Under the nation’s biofuels policy known as the Renewable Fuel Standard, the Environmental Protection Agency (EPA) is supposed to set an amount of biofuels—ethanol, biodiesel, and low carbon advanced biofuels—which are to be blended into the nation’s fuel supply. That amount is to be finalized by the EPA on November 30 of the previous year so as to give energy markets a clear signal of what to expect.
Thus, EPA should have established the 2014 volumes by November 30, 2013. Instead, today, nine days short of a year late, EPA has announced that it “will not be finalizing 2014 applicable percentage standards under the Renewable Fuel Standard (RFS) program before the end of 2014.”
It’s not surprising that EPA missed its deadline; it has not been on time since 2009. But this year’s lapse is truly mindboggling. Consider: EPA will set the standards that fuels companies must comply with after the compliance year is over. The best guess now is that the 2014 standards will be set in February 2015, which is also the date the EPA has targeted for proposing the 2015 standards, three months after the statutory deadline for those standards to be finalized.
Earlier in the year, informed speculation was the Obama administration was delaying the announcement to be well-timed to help Iowa Democratic Senate candidate Bruce Braley in his campaign in Iowa. That was back in June when EPA Administrator Gina McCarthy indicated that the volume standards would be issued “soon”—although they were already by then seven months late.
Accordingly, the administration didn’t think it could push up the ethanol totals high enough to give Braley—a champion of the RFS—a political bounce, so it deferred making an announcement. Finally, after the election and a year of waiting, speculation and concern in the markets led EPA to finally say something, and today the agency did, announcing that it would do nothing this year. An EPA spokesman added that the agency does hope to “get back on” an annual standard for 2014, 2015, and 2016 next year.
Ironically, by all accounts the ethanol industry has had a very productive and profitable year—effectively without a mandate in place. Biofuels have found a role in the marketplace, even if one forced by the original biofuels mandate. According to the U.S. Energy Information Administration, through the second week of November, ethanol production was outpacing last year’s trend when an actual volume mandate was in place.
Indeed, the federal government has proven inept at projecting what fuels markets will do in any given year, which should cast doubt on whether EPA should get back on track for projecting and prescribing biofuel levels in the coming years. What is the purpose of a mandate if it is set after the fact, as it will be this year?
There was a downside to the inaction, however. For a year, speculation and anticipation of EPA’s announcement moved crude oil, gasoline, ethanol, and corn markets, up and down. That imposed a hidden cost on consumers and an added regulatory cost of doing business to companies in all sectors involved. And in the end, all for naught. That is one of the problems with industrial policy like the RFS.
Policy makers should take note that despite the distraction of the RFS, the market ultimately prevailed, and EPA will be left to merely certify what happened in 2014 sometime later in 2015. The RFS, as has been shown, is not needed.
Dave Juday is an agricultural commodity market analyst.
