Bioenergy
Renewable Energy

RFS Roundup: No End in Sight to Trump’s Oil, Biofuels Problems

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September 14, 2018

On September 7, Congressmen David Young (R-IA) and Collin Peterson (D-MN) introduced the Restoring Our Commitment to Renewable Fuels Act (H.R. 6731), the latest attempt to correct what ag-state lawmakers see as EPA overreach on the Renewable Fuel Standard (RFS). The bill would require the EPA to reallocate the number of gallons that have been exempted from the RFS through a previously rarely used mechanism, small refiner exemptions.

Late this spring, the final straw for Scott Pruitt’s turn as EPA administrator may have been the revelation that the EPA had taken steps to grant small refinery exemptions to 48 petroleum refiners for the 2016 and 2017 compliance years, relinquishing them of their duty to either blend biofuels or buy compliance credits under the RFS, a core component of the program.

Small refiner exemptions are reserved for cases where refiners would face undue economic hardship in meeting the RFS. While completely legal and previously used upon occasion, it is now estimated that these undisclosed refiners have been exempted from blending 2.25 billion of biofuels.

 These exemptions include small refineries owned by refining giants such as Chevron Corp. and Exxon Mobil.  While EPA has not released the names of the refineries granted the waiver, in April, Reuters reported that the exemptions would save refinery owner Andeavor $50 million in 2017 alone.

When EPA released its proposed renewable fuel volumes for 2019, the exempted gallons were not reallocated among obligated parties – those refiners required to comply with the RFS.  During his first appearance before Congress, Acting EPA Administrator Andrew Wheeler stated that the EPA lacked the authority to reallocate the waived gallons.  

Farmers and biofuels producers argue that this is demand destruction, though there is disagreement to the degree this is actually occurring. Recent economic analysis by the University of Illinois shows that ethanol is currently the cheapest octane provider and is still being used at similar levels in the gasoline supply, despite the number of waivers granted by the EPA.  

The longer-term risk from the waivers is reducing biofuels credit prices, and depressing demand for higher blends of ethanol, such as E15. It would likely take a few years of sustained waivers to see the full effect. The University of Missouri’s Food and Agriculture Policy Research Institute’s estimates on the effects of the waivers are more bearish, finding that long-term application of waivers could reduce ethanol consumption by 4.6 billion gallons between 2018 and 2023.  The Renewable Fuel Association assumes the hit the biofuels industry would take a hit of approximately $20 billion for this loss in demand.

While several lawsuits wend their way through the courts to compel the EPA to address these missing gallons, lawmakers are now turning up the heat as well. According to Rep. Young (R-IA), “the EPA continues to chip away at the RFS by granting unjustified waivers to refineries.”  In addition to requiring the EPA to reallocate the waived gallons going forward, the bill calls for transparency in reporting who has received the so-called “hardship” waivers.

It’s the latest, but likely not the last, chapter in a months-long saga (https://www.eesi.org/articles/view/rfs-roundup-white-houses-last-meeting-on-rfs-raises-more-questions-than-ans) where the White House has sought to appease two key portions of Trump’s base – Midwestern farmers and the manufacturing sector. The White House had its own “elegant” solution – allowing year-round E15 sales, which currently are not allowed in the summer months, due to an obscure provision in the Clean Air Act (https://www.eesi.org/papers/view/fact-sheet-the-consumer-and-fuel-retailer-choice-act). This would create additional demand for biofuels, and is certainly low-hanging fruit for both the President and biofuels supporters, even if it does not address the issues with the 2.25 billion gallons waived from the RFS allocation requirements.  

In a letter dated Wednesday, September 12, seven national farm and biofuels groups wrote to the President stating that an immediate E15 announcement would do much to assuage fears in farm country, writing that “with ethanol prices hitting a 13-year low and net-farm income plummeting to half of the record $123 billion achieved in 2013, such an announcement could not come at a more critical juncture for rural America.”

But each time the White House says they’re close to allowing year-round E15 sales, the silence from EPA is deafening.  What Trump doesn’t seem to understand is EPA leadership has provided no particular indication that they are willing to go out of their way to help increase, or even preserve the volume of biofuels under the RFS. At the same time, they continue to go out of their way to help the oil industry.

This is putting the GOP in a pickle amongst some of the staunchest GOP strongholds and funders leading up to the November midterms. Midwestern soy and corn farmers see the RFS as one of the biggest hurdles they’re facing this year. As recently said by a reporter on the issue, the RFS “may not be a top-tier political issue for political constituencies across the country, but it’s a key concern for grain farmers and the communities built around them.”

Indeed, the longer the administration is unable to deliver year-round E15 or any meaningful biofuels policy, the more wary farm country grows.

 

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