BIO Submits Comments to the EPA on the Agency's Extension of Compliance and Attest Engagement Reporting Deadlines for 2013 RFS

Dear Administrator McCarthy,

The Biotechnology Industry Organization (BIO) is pleased to have the opportunity today to provide non-adverse comment on the U.S. Environmental Protection Agency’s (EPA) proposed rule: Regulation of Fuels and Fuel Additives: Extension of Compliance and Attest Engagement Reporting Deadlines for 2013 Renewable Fuel Standards1 (hereinafter “proposed rule”).

BIO is the world's largest trade association representing biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States and in more than 30 other nations. BIO members are involved in the research and development of innovative healthcare, agricultural, industrial and environmental biotechnology products.

BIO represents nearly 90 companies leading the development of new technologies for producing conventional and advanced biofuels. Through the application of industrial biotechnology, BIO members are improving conventional biofuel processes, enabling advanced and cellulosic biofuel production technologies and speeding development of new purpose grown energy crops. Our membership includes companies that will produce commercial gallons of cellulosic biofuels in 2014.

EPA’s proposed rule will have a significant economic impact on a substantial number of renewable fuel producers. The uncertainty caused by EPA’s delay in finalizing the 2014 Renewable Fuel Standard (RFS) rules and the agency’s extension of the 2013 compliance deadline chills investment in advanced biofuel infrastructure. EPA’s delays in other rulemakings, such as pathway petition approvals, are creating additional uncertainty for biofuel producers, as well as obligated parties. Further, EPA’s delay in finalizing the 2014 RFS in conjunction with its extension of the 2013 compliance deadline closes the market to renewable fuels of all types, since EPA cannot retroactively require obligated parties to use more renewable fuel in 2014 than they have already. The market for renewable fuels is thus left in the hands of obligated parties who have a direct interest in blocking their access.

Further, EPA’s extension of the 2013 compliance deadline is harmful to biofuels companies with the extension of the validity of 2012 Renewable Identification Numbers (RINs). Surplus RINs suppress the value of investing in new production capacity and infrastructure forbiofuels, and data indicate that continued trade in 2012 RINs has suppressed the value of 2013 and 2014 RINs.

a. EPA’s proposed rule overbalances the regulatory policy in favor of some obligated parties.

EPA previously stated that it is extending the 2013 compliance and attest engagement deadlines in order to “be helpful to obligated parties.”2 But biofuel producers are also regulated parties under the RFS and are affected by this rulemaking, as EPA elsewhere noted. EPA should be aware that this proposed rule will have a significant economic impact – in terms of reduced investment – on advanced biofuel producers.

BIO submitted comments to the 2014 Standards for the Renewable Fuel Standard Program3 (hereinafter “2014 proposed rule”) emphasizing the need for EPA to promulgate the final 2014 RFS standards quickly.

The rapid rise and subsequent fall in RIN prices during 2013 can be attributed in part to uncertainty associated with the timing of the annual rulemakings. Prices began to climb in late February 2013 as the compliance deadline for 2012 RVOs approached and finalization of the 2013 Renewable Volume Obligation (RVO) proposal was delayed. RIN prices declined in August as the 2013 RVO was finalized. RIN prices also dropped in October 2013 as a draft of the 2014 RVO was leaked to the press.4 EPA subsequently has delayed the 2013 compliance deadline until after the release of the 2014 RVO to prevent a recurrence of price spikes, but has failed to consider the impact of suppressed RIN values on other regulated parties.

The 2013 rise in RIN prices can also be attributed in part to the ineffective strategies for meeting the RFS requirements that some obligated parties adopted.5 These obligated parties erroneously believed that purchasing RINs as a primary means of compliance would be less costly than investing in infrastructure for renewable fuels.6 EPA’s 2014 proposed rule would clearly and unfairly benefit the obligated parties who adopted this ineffective strategy.

Further, the claims of at least one of these obligated parties that high RIN prices caused undue hardship and higher prices for fuel should be examined more closely. In its 2Q 2013 earnings statement, filed with the Securities and Exchange Commission (SEC), Delta Airlines reported a loss of $51 million at its wholly-owned subsidiary Monroe Energy, which it attributed primarily to RIN costs of $50 million.8 Yet Delta at the same time reported an allocation of $25 million of losses for the quarter from Monroe Energy to the airline segment,reducing the reported losses for the refinery.9 Without that reallocation, Monroe Energy’s reported loss would have totaled $76 million. Again, in its 3Q 2013 earnings statement, Delta reported a $3 million profit for Monroe Energy and $16 million in RIN costs, asserting, “The refinery's profit was reduced by the cost of RINs that far exceeded their historical averages.”10 Yet elsewhere in the earnings statement, Delta reported an allocation of $36 million of gains from the refinery to the airline segment.11 Without that reallocation, Monroe Energy’s reported profit would have been $39 million. Delta Airlines appears to have adjusted Monroe Energy’s reported losses and profits to bolster its arguments about the undue impact of RIN costs.

Visit the link below to read the comments and footnotes in their entirety.