EPA Pressed on RFS Changes

Valero Energy Wants Biofuel Credits Attached to Exports

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Valero Energy has asked the U.S. Environmental Protection Agency to change the Renewable Fuel Standard as it pertains to exports. (DTN file photo)

OMAHA (DTN) -- The U.S. Environmental Protection Agency is considering a major change to the Renewable Fuel Standard that could include offering biofuel credits attached to gallons of ethanol exported from the United States.

Already this week, the U.S. biofuels industry took a punch to the gut when the EPA announced it was considering more cuts in some biofuel volumes in addition to cuts already proposed in the Renewable Fuel Standard.

Now, another media outlet, citing anonymous sources, reported the agency is considering a proposal from Valero Energy to leave renewable identification numbers, or RINs, attached to U.S. ethanol gallons produced in the United States and exported. Currently, RINs are removed from exported gallons.

Valero said in Aug. 31 public comments to EPA on the RFS that keeping RINs attached to exports would help ease pressure on the RINs market.

When contacted by DTN an EPA spokesman said, "EPA is currently seeking input from all stakeholders involved. Nothing has been finalized at this time."

Brooke Coleman, executive director of the Advanced Biofuels Business Council, said such a move with RINs would change the dynamics of the RFS.

"The White House needs to rein in the EPA before the agency tramples the president's rural base and his promises to voters," Coleman said in a statement to DTN.

"Valero and CVR (an energy company owned by Carl Icahn) want an export-subsidy RIN because it would strip the value of biofuel blending by flooding the market with worthless credits. It's a handout worth millions for someone like Carl Icahn, but it violates the law and could spark an immediate trade backlash. Farmers and biofuel producers would be hurt most, but the entire fuel supply chain would take a hit, including consumers," Coleman said.

DTN Refined Fuels Editor Brian Milne said such a change would add to the supply of RINs, thereby pressuring prices.

Growth Energy Chief Executive Officer Emily Skor said she is unsure whether the agency actually is considering the Valero proposal.

"While we cannot speculate on whether this rumor is being given any sort of official consideration," she said, "what is absolutely clear is that the idea runs contrary to the intent and plain language of the statute, which is specifically constructed to blend more renewable fuel into the U.S. transportation fuel supply in order to give consumers cleaner, more affordable fuel choices at the pump.

"We are concerned about the EPA's and the administration's commitment to supporting biofuels," Skor said.

Skor said the Federal Register "clearly noted" EPA ruled previously that if a gallon of ethanol is produced in the U.S. but consumed outside of the U.S., the RIN associated with that gallon is not valid. That's because the RFS program is intended to require a specific volume of renewable fuel to be consumed in the U.S.

On Tuesday, the EPA announced possible further reductions in RFS volumes for advanced biofuels, biomass-based diesel volumes for 2018 and 2019, and the total renewable fuel volumes.

The proposed reductions are in addition to the agency's proposal to cut those volumes already. The deadline for the final RFS is Nov. 30. The additional RFS cuts will be subject to an additional 15-day public comment period.

Renewable Fuels Association President and Chief Executive Officer Bob Dinneen said "this is a town that thrives on rumors.

"But if true, the notion of allowing exported biofuels to qualify towards an oil company's RFS renewable fuel volume obligation would be a gross misinterpretation of the letter and spirit of the Energy Independence and Security Act of 2007, designed to enhance, not export, U.S. energy security," he said.

VALERO PROPOSAL

In its Aug. 31, 38-page comment letter, Valero suggests that keeping RINs attached to ethanol exports will be good for the biofuels industry.

The company said EPA "devised a system" that actually hurts biofuels exporters because they have to retire RINs attached to the exported biofuels.

Valero said the change would support job creation by expanding U.S. biofuels production, improve trade balances by increasing exports and enhancing energy and economic security. Valero said imported renewable fuels used for compliance with the RFS do have RINs attached.

"Meanwhile, exported renewable fuel, which does serve the statutory purposes, receives no such benefits," the company said in its comments.

Keeping RINs attached to exported biofuels, Valero said, "Would make exporting more attractive to domestic producers by giving them access to additional markets for their products without the burden of retiring the RIN just because they export."

Growth Energy Vice President of Regulatory Affairs Chris Bliley told DTN he believes such a change would hurt the use of biofuels in the United States.

"It undercuts the purpose of the RFS -- to blend more renewable fuel into U.S. transportation fuel and reduce our dependence on foreign oil," he said.

"U.S. ethanol is the most affordable octane source in the world, and we're already exporting now based on our competitiveness. This completely undercuts the blending of more homegrown, renewable fuels. It would lead to reduced use of renewable fuel in the U.S., as it totally disincentives higher biofuel blends."

In recent years, the U.S. biofuels industry has raised concerns about price volatility in the RINs market. A U.S. ethanol industry group has asked for a federal investigation into the RINs market.

Valero said in its comments that leaving RINs attached to biofuels exports would improve the RINs market.

"Given the significant volumes of renewable fuel exported in recent years, allowing the use of RINs associated with that renewable fuel to be used to comply with the RVO would improve the liquidity of the RIN market," the company said.

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

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Todd Neeley