OMAHA (DTN) -- At any other time, rural America's enthusiasm would be off the charts for an EPA proposal to allow year-round E15 sales. But a series of bad breaks for agriculture and ethanol in the past couple of years led to frustration among many witnesses testifying at an EPA hearing on the issue Friday.
The majority of more than 50 witnesses at the hearing in Ypsilanti, Michigan, supported E15 and opposed reforms to the Renewable Identification Numbers, or RINs, system. They also took the occasion to call for EPA to stop what they say are demand-bleeding small-refinery exemptions to the Renewable Fuel Standard.
Farmers continue to see net incomes drop, ethanol plants struggle, agriculture and ethanol trade effectively closed to China, and rural communities in Nebraska, Iowa and other Midwest states left picking up the pieces from historic flooding.
"In fact, the economic pressures on rural Iowa have only intensified," Iowa Gov. Kim Reynolds said during her testimony on Friday. "Now, as Iowans are valiantly working to recover from devastating floods impacting rural counties and farmers especially hard, I traveled here today because defending the renewable fuels industry is incredibly important to our state.
"Much has occurred since I was here to testify last July. I noted then that trade uncertainty, combined with attacks on the RFS, has increased angst throughout the countryside, and that remains true today. President Trump made a commitment to Iowa last October, and Iowans expect it to be kept."
Ethanol blending in 2018 dropped for the first time in 20 years, U.S. Department of Energy data shows. The Trump administration has yet to deny a single exemption request. In all, nearly 1 billion bushels of corn demand has been lost through waivers, along with many hundreds of millions of gallons of biofuels not blended.
"The billions of gallons of exemptions granted over the last year have wreaked havoc on rural Iowa and farmers," Reynolds said. "Twenty years of progress was stopped cold and reversed because of unjustified exemptions to the RFS. The demand destruction is real and the data proves it."
Sarah Caswell, executive director of the Nebraska Ethanol Board, told EPA Nebraska farmers need year-round E15.
"An increased demand driver for Nebraska's ethanol is needed now more than ever," she said.
Growth Energy CEO Emily Skor said ethanol producers across the country are facing challenging times.
"Across the heartland, more than 200 biofuels plants support their communities, and these plants are under incredible strain," she said. "Many have already shut their doors or idled production in recent months. The recent flooding across the Midwest has only exacerbated these tough times, not to mention the 2.6 billion gallons lost to small-refinery exemptions."
Ethanol plants and other agriculture operations in Nebraska and Iowa continue to face logistical issues due to damage to rail lines and roads.
All the while, refiners across the country continue to remain largely profitable.
"As refiners enjoy record profits, Iowa farmers are hurting, ethanol plants have been shuttered, and U.S. ethanol use has declined," Reynolds said during her testimony. "For example, according to a particular refiner's annual report, they made $408 million last year from reduced compliance costs. Yet they spent $319 million to buy three distressed ethanol plants last year, including one in Iowa. Clearly, these rampant exemptions are having a disastrous impact and are not in line with the letter or spirit of the RFS."
Kevin Ross, first vice president of the National Corn Growers Association and a sixth-generation farmer in Minden, Iowa, said E15 can help market demand for farmers.
"Continued low commodity prices and consecutive years of declining farm income, coupled with recent trade disruptions and EPA's expansive RFS waivers for refineries, are taking a toll on farmers," he said. "While year-round E15 cannot offset the harm from refinery waivers, higher blends of ethanol are a no-cost means to grow demand. Treating 15% ethanol blends, or E15, the same as standard 10% ethanol blends will expand a domestic market for farmers -- as well as benefit both drivers and our environment."
Iowa Renewable Fuels Association Executive Director Monte Shaw pointed out a number of concerns with the E15 and RINs proposal.
Shaw said the agency inserted a provision that would make it illegal for ethanol plants to create E85 by blending ethanol with natural gasoline because of concerns the final product would not meet EPA fuel specifications. Natural gasoline is the liquid version of natural gas and is used in gasoline blending.
Currently, refiners are allowed to use natural gasoline to create a blend stock for oxygenate blending, which eventually is blended into E15.
"Ethanol plants should also be allowed to use natural gasoline to create E85 that is eventually blended into E15," Shaw said. "A regulatory program can be instituted appropriate for blender pumps that will ensure the final E15 blend meets all specs."
In addition, he said his group opposes the RIN-reform proposals.
"This proposal puts a gun to the head of Iowa's retailers, forcing them to sell 100% of their RINs each quarter, while allowing refiners to only retire 80% of their obligation each quarter, with additional flexibility to push off that compliance into future quarters," Shaw said.
RIN reform appears unnecessary, he said, since the agency has found no evidence of market manipulation.
EPA proposed a number of reforms that include prohibiting certain parties from being able to purchase separated RINs, requiring public disclosure when RIN holdings exceed specified thresholds, limiting the length of time a non-obligated party can hold RINs, and increasing the compliance frequency of the program from annually to quarterly.
Obligated parties to the RFS, including refiners and others, are allowed to buy RINs or blend biofuels to comply with the law.
RIN REFORMS SUPPORT
Frank Maisano, representing refining interests that formed the Fueling American Jobs Coalition, said his group supports EPA's efforts to reform the RIN market.
"The RIN market is plagued by anticompetitive behavior such as price manipulation, RIN hoarding, and speculation, as well as a lack of transparency and high transaction costs," Maisano said. "Regulatory reform is needed to address these substantial market flaws because they contribute to the harm the RFS causes independent refiners, small gasoline retailers and consumers."
Brian Carron, executive marketing representative for renewable fuels at Dallas, Texas-based refiner HollyFrontier, spoke in favor of proposed RIN reform. Carron told EPA the company has seen market manipulation, but he did not provide evidence of that during the hearing.
"Because HollyFrontier is a merchant refiner, it is limited in the amount of renewable fuel it can blend," he said. "As a result, we rely heavily on purchasing credits for RFS compliance. RFS compliance costs for HollyFrontier have increased substantially over the last few years even to the point of RIN expense exceeding our domestic payroll."
RIN REFORM OPPOSITION
Reynolds said EPA reforms are unjustified as small-refinery waivers already have led to a dramatic drop in RIN prices.
"RIN prices have dropped from near a dollar to where only a few days ago an obligated party could buy a 2018 compliance RIN for only 8 cents," she said. "Granting exemptions with RINs at such absurdly low prices would be detrimental to the RFS.
"I call on the EPA today to end the unjustified demand destruction and to live up to President Trump's promise to Iowa voters to protect the RFS. If the EPA wants to meet the president's pledge to remove barriers for higher ethanol blends, it must restore some symmetry to any RIN market reforms between the buyers and the sellers and between the obligated parties and retailers."
Renewable Fuels Association President and CEO Geoff Cooper said his group opposes any of the proposed RIN reforms.
"RFA generally opposes any changes that would reduce RFS compliance flexibility, diminish liquidity in the RIN market, give certain parties in the marketplace unfairly advantaged positions, add unnecessary complexity, increase administrative burdens, or impugn the RIN market's ability to incentivize expansion of renewable fuel consumption," he said.
"RFA does not believe any of the four main options proposed represent an improvement or enhancement of the current RIN program."
Ron Lamberty, senior vice president of the American Coalition for Ethanol, said the RINs reform would limit ethanol market growth.
"Small businesses have invested hundreds of millions of dollars in infrastructure to do the blending some refiners say they can't do, and RINs are the way those small businesses get paid for performing those services for refiners," he said.
"In effect, EPA would order small businesses to spend their money to do the blending for refiners who refuse to obey the law, and then hand over those credits at a price controlled by the refiners."
The public comment period for the proposal closes on April 15.
Todd Neeley can be reached at firstname.lastname@example.org
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