Iowa House, Senate pass RFS, send bill to Vilsack for signature

By Jeff Caldwell

Iowa already leads the nation in the production of renewable fuels, and now it is another step closer to becoming also one of the top consumers of ethanol and biodiesel in the U.S.

Both the Iowa Senate and House of Representatives, on April 11 and 12 respectively, voted almost unanimously to approve an Iowa Renewable Fuels Standard (RFS), sending the bill to Gov. Tom Vilsack for his signature. As of April 18, Vilsack had yet to sign the bill, which many agree he will do so upon returning to the state after his current trip to Afghanistan and the Middle East to visit Iowa military troops.

With the forthcoming likely enaction of the RFS, Iowa will become just the fifth in the U.S. to have a plan for the assimilation of renewable fuels into the state's fuel complex.

Details of the Iowa RFS

The RFS legislation approved in the Iowa legislature does not explicitly require the use and sales of renewable fuels. Rather, it incents retailers to offer ethanol and biodiesel by providing tax credits that grow proportionally as an individual retailer sells more of the products. According to Iowa Renewable Fuels Association executive director Monte Shaw, the RFS starts at 10 percent in 2009 and will increase to 25 percent by 2019. This falls short of the schedule for which IRFA was lobbying, but Shaw said it remains the most aggressive schedule for the assimilation of renewable fuels into the mainstream in the nation.

"We think the schedule could have been a little more aggressive, but we realize we have to compromise a little bit on this," Shaw said after Senate passage April 11. "The key thing is accountability. We didn't want some goal thrown up for window dressing. We wanted a schedule that is attainable and aggressive."

The new ethanol promotion tax credit--the incentive whose growth is contingent upon retailers' adherence to the RFS schedule--increases by 2.5 cents per gallon for retailers, according to IRFA, who stay within four percent of the schedule. The incentive grows to 6.5 cents/gallon for those retailers who meet or exceed the RFS schedule.

"This bill links the ethanol incentives the retailers get directly to the schedule," Shaw said of the Senate bill. "So, those retailers who are leading the way, leading the RFS schedule, they're going to get more cents per gallon than retailers who fall behind that RFS schedule. And, in fact, if they fall too far behind that RFS schedule, they're not going to get an ethanol incentive at all."

Yet, at the same time, the RFS bill poised for passage at Gov. Vilsack's desk is not a mandate, something that bodes well for the increased consumption of renewable fuels in the state.

"[Retailers] are not required to sell a drop of E10, E85 or biodiesel. If they want to maximize the incentives from the government, then they will find a way to meet this schedule," Shaw said. "It's not a per-gallon mandate or penalty--they can use whatever blend of ethanol or biodiesel to achieve that schedule.

"We hope that when the retailers do the math, look at the number of flexible-fuel vehicles coming off the line, it's an easy decision."

Petroleum industry

responds to the RFS

The fact a mandate is omitted from the RFS plan poised for implementation has been well-received by the petroleum industry in the state of Iowa. On top of that, Dawn Carlson, president of the Petroleum Marketers and Convenience Stores of Iowa, said the legislation will benefit the consumers. For this reason, PMCI supports the current Iowa RFS plan.

"We're very pleased with this package, as it supports choice--not mandates-- and ultimately benefits consumers," Carlson said. "PMCI members have a strong history of encouraging the sale of renewable fuel products which benefit agriculture and all Iowans, and we're proud to see this legislation move forward."

Carlson added that almost 80 percent of the state's gasoline sales are blended with ethanol or biodiesel.

While the RFS bill is positive for petroleum retailers in that it does not mandate the sale and use of renewables, the amount of funding made available in the RFS to assist retailers with the costly process of retrofitting tanks to accommodate E85 fuel, for example, are still lagging behind what is really needed. In the Iowa Values Fund, grant and cost-share funding is devoted solely to this purpose, but it does not come close to what's needed, some say.

"We're certainly pleased it doesn't involve penalties to retailers. I don't think that we (retailers) could take any more abuse because of the abuse we're already taking now from high gas prices," said Larry Bentler, president of Jet-Gas, Inc., and a PMCI director. "I don't think there's enough money available--it seemed to run out fast last time around. We applied for it and got turned down last year. It's enough to do about 60 stores.

"We really need to get about $40 million a year. If we had $40 to $50 million a year, we could do every station in the state of Iowa, 100 percent paid for."

According to IRFA, the Iowa Values Fund currently allots forgivable loans up to 50 percent of the cost of infrastructure improvements to accommodate renewable fuels, with individual retailers eligible for from $7,500 to $50,000 in forgivable loans depending on the infrastructure needs.

Response from

the farm sector

Corn growers were naturally pleased with the passage of a state Renewable Fuels Standard. According to Keith Sexton, Rockwell City corn grower and president of the Iowa Corn Growers Association, the bill shows the efforts by ICGA members and others who pressed for the RFS the state legislature did pay off. It also shows the leadership in the Statehouse is strong for agriculture.

"This is a big, big success for everyone, and it's due to the work of many people," Sexton said. "This success reflects the involvement of hundreds of ICGA members and some remarkable leadership in both the Iowa Senate and House."

Now that lawmakers have taken steps to move a Renewable Fuels Standard closer to adoption in Iowa, Sexton said it's time for Iowa to become the leader in ethanol and biodiesel sales at the pump. He feels corn growers and ethanol refiners are ready to complete the circle.

"We have the corn in this state and the production schedule for this season," Sexton said. "We have ethanol plants expanding to meet the need. We are ready to be the leaders in Iowa."

Becoming the leader in ethanol production and consumption is exactly the goal of what the Iowa legislature has begun in sending the RFS to the governor for his signature, according to Shaw.

"Quite frankly, the Iowa RFS bill should serve as model legislation for other states to follow," the IRFA executive director said. "Iowa is the leader in renewable fuels production. This legislation puts Iowa on the road to being the leader in renewable fuels use as well."

Jeff Caldwell can be reached by phone at 515-280-5405 or by e-mail at jcaldwell@mchsi.com. Midwest Ag Journal columnist and WHO Radio lead farm broadcaster Ken Root contributed to this report.

Date: 4/18/06

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