operate on a level playing field.
Free market proponents believe conventional ethanol would thrive in an open market, as it is the most cost efficient biofuel.
The constantly changing rhetoric surrounding renewable fuels and the RFS has previously prevented many in the industry from taking a step back to examine the program’s future, but stakeholders from the Ag and renewable fuels communities are realizing that 2022 is quickly approaching. This will be an interesting topic to follow as new alternatives to a post-2022 RFS are explored.