OMAHA (DTN) -- Unless the EPA changes the way it considers small refinery waiver requests to the Renewable Fuel Standard, the ethanol industry could continue to suffer major market losses in the years to come, according to the University of Missouri's Food and Agriculture Policy Research Institute's recently published update to its March 2018 U.S. baseline outlook for agricultural and biofuel markets. Economists at FAPRI, conclude the industry could lose about 4.6 billion gallons of domestic demand and almost $20 billion in lost sales revenue in the next six years, if the agency continues to grant waivers at its current rate.
Click this link to view the FAPRI baseline:
According to its own numbers detailed in the latest renewable volume obligations proposal, the EPA granted a total of 49 waivers for 2016 and 2017. The EPA said in its latest RFS volumes proposal that it waived a total of 2.25 billion gallons in those years. New EPA Acting Administrator Andrew Wheeler has indicated the agency will continue to consider future waiver requests in the same manner.
Comparing the March 2018 outlook to the updated outlook reveals a number of effects from the small refinery waivers through 2023.
First, the de facto RFS requirement for corn ethanol falls from the statutory level of 15 billion gallons to just 13.7 billion gallons.
U.S. ethanol consumption drops by an average of 761 million gallons annually between 2018 and 2023, or a total of 4.6 billion gallons during the six-year period. That is the equivalent of 1.64 billion bushels (bb) of corn demand lost, or nearly 300 million bushels (mb) per year, according to FAPRI's numbers.
Though the gasoline market currently allows E10, or 10% ethanol and 90% gasoline, that rate falls below 10% in 2019 and slides to 9.5% by 2023.
FAPRI's March 2018 outlook, however, projected the national average blend rate above 10% every year, rising steadily to 10.4% by 2023.
The updated numbers show the consumption of ethanol in flexible fuels such as E85 and midlevel blends such as E15, falls 17% between 2018 and 2023.
Wholesale ethanol prices are expected to dive by an average of 19 cents per gallon, or about 11% between 2018 and 2023. In the long term, ethanol prices are hit hard with the updated outlook lowering 2023 ethanol prices by 27 cents per gallon, or 15%, compared to the March 2018 outlook.
As a result of the waivers, FAPRI estimates show that ethanol production and lower ethanol prices reduce the industry's gross ethanol sales revenues by an average of $3.3 billion per year, or $19.7 billion between 2018 and 2023. That's 12% below the March 2018 projection.
In addition, conventional ethanol renewable identification numbers, or RINs prices, would plummet. FAPRI shows RINs would average just 10 cents between 2018 and 2023. That's 85% lower than the 64-cent average in the March 2018 outlook.
In a statement to DTN, the Renewable Fuels Association said the analysis demonstrates the need for EPA to reallocate gallons lost to exemptions to make sure the RFS statutory levels are met.
"The FAPRI analysis clearly shows that demand destruction from small refiner exemptions is real and has substantial economic consequences," said Scott Richman, RFA's chief economist.
"If EPA continues to retroactively grant these exemptions, it will cause further harm to the ethanol industry through lower prices, reduced production and additional demand erosion. The solution to this problem is straightforward: EPA should project exempted volumes when it sets the annual RVOs, which effectively reallocates them to other obligated parties and keeps the RFS whole."
Two leading ethanol interest groups and one of the nation's largest ethanol producers asked a federal court at the end of August, to force two federal agencies to hand over records related to the issuance of waivers.
In a lawsuit filed by the Renewable Fuels Association, Growth Energy and POET, all three entities outline how the EPA and the U.S. Department of Energy have stonewalled their requests dating back to April 2018 and missed deadlines outlined by the Freedom of Information Act, or FOIA.
Thirty-nine senators wrote EPA Acting Administrator Andrew Wheeler on Aug. 24, largely about issues with biodiesel blends. The letter did say, however, "It is critical that EPA appropriately account for any small-refiner economic hardship exemptions that it reasonably expects to grant during the 2019 compliance year in the final rule, or EPA will not be able to fulfill its duty to ensure RVOs are met."
Wheeler said during recent testimony in Congress that the agency would be providing an online "dashboard" with more details about small-refinery waivers.
Refineries producing transportation fuel are required by the RFS to demonstrate each year that they have blended certain volumes of renewable fuel into gasoline or diesel fuel, or acquired biofuels credits from others called renewable identification numbers, or RINs.
The RFS allows certain small refineries -- those that produce 75,000 barrels or less per day -- to petition EPA for a temporary extension of an exemption.
To date, EPA has yet to make public details regarding how it determines who qualifies for small refinery exemptions. That includes the fact it has granted an exemption, names of exempted refineries, the volume of biofuels exempted, the years covered by the exemptions, as well as EPA's analysis of whether a small refinery would be subject to disproportionate economic harm by complying with the RFS.
Earlier this year, RFA, Growth Energy and other organizations filed a lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit. In addition, RFA, the National Corn Growers Association and others filed a lawsuit in the U.S. Court of Appeals for the 10th Circuit in Denver on specific exemptions granted by EPA.
Todd Neeley can be reached at firstname.lastname@example.org
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