OMAHA (DTN) -- Frustrations with EPA's handling of the Renewable Fuel Standard boiled over on Wednesday during a public hearing in Ypsilanti, Michigan, on the latest biofuels volume proposal.
Biofuels and agriculture interest groups expressed frustration with the agency's lack of accounting for small-refinery waivers and other gallons not reinstated to the RFS despite a federal court order.
More than 2.6 billion ethanol-equivalent gallons have been waived from RFS requirements since 2016, and about 38 waiver requests are pending before the EPA for 2018.
In addition, a federal court ordered the agency to reinstate 500 million gallons withheld by EPA from the 2016 volumes. In the latest proposal, EPA said it is not reinstating the 500 million gallons, despite an order from the U.S. Court of Appeals for the District of Columbia Circuit.
Monte Shaw, executive director of the Iowa Renewable Fuels Association, said he has seen firsthand what the lost demand has meant to ethanol producers.
"And if I get a little emotional this morning please forgive me," he said during his testimony on Wednesday.
"Yesterday I spent a good deal of time ensuring that the Iowa Workforce Development rapid response team was getting in touch with the HR department of an Iowa ethanol plant that has been forced to shut down production due to eroding demand. Assisting in those types of situations ranks as one of my least favorite tasks."
Employees at the plant expressed confusion and frustration, Shaw said, asking why it happened and "why can't the EPA just follow the law?"
The agency's decision not to reinstate the 500 million gallons despite a court's order, he said, spoke volumes about where EPA stands on the RFS.
"For the last three years, I have viewed the remand issue as essentially a baseline litmus test for how the EPA will treat biofuels," he said during his testimony.
"Simply put, if biofuels and rural America cannot get a square deal on an issue that is so completely black and white as the remand, then it's clear we have no hope for fair treatment during the Trump administration in areas where the EPA actually does have some discretion. In illegally cutting 500 million gallons from the 2016 RVO, the EPA blatantly manipulated the Renewable Fuel Standard law, trying to pretend that the definitions of supply and demand were backwards. In striking down this illegal action, the D.C. Circuit Court used some of the most clear and stern language to chastise the EPA I've ever read in a federal court decision."
Overall, the agency proposes just a 120-million-gallon bump in overall volumes, leaving corn-based ethanol's implied volume at 15 billion gallons and providing growth only in the cellulosic ethanol and advanced biofuels categories.
The proposal would set overall RFS volumes at 20.04 billion gallons in 2020. Cellulosic ethanol volumes would increase from 420 million gallons in 2019 to 540 million in 2020. The advanced biofuels category, which also includes biomass-based diesel, would grow from 4.92 billion gallons to 5.04 billion gallons -- accounting for the growth in cellulosic ethanol.
Despite potential for far more growth in biodiesel, EPA proposes leaving biomass-based diesel's volume at 2.43 billion gallons in 2021, which is the same as 2020.
"The law passed by Congress is clear," Shaw said.
"The court order to fix EPA's illegal action was clear. The EPA should not effectively thumb its nose at the other two branches of our federal government. Quite frankly, it's hard to fathom such a blatant disregard of the administration's constitutional duties. If the EPA is so cowed by the petroleum industry that biofuels cannot get a square deal on the 2016 remand, then no farmer in America should ever expect to get fair treatment from the Trump EPA."
American Coalition for Ethanol Communications Director Katie Fletcher said during testimony the agency's actions have hurt ethanol demand.
"The proposed 2020 RVO marks the second compliance year EPA is professing to follow statutory volumes on paper, but in reality, is allowing refiners to escape their lawful responsibility to blend renewable fuel with the petroleum products they make," she said.
"The severity of demand destruction from EPA's use of SREs is a topic of debate, but it is without question year-over-year domestic ethanol use declined in 2018 for the first time since 1998."
Domestic ethanol use fell from 14.49 billion gallons in 2017 to 14.38 billion gallons in 2018. The national ethanol blend rate fell from 10.13% in 2017 to 10.07% in 2018.
"ACE members are convinced EPA refinery waivers contributed to these historic setbacks," Fletcher said.
EPA's latest proposal continues to raise the ire of the biodiesel industry, which continues to say it is ready to expand beyond the volumes set by the agency each year.
National Biodiesel Board Chairman Kent Engelbrecht, who is a biodiesel trade manager for Archer Daniels Midland Company, said many companies are capable of expanding production if EPA chooses to set mandated volumes higher.
"EPA has selected volumes for the biomass-based diesel market that are simply too low," Engelbrecht said.
"Year after year, the U.S. biodiesel and renewable diesel industry continues to demonstrate sustainable growth. We can achieve still higher volumes over the coming years. When EPA sends the wrong signals for this program, biodiesel producers see significant investments put at risk. Flatlined volumes block achievable growth and undermine the goals of the RFS."
National Corn Growers Association board member and Ohio farmer John Linder told EPA it continues to undermine the RFS.
"These volumes are meaningless amid EPA's massive expansion of retroactive refinery waivers," he said. "Farmers have no confidence EPA will ensure these volumes are met --- which the law requires --- because EPA fails to account for projected waivers in this proposal."
Scott Richman, chief economist of the Renewable Fuels Association said EPA has the authority to enforce the statutory RFS volumes.
"That includes prospectively redistributing volumes from SREs to non-exempt parties," he said.
"It also includes complying with a court order to restore illegally waived volumes from 2016. We urge EPA to do both in the final rule. EPA's refusal to obey the court's order is a slap in the face to U.S. renewable fuel producers and farmers who are facing the worst market conditions in a generation."
Scott Hayes, manager of health, safety, environmental and governmental affairs for the Toledo Refining Company, called on EPA to set RFS volumes below the proposed numbers for fear of placing upward pressure on the price of Renewable Identification Numbers, or RINs.
"We are asking EPA to recognize the realities of the blend wall and use its 'severe economic harm' waiver authority," Hayes said. The blend wall is when total ethanol production exceeds demand.
"When RINs averaged over 70 cents from 2016 to 2017, our refinery was spending more on these credits than on payroll, benefits and energy costs. Returning to such an environment will once again put great-paying, consistent jobs at risk."
Todd Neeley can be reached at email@example.com
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