RFS Commenters Focus on Waivers

Ethanol Group Points to Trump's Change of Direction on Reallocating Gallons

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Biofuel interest groups call on EPA to reallocate Renewable Fuel Standard gallons waived. (DTN file photo)

OMAHA (DTN) -- EPA didn't ask for public comments on the small-refinery waivers program; nevertheless, the agency received a number of comments calling on it to make adjustments to the latest Renewable Fuel Standard volumes to account for waived gallons.

The public comment period on EPA's latest renewable volume obligation proposal closed at the end of last week.

President Donald Trump announced on Twitter last week that there would be a change to a biofuels policy in response to an outcry from rural America on the EPA's latest round of 31 small-refinery waivers issued on Aug. 9. A few details on the changes were leaked to the press, but there is yet to be an official announcement from the White House.

Biofuel groups commenting on the latest RFS volumes want EPA to make changes to account for waived gallons. EPA has waived about 4 billion ethanol-equivalent gallons of biofuels in granting 85 waivers since 2016.

The Nebraska Ethanol Board said it wants the agency to provide a prospective estimate of waived gallons.

According to interagency review documents posted to www.regulations.gov, some reviewers suggested EPA could provide an estimate of gallons waived based on the past few years.

"The agriculture economies in Nebraska and throughout the country are suffering and need EPA's immediate attention and leadership to utilize the administrative opportunity now before the agency to issue RVOs in its final rule that are robust, accurately reflect the potential biofuel production in 2020 and are not subject to change based on future SRE petitions," the Nebraska Ethanol Board said in its comments.

Growth Energy said not accounting for waived gallons allows the oil industry to "revert to its 2013 level of usage" and still remain in compliance with the RFS.

"At this point, it is fair to say that EPA is destroying the RFS program," Growth Energy said in comments posted on regulations.gov. "Most of these exemptions are plainly illegal because (among other reasons) they do not actually 'extend' a preexisting exemption, as required by the express language of the Clean Air Act."

Growth Energy said the Clean Air Act requires EPA to ensure that all volume obligations are met "even if by other obligated parties" in other years.

"EPA cannot properly set the 2020 volume requirements without heeding this command," the group said. "Because EPA does not require that exempt volumes ever be made up, small-refinery exemptions 'effectively reduce the RVOs one-for-one,' having 'the same impact on the overall marketplace as a reduction of the industry-wide obligation.'"

The biodiesel industry has lost hundreds of millions of gallons to waivers -- a large chunk for an industry with a production capacity just north of 2.5 billion gallons. EPA's recently approved 31 small-refinery exemptions for 2018 cost the biodiesel and renewable diesel industry about 250 million gallons of demand, according to the National Biodiesel Board.

In comments submitted to EPA, NBB Vice President of Federal Affairs Kurt Kovarik asked the agency to increase advanced biofuel volumes for 2020 and biomass-based diesel volumes for 2021, as well as to account for waived biodiesel gallons in the current RFS proposal.

"EPA's small-refinery exemptions are turning the RFS upside down and blocking our industry's progress," he said. "By handing out waivers to everyone that asks, EPA is destroying demand for hundreds of millions of gallons of biodiesel and renewable diesel, and forcing U.S. producers to close up shop and lay off workers. EPA cannot continue to pretend it isn't harming biodiesel producers."

REALLOCATION PREVIOUSLY DONE

American Coalition for Ethanol CEO Brian Jennings said the agency changed course on reallocation under the Trump administration.

"For historical context, under the Obama administration, an average of 15 SRE petitions were submitted to EPA for RFS compliance years 2013 through 2015, but only about one-half of those petitions were approved during that timeframe," Jennings said in comments to EPA.

"When EPA granted a refinery an exemption under the Obama administration, the volume of ethanol and/or biodiesel the exempt refinery would have otherwise been obligated to blend with its petroleum products was reallocated to non-exempt refineries, so the total statutory volume was maintained as required under the law."

Under the Trump administration, however, Jennings said, "radical changes" were made to the waivers program. The average number of waiver applications received spiked to more than 30 per year with an average approval rate of 90%.

"What's more, the Trump administration waited until after the compliance year had closed to approve 'retroactive' refinery exemptions," Jennings said. "By tilting the scale and the calendar in favor of refineries, the Trump administration has never reallocated the waived blending obligations as required by the statute."

Renewable Fuels Association President and CEO Geoff Cooper said expected additional waivers issued by EPA in 2019 will "render the 2020 volumes meaningless." The RFA called on EPA to reallocate waived gallons.

"Issuing small-refinery exemptions after an RVO rule is finalized -- as EPA has now done for the 2016, 2017 and 2018 compliance years -- has the practical impact of reducing the effective RVOs to levels well below those specified in the rule," Cooper wrote.

In addition, Cooper said a formula used by EPA in calculating annual percentage standards always has accounted for projected volume of gasoline and diesel for exempted small refineries.

"EPA has in fact included non-zero values for these variables in past RVO rules," he wrote. "Failing to include a non-zero projection of exempted gasoline and diesel from small refineries after the EPA has granted large-scale exemptions for three straight years defies reality and is a flagrant abuse of the agency's waiver authorities under the program."

Cooper also called on the agency to reallocate 500 million gallons of biofuels a court found that EPA improperly exempted in 2016.

REFINER CHALLENGES REALLOCATION

PBF Energy, a refiner that operates five refineries in five states, producing about 900,000 barrels of oil per day, said in public comments it opposes reallocation of waived gallons.

"First, as previously discussed, there is nothing to 'reallocate,' because retroactive waivers have had zero impact on biofuel blending," the company wrote.

"Additionally, it would be arbitrary and capricious to assume future volume exemptions that may or may not occur in the context of the RVO formula. Biofuel industry calls for 'reallocation' are simply attempts to try and force EPA into promulgating an RVO that exceeds the de facto statutory cap of 15 billion conventional biofuel gallons and EPA was wise to recognize and reject such proposals."

The company said EPA "lacks authority to reallocate" any waived volumes.

"The law does not say EPA shall make up a deficit for renewable fuel not used due to the small-refiner exemptions, nor does it state small-refiner exemptions should be addressed through an increase in the obligation for non-exempt refiners," PBF wrote.

"Congress said that any use of renewable fuel by exempted refineries should be accounted for in reducing the percentage obligations for non-exempt refineries. With this provision, Congress had a chance to address exempted volumes in another way but did not. As a result, EPA has no authority other than to adjust the RFS requirement downward to take into account what is essentially over-compliance when small refiner-produced fuel is blended with renewable fuel, which the data suggests has been occurring over the last several years."

National Chicken Council President Mike Brown said in comments to EPA that the agency should reduce volumes for corn-based ethanol.

"Given the current uncertainty regarding the 2019-2020 crop year corn supply, NCC believes the proposed volume for 2020, coupled with the recent waiver that will increase the use of E15, is overly aggressive, overly reliant on corn-based ethanol, and will likely cause disruptions to the nation's feed supply," he wrote.

"Therefore the proposed volumes, especially conventional ethanol, should be reduced in the final rule to more accurately reflect the availability of feedstock and the usage rate of biofuels."

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

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Todd Neeley