The EPA will hold a public hearing on its proposed reduction of 2014 volume requirements tomorrow, and has established a 60-day comment period). In preparation, the Advanced Biofuels Association held a teleconference today, addressing concerns about what this could mean to future investments in the advanced biofuels industry.
EPA has proposed 2.2 billion gallons as the volume requirement target for advanced biofuels in the Renewable Fuel Standard (RFS) for 2014. This is the industry’s “worst nightmare,” said Michael McAdams, president, Advanced Biofuels Association (ABFA) in a teleconference today. The 2.2-billion gallon requirement is a 20 percent reduction from the 2013 advanced biofuel requirement of 2.75 billion gallons and more than a 40 percent cut from the 3.75-billion gallon mandate originally contemplated by Congress when it enacted the RFS.
The proposed reduction, McAdams said, “is a blow to those companies that are raising capital and producing advanced biofuels.” Approximately $14 billion has been invested in the advanced biofuels industry over the last six years, he said. The recent EPA proposal “will chill further investment,” McAdams added.
Wayne Simmons, president and CEO, Sundrop Fuels, and chairman of the ABFA, said that the industry cannot grow without financing. “It’s a capital intensive industry and lenders are risk averse.” He added that Renewable Identification Numbers (RINs) are attached to each gallon of renewable fuel produced, and that the value of these RINs is set by the market based on supply and demand. When the EPA sets the Renewable Volume Obligation (for parties required to participate in the RFS) less than the supply, the economic incentive to blend biofuels disappears as does the opportunity for the advanced biofuel industry to grow.
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Pavel Molchanov, senior vice president and equity research analyst, Raymond James & Associates, Inc., pointed out that EPA sets volume targets at the beginning of each year. The targets for 2014 are coming down, “a first for EPA,” Molchanov said. “If there is a mandate and it is set aside, it’s not much of a mandate. The stability and credibility of [this] policy is not ideal,” he added.
The EPA will hold a public hearing on its proposed reduction of 2014 volume requirements tomorrow, and has established a 60-day comment period (ending on January 28, 2014).
McAdams says the ABFA will focus on three main points in arguing against the EPA’s proposal.