Pruitt Pressed on Ethanol

WASHINGTON (DTN) -- Citing federal data that shows ethanol cracked through the blend wall in 2016, the Renewable Fuels Association on Monday asked U.S. Environmental Protection Agency Administrator Scott Pruitt to keep the Renewable Fuel Standard on track for corn-based ethanol in 2018.

RFA Chief Executive Officer and President Bob Dinneen said in a letter to Pruitt that obligated parties in the RFS including importers and refiners respond when there is certainty in federal policy.

"Over the past 18 months, obligated parties have shown that they can readily achieve compliance with RFS requirements if EPA's annual RVO (renewable volume obligations) rulemakings remain faithful to congressional intent, are published on schedule, and provide certainty to the marketplace," Dinneen wrote in the letter.

"Accordingly, we respectfully ask that EPA ensures the 2018 RVO rulemaking process remains on schedule, and that the 2018 conventional renewable fuel volume requirement remains at the statutory level of 15 billion gallons."

The blend wall is when total ethanol production exceeds the E10 market.

Some legislative proposals have suggested there is a need to cap ethanol in gasoline at 9.7% to account for the blend wall. The ethanol industry has expressed concern about such a cap, saying it could lead to corn-ethanol plant closures.

Recent data from the U.S. Energy Information Administration shows gasoline consumed in 2016 contained 10.04% by volume, suggesting there is not a need for a 9.7% cap.

"In fact, the data show that national average ethanol content was 10% or higher in six of the last seven months of 2016, culminating with a record-high monthly rate of 10.3% in December 2016," Dinneen wrote in the letter to Pruitt.

"Compelled by the RFS and favorable blending economics, growing consumption of E15, mid-level ethanol blends (containing 20% to 50% ethanol) and flex fuels (containing 51% to 83% ethanol) was responsible for the increase in the average ethanol content of U.S. gasoline last year. Your commitment to timeliness and certainty in the RVO rulemaking process will allow this evolution of the marketplace to continue in 2018."

In the letter, Dinneen pointed to Pruitt's own words during recent Congressional hearings on his nomination to lead EPA.

"We agree with your statement during the recent Senate Environment and Public Works Committee's confirmation hearing that EPA's past failures to meet the statutory deadlines for issuing RVO rules 'create(d) great uncertainty in the marketplace,'" the letter said.

"When affected parties under the RFS are provided with regulatory certainty and sufficient lead time for planning, they have consistently demonstrated an ability to adapt their operations and comply with the standards."

Dinneen pointed to the ethanol industry's reaction to the EPA's delay in releasing RVOs for 2014 to 2016 as an example of the industry's flexibility to react to the market.

"While 2014 had passed and 2015 was nearly over when EPA finally published the final rule for 2014-2016 RVOs in November 2015, obligated parties, renewable fuel producers, and other stakeholders had sufficient time to react and implement compliance strategies for 2016," Dinneen said.

"The result, as documented in a recent analysis by the University of Illinois, was slight over-compliance with the 2016 RFS volume requirement and growth in surplus stocks of certain Renewable Identification Number (RIN) credits."

In addition, the final rule for 2017 RVOs that set the conventional renewable fuel requirement at the statutory level of 15 billion gallons was published on schedule in November 2016.

"This provided obligated parties and renewable fuel producers with ample time to plan and implement strategies that will facilitate compliance with this year's standards," Dinneen said.

"Ethanol producers have ramped up production and are on pace to produce a record supply of 16 billion gallons of conventional renewable fuel in 2017, well above the 15-billion-gallon conventional renewable fuel RVO. Meanwhile, refiners and blenders have upped their inclusion of ethanol in U.S. gasoline, with average blend rates hitting a record weekly level of 10.4% in mid-January."

Dinneen said ethanol producers have proven petroleum industry concerns about not having the proper infrastructure in place to account for expanded ethanol production were unfounded.

"Because the final 2016 and 2017 RVOs were published on schedule, the marketplace has responded and obligated parties have shown that the so-called 'blend wall' is not a real barrier to RFS compliance," he writes.

Read the letter to Pruitt here: http://bit.ly/…

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

Follow him on Twitter @toddneeleyDTN

(AG/SK)

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