Ethanol Blog

Reallocation Sticking Point in Biofuels Negotiations

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Both sides in ongoing discussions about federal biofuels policy continue battle on small-refinery exemptions. (DTN file photo)

As of Friday morning, it appears both sides in the ongoing biofuels big-package deal aren't giving ground.

Reuters reported this week that President Donald Trump met on Thursday with a group of lawmakers from ethanol-producing states including Charles Grassley and Joni Ernst from Iowa, as well as Iowa Gov. Kim Reynolds. On Friday, Trump was slated to meet with senators from oil-producing states to talk about the deal.

Though the details of the meetings have not been made public, Midwestern lawmakers have called on Trump to reallocate to other larger refiners, biofuels gallons lost to small-refinery exemptions to the Renewable Fuel Standard. To date, the EPA has approved 85 small-refinery exemptions totaling more than 4 billion ethanol-equivalent gallons.

In a letter sent to Trump on Thursday, a group of eight senators from oil-producing states said they remain opposed to reallocation.

"Any reallocation of volumes from statutory small-refinery exemptions or increase in renewable volume obligations for the 2020 compliance year would have a costly impact on consumers, the American refining sector, and thousands of well-paying, blue-collar jobs in our home states," the senators write.

The letter is signed by Sens. Ted Cruz, James Inhofe, Pat Toomey, James Risch, John Barrasso, Michael Enzi, Shelley Moore Capito and John Kennedy.

"Reallocation would violate the law and harm certain obligated parties, nullifying any relief achieved by issuing the SREs in the first place," the letter said. "Moreover, the EPA and the Department of Energy have concluded that small-refinery exemptions have not resulted in reduced ethanol demand.

"The financial problems facing the ethanol industry are unrelated to the RFS or the issuance of SREs. The ethanol sector suffers from a massive overcapacity problem, producing over 1 billion gallons more ethanol annually than American motorists can use due to the 'blend wall.' Obligated parties under the RFS are already mandated to blend more ethanol into the domestic fuel supply than the gas pool can accommodate, forcing refiners and fuel importers to turn to other biofuels, such as foreign biodiesel, to satisfy compliance."

The senators go on to ask Trump to create a conventional biofuel waiver credit.

"We were encouraged that you were receptive to this idea during meetings at the White House last year," the letter said.

"As you may recall, a waiver credit would be an insurance policy if nationwide sales of E15 did not reduce RIN (renewable identification numbers) prices, which is what the ethanol lobby claimed would occur. Now that the ethanol industry has been given E15, a waiver credit would be both a fair deal for both parties and provide a degree of predictability so that American refineries do not have to shutter operations."

In addition, a group of more than 60 refinery managers expressed concern in a letter to Trump this week about the proposed increase of biofuels volumes for 2020 by 1 billion gallons.

"We know the fuels markets we serve, and the fact is that ethanol is a valuable commodity and would continue to be used without mandates," the managers wrote.

"The domestic biofuel industry is already unable to economically meet currently mandated volumes of biofuel. Therefore, increases in biofuel mandates are likely to come from imported fuel and could increase the price at the pump. Last year alone the U.S. imported hundreds of millions of gallons of biofuel to satisfy these mandates.

"The bottom line is that proposals under discussion will do little to help American farmers. However, U.S. refineries are doubly impacted. First, regulatory costs would increase and second, the fuels our own refineries produce would be further displaced by biofuels produced in other countries."

Todd Neeley can be reached at todd.neeley@dtn.com

Follow me on Twitter @toddneeleyDTN

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