Deal or No Deal: EPA Short on Biofuels

Proposal Accounts for Just Half of Total From Small-Refinery Waivers

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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An EPA proposal to account for small-refinery exemptions would fall short of the average volumes waived from 2016 to 2018. (DTN file photo)

OMAHA (DTN) -- President Donald Trump's promise to rural America on biofuels took a hit on Tuesday, when the EPA released a proposal that falls far short of the administration's biofuels deal announced on Oct. 4.

An agency supplemental proposal to the Renewable Fuel Standard calls for accounting for 770 million gallons annually in expected small-refinery exemptions. That number falls far below the average annual gallons exempted from 2016 to 2018 of around 1.35 billion gallons.

In 2016, EPA granted exemptions on 790 million gallons. In 2017, the agency waived 1.82 billion gallons, and in 2018 it waived 1.43 billion gallons.

Growth Energy Chief Executive Officer Emily Skor said in a statement the agency's proposal "betrays" Trump's promise to rural America.

"A week ago, Administrator (Andrew) Wheeler personally took to the airwaves and promised Iowa farmers that he would accurately account for lost gallons moving forward based on the 'last three years of the waivers,'" she said. "Administration officials repeatedly said that 15 billion gallons will mean 15 billion gallons and this proposal fails to ensure that farm families and biofuel producers have the certainty they need to reinvest and rebuild after three years of massive demand destruction at the hands of EPA.

"After completely ignoring Department of Energy advice to reduce exemptions, EPA now proposes to use DOE's deflated numbers to turn a real fix into little more than a Band-Aid."

Kurt Kovarik, National Biodiesel Board vice president of federal affairs, said the EPA notice was "significantly different" from the agreement reached with agriculture and biofuels.

"EPA is proposing a brand-new method for making the estimate -- one that was never previously proposed or discussed and significantly undercounts past exemptions," he said.

"Once again, EPA is sending a signal to the biofuel industry that the volumes it sets in annual rules can't be trusted."

EPA'S PROPOSAL

The EPA's issuance of exemptions dating back to 2016 has been a flash point for rural interests when it comes to their general support of Trump.

By and large, the biofuels deal announced by the White House was seen as a way for Trump to mend fences with rural America.

Prior to supporting Trump's deal, biofuels producers and farmers were briefed by the White House and EPA that the agency would account for exemptions by using a three-year rolling average of actual refinery exemptions granted.

The EPA proposal does not do that.

EPA said in its proposal it would project gasoline and diesel volumes that would be exempt based on "a three-year average of the relief recommended by the Department of Energy." That is based on a previous recommendation the DOE made in response to concerns the EPA was not accounting for exemptions in volumes proposals. The EPA decided not to take DOE advice on that front originally.

"The amended definitions proposed in this rule would effectively increase the percentage standards that apply to non-exempt obligated parties to offset future small-refinery exemptions and help ensure that the required volumes are met," EPA said in the new proposal.

There have been questions raised about whether the agency would be able to account for waivers in the 2020 volumes. Throughout the public comment period on that rule, the agency received strong feedback from biofuels and agriculture interests about finding a way to account for waivers in approved RFS volumes. The agency declined to account for waived gallons.

In the supplemental proposal, however, the agency decided to listen to those commenters.

While the average estimated gallons waived per year would be set at 770 million, EPA said in the proposal it is looking at granting partial waivers in 2020.

"We acknowledge that there is uncertainty with projecting the exempted volume for 2020, as petitions for 2020 SREs have not yet been submitted to or evaluated by the Department of Energy or EPA," the proposal said. "EPA independently evaluates SRE petitions while taking DOE's recommendation into account and has discretion to provide relief that is different than the DOE recommendation. In 2020 we anticipate granting partial exemptions where such exemptions are appropriate."

MORE REACTION

Iowa Renewable Fuels Association Executive Director Monte Shaw said he's concerned the agency has left the door open for granting more exemptions.

"Instead of standing by President Trump's transparent and accountable deal," Shaw said, "EPA is proposing to use heretofore secret DOE recommendations that EPA doesn't have to follow. That means there is no guarantee that RFS exemptions will be accounted for in the RFS. Instead, the proposal today essentially asks Iowa farmers and biofuels producers to trust that EPA will do the right thing on SREs in 2021 when they have spent the last two years weaponizing SREs to unfairly undermine the RFS."

Iowa Corn Growers President Jim Greif said any proposal not accounting for actual waived gallons "fails to restore the integrity" of the law.

Renewable Fuels Association President and Chief Executive Officer Geoff Cooper said the EPA notice was a "step backward."

"It is baffling to us that the proposal sets the three-year average of exempted volume using the very same DOE recommendations that EPA blatantly ignored over and over," he said.

"We are concerned that the volume of actual exemptions granted in 2020 could very well exceed the amount of projected exemptions from DOE, putting us right back into the quagmire where the 15-billion-gallon requirement is eroded and undermined."

David Fialkov, vice president of government affairs for NATSO, a group representing travel plazas and truck stops, said the agency's proposal has exposed the problems with the small-refinery exemptions program.

"The irony in all of this is that by basing accounting relief on DOE's recommendations, rather than the actual volume waived, this proposal shines a bright light on the damage that EPA has directly inflicted on the biofuels community in recent years by disregarding DOE's recommendations and waiving more gallons than was recommended," Fialkov said.

Following the announcement, the EPA immediately began doing a sales job on the proposal. The EPA sent out a news release with a few details about the proposal. It included comments from biofuels and agriculture groups, as well as members of Congress -- detailing their approval of the Oct. 4 announcement from the White House -- and not the actual proposal released on Tuesday.

A public hearing is slated for Oct. 30 in Ypsilanti, Michigan. Once the proposal is published in the Federal Register it will launch a 30-day public comment period.

Read EPA's latest proposal here: https://www.epa.gov/…

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

Follow him on Twitter @toddneeleyDTN

(ES/CZ)

Todd Neeley