Pushing Back on RFS Appeal

Biofuel Backers Want President to Defend Court Ruling on Small-Refinery Exemptions

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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President Donald Trump spoke at an Iowa ethanol plant last June on his administration's decision to approve year-round E15. Farmers and biofuel groups are calling on Trump to defend the Renewable Fuel Standard and not appeal a court ruling against EPA on small-refinery exemptions. (DTN file photo by Todd Neeley)

OMAHA (DTN) -- Leaders from biofuel associations, along with corn and soybean farmers, on Wednesday cautioned that President Donald Trump risks his standing with farmers if his administration does not uphold a federal court ruling on the Renewable Fuel Standard and apply it nationwide.

The call to stand by the RFS comes as ethanol producers are now facing more financial pressure with the recent collapse in oil prices, which could especially erode demand for corn as ethanol plants idle, ethanol producers said in a press call.

Biofuel and farm groups want the Trump administration to abide by a unanimous ruling last month by the 10th Circuit Court of Appeals in Denver that EPA has violated the Renewable Fuel Standard with its carte blanche granting of small-refinery exemptions (SREs) since 2016.

Rather than let the ruling stand, the Trump administration filed for a two-week extension with the court, which was granted on Monday, as the administration continues to consider motions for a possible appeal. Refiners HollyFrontier and CVR Energy also had requested timeline extensions from the court.

The groups that brought the case tied up in the lawsuit included the Renewable Fuels Association, National Corn Growers Association, the American Coalition for Ethanol and the National Farmers Union. Leaders from some of those groups on Wednesday expressed frustration that the Trump administration is considering an appeal, arguing the president could hurt his standing with farmers if the administration follows through and files an appeal.

Kevin Ross, an Iowa farmer and president of the National Corn Growers Association, on Wednesday called on President Trump "to stand with the farmers" and uphold the commitment of the Renewable Fuel Standard.

"We need this decision to be applied correctly and for EPA to be upholding the RFS," Ross said.

Ross stood on the podium with the president last June when Trump came to Iowa to announce his administration had approved year-round E15. Yet, Ross at that time pointed out the damage small-refinery exemptions were causing the ethanol industry. Less than two months later, EPA approved 31 refinery exemptions, equaling more than 1 billion gallons of lost ethanol demand.

Dave Walton, another Iowa farmer representing soybean growers and the biodiesel industry, also cautioned that the way the administration handles this appeal could hurt Trump's support among farmers. Walton pointed out thousands of farmers applauded late last month at Commodity Classic when Secretary of Agriculture Sonny Perdue said the ruling would stop EPA from handing out exemptions.

"Make no mistake, though, this decision could derail the rural recovery at a time when we are already struggling to maintain a razor-thin profit margin and many fellow producers are running in the red," Walton said. "This issue could destroy President Trump's relationship with leaders and voters across the heartland."

Walton pointed out that several biodiesel producers have either shut down or dramatically dialed back production over the past year.

"We need to stop the bleeding and we're not going to accept a half measure like we got from EPA last October," Walton said.

Erik Huschitt, CEO and general manager of Badger State Ethanol in Wisconsin, highlighted that EPA had granted 85 small-refinery exemptions from 2016 through last summer. He noted the 10th Circuit decision was a unanimous 3-0 vote by the judges against EPA and the refiners.

"It confirmed exactly what the farm community's been saying for years ... the EPA was illegally abusing the small-refiner exemption program and using it to erode demand for biofuels and farm commodities," Huschitt said.

Huschitt also cautioned against EPA granting the 23 pending SRE petitions for 2019. The agricultural groups are concerned EPA could be pressured to approve those pending SREs while the agency considers an appeal.

"We believe firmly that the court ruling prevents EPA from approving any of those 2019 exemption requests while any appeals are still pending," Huschitt said.

An appeal would suggest the president and his team are backing two refiners that account for less than 1% of national refining capacity over hundreds of thousands of corn and soybean farmers, Huschitt said. Farmers would view that as a "betrayal," he said.

"It's just prolonging more uncertainty in the market, and it's stoking more frustration and anger here in the Midwest," Huschitt said.

Mitch Miller, CEO of Carbon Green BioEnergy in Michigan, said five ethanol plants in Michigan have either shut down or reduced production significantly over the past two years. If the president corrects course and requires EPA to follow the law, that would put more E15 in the market with higher octane and lower emissions, "And it can knock out another 5% of our oil imports," Miller said. He added, "We move to cleaner fuel, more American made, and lower costs for the consumer."

Huschitt and Miller also highlighted how the collapse in crude oil prices over the past few days will flow back to hurt biofuels as well. Even before oil prices fell roughly 25% in short orders, wholesale gasoline was priced 60 cents above ethanol, and refiners were still balking at buying ethanol, Huschitt said.

"I can only assume, and we're seeing the early happenings of it, that our discretionary blending is going to be challenged when you have ... gasoline approaching $1 or sub-dollar," Huschitt said. "It's just going to put more pain on the ethanol industry and indirectly going to affect the American farmer again."

Huschitt added, "It's bad on bad right now the way the EPA has been acting."

The ethanol industry was already struggling to stay profitable before the oil price drop, Miller said.

"I would say at least half the industry is bleeding red ink right now at this moment," Miller said. "So it's a double whammy ... With a drag out of this 10th Circuit Court review, their production is going to come offline, and that's going to flow right back to the American farmer because that's grain we are not purchasing."

In the extension filing from the Trump administration, the Department of Justice cited that the court ruling alters the EPA's practices for issuing small-refinery exemptions.

"The court's interpretation of (the law) could also have significant practical impacts on the RFS program going forward," the filing stated.

The ruling applies to about one-third of all small refineries in the country, meaning EPA is faced with either appealing the ruling or applying it nationally.

The biofuel and agricultural groups also question the validity of "disproportionate economic hardship" facing HollyFrontier and CVR Energy. Both announced profitable 2019 returns with HollyFrontier announcing $758 million returned to shareholders and another $533 million for stock buybacks. A recent Colorado State University study cited that "unwarranted exemptions to certain small refineries results in a windfall for their owners and an un-level playing field in the refining sector."

Chris Clayton can be reached at Chris.Clayton@dtn.com

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Chris Clayton