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South Dakota ethanol industry calls for larger ethanol market

WASHINGTON -- South Dakota’s $3.8 billion ethanol industry is facing a “glass ceiling,” according to officials.

Every year, the Environmental Protection Agency (EPA) releases a proposed Renewable Volume Obligations as part of the Renewable Fuel Standard (RFS) program. The Renewable Volume Obligations is the amount of biofuel that fuel blenders are required to blend into fuel.

In 2007, Congress set benchmarks for where the biofuel industry should be each year in terms of volume, but Congress gave the EPA power to amend the amount of ethanol that blenders must add to fuel each year.

Hunter Roberts, the South Dakota representative for the Governor’s Biofuel Coalition, said this could hurt South Dakota by causing an excess of ethanol production and could cause a lower corn volume demand the following year.

“It’s a slippery slope and we could end up with a lower demand for ethanol and lower demand for corn,” Roberts said. “It’s not a good thing for South Dakota, that’s for sure.”

The five renewable fuel categories under the RFS are biomass-based diesel, cellulosic biofuel, advanced biofuel, total renewable fuel and conventional biofuel. But, there were no standards set by Congress for biomass-based diesel past 2012.

On May 31, the EPA proposed 14.8 billion gallons of conventional biofuel be required versus the Congress’ standard of 15 billion gallons for 2017. Though this would fulfill approximately 99 percent of the RFS, it would mean the ethanol industry may lose out on profits from 200 million gallons of ethanol.

Since the Renewable Volume Obligations is still in the proposal stage, it is open for public comment. There was a public hearing June 9 in Kansas City, Missouri, and written comments will be taken until July 11.

Governors across the country and local biorefineries are adding their voice to the action. Roberts said the coalition is also disappointed the EPA did not meet the expectations of the existing law. But, the coalition is working to advocate for an increase in the Renewable Volume Obligations.

Many governors are writing letters in support of increasing the Renewable Volume Obligations, including Gov. Dennis Daugaard.

Daugaard wrote to the EPA on June 15, citing that “the ethanol industry has become a large part of South Dakota agriculture’s success story accounting for up to $3.8 billion in economic impact.”

Roberts said he thinks in terms of advanced biofuels there are some technological constraints, but for traditional biofuel, he does not think there are capacity or use constraints.

“I think it’s kind of a glass ceiling put on (ethanol) by the EPA of just 10 percent ethanol in fuel,” Roberts said. “South Dakota is a great example where we have hundreds of blender pumps that give consumers the ability to choose if they want to use fuel with a higher ethanol content. Not everyone has to use beyond E-10, but if the infrastructure is there, it gives those that wish to the ability to use it.”

Roberts said by lowering the Renewable Volume Obligations, the EPA lowers the demand for ethanol, which, in turn, tends to lower costs of the fuel.

Jeff Broin, CEO of POET, offered his opinion regarding the EPA’s proposed 2017 Renewable Volume Obligations under the Renewable Fuel Standard in a press release in May. POET is one of the world’s largest producers of ethanol and biorefined products with locations around the Midwest, including Mitchell.

“They once again fail to acknowledge the existing capabilities of the biofuels industry and fuel retailers in meeting the goals of the Renewable Fuel Standard,” Broin said in the press release.

Broin believes the ethanol industry is capable of meeting the 15-billion gallon mark set by Congress, and the EPA is “preventing this industry from meeting its potential and endangering the expansion of cellulosic ethanol.” He suggested the EPA make further revisions to their proposal.

"The EPA must amend these numbers to reflect the full volume for corn ethanol use laid out in statute,” Broin said.

But, Benjamin Hengst, the associate director for the EPA Office of Transportation and Air Quality, said there are reasons the EPA set the RVO the way they did.

“Simply setting the standards at the levels targeted by Congress and trusting that this will sufficiently incentivize the market to achieve the targets for 2017 would be inappropriate in our view,” Hengst said at the public hearing in Kansas City. “The gap between the volume target in the statute and the actual level of cellulosic production is simply too big — over 5 billion gallons.  This gap cannot be closed in the next 12-18 months.”

Hengst said the EPA understands Congress set the limits to be ambitious and wanted the renewable fuel industry to grow at a fast pace.

“While we are proposing to use the tools provided by Congress to reduce the annual volumes below the statutory targets, we are proposing standards that are consistent with Congress’ clear goal of increasing renewable fuel production and use over time,” Hengst said.

Broin is not alone in his dislike of the EPA’s proposal. Becky Pitz, the manager of the POET biorefinery in Mitchell, agrees that the industry is capable of meeting the 15 billion gallons set forth by Congress and by lowering the standards, the EPA is in effect limiting the ethanol market.

“What the EPA set is the amount of ethanol that has to be blended in the supply and that’s the amount that’s going to be blended according to policy. Whether blenders add more is their choice, but they tend to do the minimum that they have to,” Pitz said. “We just want a fair market place, that’s all we’re asking for. It brings price (of fuel) down and it’s better for people’s health and the environment.”

Pitz said the plant in Mitchell produces more than 72 million gallons of ethanol per year, and has a permit limitation of 76 million gallons of undenatured ethanol per 12 rolling months.

“It’s going to do more harm than good not to follow the RFS,” Pitz said. “The U.S. is losing out on those benefits that ethanol brings to the table.”

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