ORLANDO (DTN) -- For Renewable Fuels Association President and CEO Geoff Cooper, the ethanol industry's struggles in 2018 can best be summed up with a baseball analogy.
"Yes, the ethanol industry had some big home runs in 2018," Cooper said during the National Ethanol Conference in Orlando, Florida, on Tuesday. "But we just couldn't seem to score that go-ahead run. We were always playing catch-up and it felt like we couldn't gain any ground in the standings.
"Why? Because the other team on the field has the payroll of the New York Yankees and seemingly limitless resources. They play to win at any cost. They play dirty. They steal signs, throw spitballs, and use too much pine tar. They might even be using those PEDs (performance-enhancing drugs)."
In the past two years, the ethanol industry has fought what it says has been lost demand from EPA granting at least 48 small-refinery waivers to the Renewable Fuel Standard, loss of the Chinese market, and a seeming reluctance on EPA's part to approve the year-round sale of E15, all while the industry struggled mightily financially.
Above all, Cooper said, the small-refinery exemptions have hurt the industry most.
"The effect of these refinery bailouts was devastating to the domestic ethanol market," he said. "Billions of RINs (renewable identification numbers) that refiners previously thought would be needed for RFS compliance were no longer needed, resulting in a flood of surplus RINs back onto the market, a collapse in RIN prices, and demand destruction in the physical markets."
Cooper said the "deluge" of biofuel credits back onto the market meant that obligated parties such as refiners could comply with RFS by purchasing and turning in cheap RINs rather than taking steps to expand ethanol blending.
Ethanol RIN prices fell to just 8 cents, meaning a refiner could buy 15 RINs for the same price as one gallon of ethanol.
Ethanol prices plummeted with the collapse in RIN prices, Cooper said. Ethanol futures fell to their lowest price in history and rack prices collapsed to their lowest levels since 1999.
"While we were focused on fighting efforts by Texas Sen. Ted Cruz and others to cap RIN prices, allow exported renewable fuels to count toward the RFS, water down the RFS with RIN multipliers, and any number of other really bad ideas, former EPA Administrator Scott Pruitt was busy cutting the legs out from underneath our industry" in granting small-refinery waivers, Cooper said.
Congress created the waiver program to allow small refining companies to seek an exemption if they could prove compliance was causing them disproportionate economic hardship.
Cooper said EPA always has applied a "very rigid standard" when considering waiver requests.
"Under the previous administration, for example, just seven small refineries were exempted from RFS compliance obligations in 2015, while seven petitions -- or half of those received -- were denied or declared ineligible," he said. "Contrast that to Pruitt's approval of 19 exemptions from the 2016 RFS standards and 29 exemptions from 2017 RFS obligations. And not a single petition reviewed by EPA during Pruitt's tenure was denied. Mr. Pruitt unilaterally weakened the criteria for granting exemptions and threw EPA's high standard out the window."
Pruitt and refining interests continue to say the agency was bound by the 2017 Sinclair v. EPA court decision, and also had to follow Department of Energy recommendations on waiver petitions.
"Knowing what we know now, neither of those excuses pass the straight-face test," Cooper said. "In the end, more than 21 billion gallons of gasoline and diesel sold in 2016 and 2017 escaped a renewable fuel blending obligation."
What's more, the likes of ExxonMobil and Chevron received waivers -- both multi-billion-dollar-profit companies.
"We didn't take this lying down, however, and RFA and its partners continue to fight the small refiner exemptions in court, demanding that the lost volumes be reallocated," Cooper said.
Despite the waiver battles, Cooper said the industry scored a number of victories in 2018. That includes actions to extend markets for both E15 and E85.
Although a soon-to-be-released E15 rule is important for the industry, Cooper said the benefits will not be immediate.
"While resolving the RVP (Reid vapor pressure) barrier will not unleash an immediate tidal wave of new ethanol demand, it will absolutely send a crucially important signal to gasoline retailers and marketers, providing them with the investment certainty they need bring E15 to the pump," he said.
The number of stations selling E15 grew by than 30% in 2018, Cooper said, even with the market barrier in place.
On the bright side, ethanol's export markets were a success in 2018, despite what Cooper said was a "wave of protectionism that spread across the globe." Ethanol exports surged to a record of more than 1.6 billion gallons.
Despite that, Cooper said exports could have been far larger.
"An exorbitant tariff on U.S. ethanol continued to hamper exports to the European Union," he said. "A new countervailing duty in Peru began to reverse progress in that emerging market. And even though Brazil remained our top export customer, the country's tariff rate quota on U.S. ethanol crimped our exports to that market. But it was the loss of the Chinese market that hurt the most."
In 2016, China was the U.S. ethanol industry's third-leading export market at 200 million gallons.
Tariffs of 30% and 35% in January 2017 effectively shut down exports to China for most of the year.
"However, due to the incredible cost competitiveness of U.S. ethanol, large shipments to China resumed in late 2017 and early 2018," Cooper said. "Even with the tariff, it looked for a moment like China may return as a top-three export market. But those hopes were dashed in April when China raised its tariff on U.S. ethanol to 70% in retaliation to new U.S. tariffs on Chinese goods. The higher tariff immediately closed down the Chinese market, and it remains shut off today.
"When you add it all up, 2018 was a tough year. And when you're doing everything right, but can't catch that break, it's easy to become frustrated."
Todd Neeley can be reached at email@example.com
Follow him on Twitter @toddneeleyDTN
Copyright 2019 DTN/The Progressive Farmer. All rights reserved.