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RIN Price Cap a Demand Cap

Oil Industry Study Makes Ethanol Industry's Case on Motive, Impact

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Another planned meeting at the White House on Monday will focus on whether to change biofuel policy. A new oil-industry study basically supports the ethanol industry's claim that a waiver on RIN credits is a limit on demand. (DTN file photo)

OMAHA (DTN) -- A study commissioned by the country's largest oil refiner explains how a waiver credit would freeze ethanol demand.

Ethanol industry groups are pointing to several statements in the oil industry's own report to make the case that arguments over regulatory waivers or caps are built on false premises and would only harm corn or soybean demand.

Statements layered throughout the oil-industry study validate fears raised by ethanol industry groups over a waiver cap on renewable identification numbers, or RINs, the certificates attached to every gallon of ethanol.

A RIN cap would effectively freeze biofuel use at below 10% of total fuel volume, according to a study conducted by Charles River Associates. The conclusions of the study also run counter to the claims made by Sen. Ted Cruz, R-Texas, the chief advocate for the petroleum industry, in trying to get President Donald Trump to sign off on the waiver plan.

The stakes are high, as another meeting to decide the fate of the Renewable Fuel Standard is set for Monday at the White House. No details or names of people attending have been released as of yet, but Cruz has been seeking to get EPA and USDA to work together on a waiver proposal. President Trump wanted more studies on the impact of a waiver plan, as well as on the impact of allowing 15% ethanol sales year-round.

Iowa Renewable Fuels Association stated the oil industry's plan for RFS waiver credits, or a RIN price cap, would cut corn prices by as much as 25 cents per bushel and would lower soybean prices by 16 cents per bushel.

The Iowa Renewable Fuels Association and American Coalition of Ethanol both held news conferences Friday to discuss the waiver-cap proposals and industry impacts. Further, the Iowa Corn Growers Association, working with renewable fuels representatives, set up joint news conferences with farmers across Iowa to make the case about the importance of ethanol demand to their farm incomes right now.

The National Corn Growers Association said Friday that the waiver caps have the potential to lower farmer income as much as $4 billion a year over the next two years. NCGA President Kevin Skunes, a farmer from North Dakota, told U.S. Agriculture Secretary Sonny Perdue on Friday to stress the current economic situation of farmers to President Trump.

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"My message to the secretary today was to ask the president not to cap future growth and opportunity in rural America by implementing a bad policy that would only serve to bail out a small handful of oil refiners," Skunes said. "We understand the president is committed to protecting jobs -- so are we. We need the president to understand that this commitment needs to extend to rural America -- to our farms, biofuels plants, and the manufacturing and processing jobs that depend upon American agriculture."

The Charles Rivers study was commissioned by Valero and published this week. Yet Reuters reported on Aug. 21, 2017, about a "behind-the-scenes lobbying campaign," headed by Valero around policy proposals "that could save the refiner hundreds of millions of dollars each year in regulatory costs." At the time, Reuters reported Valero was pushing a change in the point of obligation requirements under the RFS, which EPA declined to change. The campaign strategy then shifted as Valero and other refiners looked for other ways to reduce their compliance obligations. (https://goo.gl/…)

The lobbying push by Valero, the nation's largest refiner, runs counter to the argument that relief on RINs is largely to help smaller mom-and-pop refiners. Carl Icahn, a billionaire investor, last year also advocated changes in biofuels policies to the Trump administration.

The Charles River Associates study cites at least four times that waiver credits would ensure ethanol blends remain below the 10% blend volume. Another passage cites that certain biodiesel RIN credits would lower biodiesel demand by about 330 million gallons.

"This was an internal study done not to analyze the proposal, it was done to create the proposal," said Monte Shaw, executive director of the Iowa Renewable Fuels Association. "They set out to say, 'What can we do to get down to below the blend wall.' So this document is all about how to craft the proposal."

The ethanol industry has maintained for years that the easiest way to relieve pressure on RIN prices is to eliminate a regulatory vapor waiver that would allow E15 to be sold year-round. But allowing E15 year-round increases demand for ethanol, which the petroleum industry report is specifically trying to block.

"As soon as the market sees we're going to blend 15 billion gallons of ethanol, then the price of RINs is going to come down, just like the last time we blended more ethanol than the RFS required," Shaw said.

The tie-in of RINs essentially is just the oil industry's catalyst for capping demand on ethanol, Shaw said. "The focus on RIN prices has been a facade the whole time. There are things we can do to blend more ethanol to lower RIN prices," he said. "They were just trying to hide their true motive. Their whole focus here is demand destruction. They want to freeze us in an E10 world with a 90% petroleum mandate. And this report makes it as clear as a bell."

Shaw lashed out at Cruz, citing the term of endearment President Trump gave Cruz during the 2016 presidential campaign -- "Lyin' Ted." Shaw said, "He knew from his own study that was a lie. He knew his plan was not designed to let us grow, but to freeze us into an E10 world for the future."

The petroleum industry study, in its own executive summary, says a RIN waiver would effectively cap ethanol demand at 10% blend levels or below. That essentially freezes ethanol demand at current levels or possibly lower. "The study says a waiver plan should provide ample credits so the blend wall is not breached," Shaw said.

"The blend wall is below what we're blending today, let alone 15 billion gallons. It's what we've all been saying when we did our analysis," Shaw said, adding that Cruz has sought to dismiss suggestions that his plan would cap ethanol demand, and thus corn demand for ethanol.

If EPA were to support a RIN waiver or cap, the agency would be forced to begin a formal rulemaking process. The RFS has several other waiver rules and authorities. Congress did not specifically grant EPA authority to issue waiver credits for conventional biofuels, so a RIN rule itself could be ruled illegal and the process could be tied up in federal courts.

"Our view is the refiners won't get the get-out-of-jail-free card that they want because it's illegal and we will take them to court and win," Shaw said. "I would like to avoid all of that. I would much rather have the president keep his promise and reject this scheme and do what needs to be done."

The Charles River Associates study can be viewed at http://www.dtn.com/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN


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Chris Clayton

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