RFS Testifiers Hammer on Waivers

OMAHA (DTN) -- EPA had not planned to address small-refinery waivers in a public hearing on Wednesday, but farmers and biofuels groups had other ideas as they unloaded on the agency.

EPA is seeking comments on the latest proposed Renewable Fuel Standard volumes, which across the board show increases in nearly every biofuel category. However, testifiers at the hearing in Ypsilanti, Michigan, said the numbers are just window dressing.

EPA waived 2.25 billion gallons of biofuels from the RFS in 2016 and 2017, and is still on the hook for reinstating 500 million gallons to the RFS as a result of a court ruling. In all, the actual corn ethanol gallons blended in 2016 and 2017 fell below the 15-billion-gallon RFS cap.

"We've had a lot of stumbling blocks along the way," said Michigan farmer Don Morse. "EPA has handed out waivers of 2.25 billion gallons. At 1 billion gallons waived, that equals 700,000 acres of corn, the same as all of the corn acres in Michigan.

"EPA does not have unlimited authority to grant waivers retroactively. This is a big deal for us. This RFS is one of the key things to help us make a profit."

The EPA was set to reallocate gallons lost to RFS waivers, but that proposal was pulled within days after a series of meetings and phone calls that then EPA Administrator Scott Pruitt had with lawmakers from oil states and RFS stakeholders.

"The criteria for exemptions must be reasonable and transparent, and any exemptions must be reallocated to the remaining obligated parties," Iowa Republican Gov. Kim Reynolds said. "Correcting the small-refinery exemption excesses need to be in the final rule. Fifteen billion gallons must mean 15 billion gallons."

James D. Carstensen, federal government affairs manager for DuPont, said EPA should reverse course.

"The proposed volumes lack credibility with the waivers expansion," he said. "Struggling farm families cannot sustain another year of lost demand to waivers. Volumes should be reinstated."

REFINER CONCERNS

Kary Taylor, vice president of marketing and renewable fuels at refining company HollyFrontier Corp., a company that received an EPA waiver, told EPA his company has struggled to cover the costs of compliance with the RFS.

"Since EPA first established an RVO (renewable volume obligations) above the blend wall, RINs (renewable identification numbers) have been very expensive -- costing HollyFrontier hundreds of millions of dollars per year," he said.

"Last year, HollyFrontier spent more on RINs than the entire payroll for my 2,700 fellow employees across this country. That means less money to spend on our workers, upgrading facilities and investing in our communities."

D. Scott Hayes, manager at Toledo Refining Co. in Toledo, Ohio, said his company finds it difficult to manage RFS costs, as well.

"We don't have the capacity to blend, and we are burned by RINs costs," he said. "We know EPA can prevent RIN price hikes without hurting biofuels consumption. We know the market is being manipulated, and we're asking for reform. We're delaying capital projects. This is a very real threat to us."

Patrick Kelly, project manager for the American Petroleum Institute, said the so-called blend wall is "limiting the use of ethanol to below E10." The blend wall is where total ethanol production exceeds the available gasoline market for E10.

"The RFS is a burden on all refiners regardless of size," Kelly said. API is requesting that the EPA lower biofuel volumes "for all obligated parties," he said.

EPA "WENT ASTRAY" ON RFS

American Coalition for Ethanol Senior Vice President Ron Lamberty, told EPA the agency went astray on implementing the RFS with the previous leadership.

"With the departure of the previous EPA administrator, I hope EPA will take this opportunity to return to implementing the RFS as intended by Congress, Lamberty said.

"(Scott) Pruitt's seemingly sole focus on helping merchant refiners ignore or skirt their longstanding obligations under the RFS has further shaken the rural farm economy while undermining Congress' goal of increasing renewable fuel use in the United States."

Samantha Slater, vice president of government affairs for the Renewable Fuels Association, said the agency needs to assure ethanol producers and farmers the RFS will require the mandated corn ethanol volumes.

"Given the recent wave of secret small-refiner exemptions granted by the Environmental Protection Agency, we unfortunately do not trust that the rule will actually require 15 billion gallons of conventional renewable fuel blending in 2019," Slater said.

"And, by failing to remedy the harm done by other recent EPA actions on the Renewable Fuel Standard, the proposal rule for 2019 RFS blending requirements is yet another blow to America's farmers and ethanol producers."

BIODIESEL REQUEST

On June 26, 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.

Though biodiesel volumes would see a proposed 330-million-gallon increase, several biodiesel industry officials pressed the agency Wednesday to more than double that increase.

Thomas Brooks, chairman of the Iowa Biodiesel Board and general manager of Western Dubuque Biodiesel, said the number should be set at 2.8 billion gallons, as Iowa producers are operating at just 25% capacity.

"The proposed volumes at face value seem good," he said. "But they effectively hold us flat. The impact of these (waivers) is like wiping out a year's worth of production in the nation's top biodiesel-producing state."

Donnell Rehagen, chairman of the National Biodiesel Board, said the industry always has had more than enough capacity to produce above the volumes set by EPA.

"The proposal for a small increase does not provide certainty," he said. "The biodiesel industry has consistently produced above the volumes."

REFINING PROFITS

Chris Bliley, vice president of regulatory affairs for Growth Energy, said the waivers have effectively set blending levels back to 2013 levels, "destroying biofuel and associated farm demand" while refinery profits continue to grow.

"What kind of signal does that send to farmers who plant their crops based on demand?" Bliley said. "Make these numbers real and encourage the type of investment that we've seen over the last decade by reducing the number of unfounded refinery waivers and then by reallocating any lost gallons to remaining oil refiners, so that demand is not lost."

Iowa Renewable Fuels Association Managing Director Lucy Norton called the use of waivers a "cancer that is eating into the credibility of the EPA" and said the agency swayed from President Donald Trump's wishes on the RFS.

"The EPA going rogue makes a mockery of the interagency process and highlights how the EPA under its former leadership was out of step with the Trump administration and President Trump himself," she said. "Restore the integrity of the RFS and, by doing so, the trust of rural America in this agency and in this administration."

Kevin Skunes, president of the National Corn Growers Association and a North Dakota farmer, said farmers need a "level playing field" at a time when farm incomes are depressed.

"The certainty of a strong RFS would go a long way to restoring confidence in the agriculture economy," he said.

"The EPA should end the practice of granting unjustified RFS waivers behind closed doors and uphold the strong biofuel targets promised by President Trump."

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

Follow him on Twitter @toddneeleyDTN

(AG)

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