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Economist Proposes Two RFS Changes to Appease Oil, Ethanol

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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A University of Illinois Urbana-Champaign agriculture economist proposes a way to appease both ethanol and oil interests on the Renewable Fuel Standard. (DTN file photo)

With a reported big deal for biofuels in flux, an economist at the University of Illinois Urbana-Champaign put forward a plan on Thursday to account for more than 4 billion gallons of biofuels exempted to small refineries from the Renewable Fuel Standard from 2016 to 2018 by President Donald Trump's EPA.

Senators from oil-producing states met with White House officials on Thursday, putting forward their demands for any RFS deal.

In a letter to Trump last Thursday, the group of eight senators who met at the White House said they remained 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 wrote.

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

As of Friday afternoon, the Trump administration has not officially announced a deal.

University of Illinois agriculture economist Scott Irwin wrote in farmdoc daily on Thursday, that there was a simple way to appease both sides.

"This is not an impossible task and can be accomplished by making the following two changes to upcoming annual EPA rulemakings," Irwin writes.

Irwin suggests EPA could provide a blanket waiver for small refineries as part of the 2020-2022 annual rulemaking. "This will allow SREs to be accounted for when computing the final percentage standards for each year," he said.

In addition, Irwin said the agency could add 1.35 billion gallons to total renewable volumes for 2020-2022, "to restore the reduction in volumes over 2016-2018 due to SREs. The total reduction in renewable volumes over 2016-2018 is 4.05 billion gallons, or an average of 1.35 billion gallons. In this way, the backfilling of the SRE reductions in total volume is spread out over three years."

Irwin said the changes would be temporary but could be applied to future renewable volume obligations past 2022.

"Finally, these changes may require congressional action, but not necessarily changes to the RFS statutes themselves," Irwin said.

"The first part of the plan, a blanket waiver for small refineries, has the benefit of addressing concerns of small refineries with the RIN (renewable identification number) costs of complying with the RFS. This would eliminate the RIN cost concerns of small refineries and the controversy surrounding how many SREs are awarded and to whom. Since all small refineries (and refiners) receive a waiver there is no need for any applications to be written by small refineries or considered by the EPA."

The first RFS included a small-refinery waiver through 2010 and was temporarily extended as a blanket waiver for the 2011 and 2012 compliance years.

"The revised plan would almost certainly increase RIN prices across-the-board due to both the higher total renewable fuel requirement and the blanket small-refinery waiver being incorporated into the percentage standards," Irwin writes.

The proposal likely would be positive for biofuel feedstock prices such as corn and soybeans, he said. "However, which feedstock prices would be most impacted and by how much is difficult to predict without knowing which biofuels will be used to comply with the higher requirements," Irwin said.

"While there is a vigorous debate about the distribution of the mandate reductions across biofuel types, there is no doubt about the overall impact on aggregate biofuel demand.

"The economic impact of the EPA's recent policy on SREs involves a tradeoff between the economic losses of the biofuel sector and the economic gains to small refineries. To begin, there is approximately a one-for-one decline in the overall demand for biofuels associated with the RVO reductions. All major categories of biofuels have been negatively impacted, including corn ethanol, cellulosic ethanol, biogas, biodiesel, and renewable diesel."

Read Irwin's analysis here:…

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