Valero, the nation's largest oil refiner and one of the largest ethanol makers, said the Renewable Fuels Standard needs to be rewritten.
Bill Day, Valero's vice president of media and community relations, said the RFS is not working "and needs to be changed fairly quickly."
Day said Valero is calling for a 2013 waiver from the 2013 manufacturing requirement for ethanol, keep the blending mix at 10 percent based on actual gasoline usage, and to make blenders the obligated party for generating renewable identification numbers - RINs - and not refiners.
"Valero supports renewable fuels," Day said. "We're producing ethanol, renewable diesel fuel from animal fats and have a 50-megawatt wind farm in the Texas Panhandle that provides the electricity to power a refinery next door.
"We understand renewable fuels and the challenges and the economics behind them."
He said not all Valero's ethanol is blended into its gasoline. Its ethanol is marketed to wherever the best return can be made, including being sold into markets in Chicago and New York harbor.
Steps to fix the RFS
Day said Valero is lobbying the United States Congress and the Environmental Protection Agency for three reforms of the RFS. These are:
Have the EPA grant a waiver for this year's RFS blending obligation.
"The EPA said it will look at the 2014 numbers and try to come with a reasonable obtainable goal," Day said. "That has already taken pressure off the RINs prices. The EPA has the power to grant a (2013) waiver."
Wants RFS tied to actual gasoline usage at the 10 percent level.
"We're in the business of fueling vehicles, and we know that E15 has only been warranted for vehicles newer than 2012 if they're General Motors vehicles.
"That leaves hundreds of millions of vehicles that don't have warranty protection for E15. Auto makers have said they'll void the warranties if (vehicle owners) use E15."
For retailers considering adding the equipment to pump E15 or larger blends, Day said, "That leaves a sad expense for retailers. That's tens of thousands of dollars. Many of them are independent people and they don't have the budget for that.
"So going E15 sounds good, but it's not feasible."
He said if the EPA authorizes E15 for general use, "it wouldn't solve the overall problem of the RFS continuing to increase, while actual gasoline usage continues to decrease.
"The problem is you don't have enough numbers of gallons of gasoline in use to physically blend all those required gallons of ethanol.
"We say fix the obligation at 10 percent of actual gasoline usage. Then ethanol makers are happy and refiners are happy."
Make the blender of the ethanol the obligated party of the RINs. Currently, refiners and importers of gasoline are the obligated parties to generate RINs.
"People ask me, 'Why are you complaining about RINs prices? You're an ethanol maker; you make lots of ethanol. Don't you get those RINs?'
"Valero doesn't. The RINs are created when the ethanol is created. The RIN travels with the ethanol until it is blended with a gallon of gasoline.
"Valero doesn't do all its own blending. It happens further downstream of the refinery. We're not part of that. We make much more gasoline than we blend."
When ethanol leaves the refinery - it is called blend stock for blending, Day said - it goes to terminals where the blending occurs.
"When you blend the ethanol," Day said, the RIN gets separated and the blender can turn around and sell that to you, an obligated party like Valero.
"So the way the RFS is written, it picks winners and it picks losers - and a refiner like Valero is on the losing side of the equation.
"We think it would be fairer if it was the blenders to be obligated, since they are getting the RINs."
"With the cellulosic mandate," Day said, "the way that's written now, the advanced biofuels requires a certain amount of cellulosic ethanol to be blended into gasoline.
"But we (U.S.) are not making cellulosic ethanol on a mass-market basis. We're making very, very little of it.
"So it's a mandate to import ethanol from Brazil. Which is crazy."
He said the past several years have seen a national shift away from importing crude to domestic sources.
"We are importing much less crude oil, not importing any gasoline at all, we're not importing any diesel. Why would you create legislation that would require you to import fuel from another country, when everything else in this country sees a huge boom in domestic energy production?"
Day said Valero is calling for a subsidy, tax credit or financial incentive to help get domestic cellulosic ethanol development going.
Valero has invested in companies working on cellulosic processes, he said. Of the 10 ethanol plants it purchased, including the one at Fort Dodge, Valero plans that, once cellulosic technology becomes available, "we'll bolt it on and do cellulosic processing as well as corn ethanol processing," Day said.
Valero has never been a research and development company, he said, even on the petroleum refining side.
"We prefer to license technology from others," Day said. "We're not really into the development, but into the production side of things."
In noting two cellulosic plants positioned to start processing in Iowa by the end of 2014, Day said these were relatively small operations.
"This plant makes 120 million gallons of (corn) ethanol per year," he said. "This is a pretty good-sized ethanol plant. The two cellulosic plants are in the range of 20 million gallons."
Without a revamp of the RFS requirement to blend advanced fuels in gasoline in 2013 and 2014, the U.S. will have to continue importing cellulosic ethanol to meet the legal obligation, Day said.