New RFS Volumes Tell Only Part of Story

EPA Boosts Biofuels Across Board, But Leaves Corn Ethanol Alone

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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The EPA on Tuesday released the proposed 2019 volumes for the Renewable Fuel Standard. (DTN file photo)

OMAHA (DTN) -- Every category of biofuels -- except corn ethanol -- would receive a bump in Renewable Fuel Standard volumes in the latest proposed renewable volume obligations for 2019 announced by the EPA on Tuesday.

On the surface, the news is good for the biofuels industry and agriculture. But there was one number that mattered most this time around: the percentage of the renewable volume obligations. That number moved little, accounting for only an overall 3% bump in total volumes.

EPA proposes a bump in the total percentage of renewable fuel in the fuel supply from 10.67% to 10.88%. Had the agency decided to reallocate gallons to other obligated parties, it would have increased the percentage by more. The 0.21% bump reflects the proposed increases in all categories, minus corn ethanol.

A Renewable Fuels Association analysis found the agency has exempted a total of about 1.6 billion gallons from the RFS in 2016 and 2017 through small-refinery waivers. Those estimated gallons are not reallocated by the latest EPA proposal.

The EPA previously asked the public for comment on how to improve transparency in the biofuels credit market. Though the agency has been challenged in court on the methodology it uses to determine waivers, the EPA indicated it was not seeking comment on how to change the process.

"EPA is not soliciting comments on how small-refinery exemptions are accounted for in the percentage standards formulas in 40 CFR 80.1405, and any such comments will be deemed beyond the scope of this rulemaking," the agency said.

PROPOSED VOLUMES

The EPA announced a proposed increase in overall biofuel volumes from 19.29 billion gallons in 2018 to 19.88 billion gallons in 2019. That includes leaving corn ethanol at 15 billion gallons. There are questions as to whether the 15-billion-gallon level can be reached in light of an increasing number of waivers being issued.

The agency also proposed an increase in biomass-based diesel volume from 2.1 billion gallons in 2018 and 2019 to 2.43 billion gallons in 2020. In addition, cellulosic ethanol would be increased from 288 million gallons to 381 million gallons in 2019, and the advanced biofuel number from 4.29 billion gallons to 4.88 billion gallons in 2019.

A tug-of-war between the oil and ethanol industries with the EPA in the middle hit an impasse last week as the agency delayed what was an expected announcement of the latest volumes last Friday.

Reports surfaced last week that EPA Administrator Scott Pruitt was expected to offer a proposal to reallocate ethanol gallons lost to small-refinery waivers to larger refiners.

However, as a result of an outcry from the oil industry, EPA dropped the proposal.

In a stop in Lincoln, Nebraska, last week, Pruitt told farm groups the agency could not reallocate gallons already waived. He said EPA needs to change regulatory deadlines to require waiver applications to be filed prior to the release of RFS volume proposals.

Pruitt also told farmers in Lincoln that his agency works jointly with the U.S. Department of Energy in making decisions on waiver requests. But a report by Reuters on Tuesday suggests the DOE recommended EPA limit the number of waivers granted in 2016 and 2017, and recommended only partial waivers in some cases. The EPA went ahead and granted full waivers.

"I've traveled to numerous states and heard firsthand about the importance of the RFS to farmers and local communities across the country," Pruitt said in a news release on Tuesday. "Issuing the proposed rule on time meets Congress's statutory deadlines, which the previous administration failed to do, and provides regulatory certainty to all impacted stakeholders."

EPA is required by law to reallocate gallons lost to waivers if the agency grants waivers prior to releasing volumes. If EPA waits until after RVOs are announced, it is not required to reallocate gallons to other obligated parties.

Sen. John Barrasso, R-Wyo., chairman of the Senate Committee on Environment and Public Works, commended EPA's proposal.

"I applaud Administrator Pruitt for rejecting efforts to undermine the ability of small refineries to obtain hardship relief under the Renewable Fuel Standard," he said in a statement. "EPA made the right decision to follow the law, which explicitly allows small refineries to apply for hardship relief 'at any time.' EPA also made the right decision not to transfer the burden of small refineries to other refineries."

ETHANOL REACTION

Iowa Renewable Fuels Association Executive Director Monte Shaw said in a news release the ethanol volumes are meaningless.

"This is a status quo proposal for ethanol and the status quo is bad," he said. "The ethanol number isn't worth the paper it's written on so long as Scott Pruitt is granting small-refinery exemptions left and right -- even beyond what the Department of Energy recommends. With Pruitt in charge of the EPA, the ethanol number in reality is more like 13.5 billion gallons, which is well below what President Trump promised and what it takes to grow demand."

Renewable Fuels Association President and CEO Bob Dinneen said in a statement, "It would seem a hollow and cynical exercise to praise or thank EPA Administrator Pruitt for appearing to follow the statute with this proposed RVO."

Dinneen said a 15-billion-gallon corn ethanol volume usually would be a good market signal for corn and ethanol, but not this time.

"It comes with the backdrop of 1.6 billion gallons of demand destructed by illegal waivers to small refineries and no commitment that EPA is changing its approach to granting these exemptions," he said. "Thus, the proposal means nothing until EPA reallocates those lost gallons and sets forth a more transparent and rational process that assures small refinery waivers are not abused or granted unnecessarily."

The proposal does recommend increasing advanced biofuels by 590 million gallons for 2019. Of this, cellulosic ethanol received a 93 million-gallon boost with the rest allocated to any advanced biofuel.

Growth Energy CEO Emily Skor said, with the proposal, the EPA is "doubling down on another year of an estimated 1.5 billion gallons in demand destruction." She said that while the proposed volume increases in advanced and cellulosic biofuels are good for investors, "Those investments can't move ahead unless the EPA makes it clear that goals set by Congress will be enforced."

Kurt Kovarik, vice president of federal affairs at the National Biodiesel Board, said in a statement the group is encouraged to see the agency acknowledge biodiesel's ability to expand production.

"The fact remains, though, instability in the RFS program caused by the EPA has done significant damage that can only be rectified for biodiesel through consistent and predictable growth in volumes," he said.

American Coalition for Ethanol CEO Brian Jennings said the EPA continues to go against President Donald Trump's wishes on the RFS.

"Administrator Pruitt continues to disregard President Trump's campaign promise that 'the EPA should ensure that biofuel blend levels match the statutory level set by Congress under the RFS,'" Jennings said in a statement. "The 2019 proposed RVOs reinforce our decision to challenge certain small refinery exemptions in court and to petition EPA to account for lost volumes of renewable fuel resulting from the unprecedented number of retroactive small refinery exemptions granted by the agency."

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

Follow him on Twitter @toddneeleyDTN

(AG/SK)

Todd Neeley