Trump May Reallocate Waived RFS Gallons
Senators From Oil-Producing States Set to Meet With Trump on RFS Deal
OMAHA (DTN) -- Recent media reports outlining a possible agreement on the Renewable Fuel Standard may sound promising for the biofuels industry and agriculture, but Sen. Charles Grassley, R-Iowa, told agriculture journalists on Tuesday that he'll hold off celebrating just yet.
Reuters and Bloomberg recently reported details of a tentative agreement between biofuel and agriculture interests and President Donald Trump following a meeting at the White House.
Under the agreement, if true, EPA would account for biofuel gallons waived from the RFS through small-refinery exemptions, in addition to other concessions.
However, the agreement could look much different after senators from oil-producing states meet at the White House, perhaps sometime this week.
"Before I would say the president's delivered, and since EPA is writing it, putting it on paper, I'm going to wait and see what EPA does," Grassley said.
"You know what I've said about EPA being a tool of big oil. I would speculate that the president's tired of dealing with this. He's more or less said so many times. Even back when we were in the White House talking about E15, it just seemed like he could never get to the bottom of the ethanol issue, or he couldn't satisfy both big oil and the farmers, and he was trying to do that. Maybe that's where he has some shortcomings trying to satisfy everybody."
Grassley said the administration presented a 13-point plan on the biofuels issue during a recent White House meeting he attended along with other lawmakers.
"We went in with a simpler plan that, if it comes out on paper the way that the White House seemed to agree with us, then I would say we have a win, win situation," Grassley said.
"A win for maybe even small refineries legitimately getting a waiver. It's something that ought to make sure that any waived gallons are put back in. So when the government says we're going to be allowed to use 15 billion gallons mixed with petroleum, it's going to be 15 billion gallons. Instead of like with these waivers it would have ended up being 13.6 [billion gallons]. The small refineries have a victory. They can get as many refineries waived that they want to get waived."
The agriculture and biofuels industries were enraged when the Trump administration approved 31 additional small-refinery exemptions on Aug. 9. At the time, many industry representatives began to question Trump's support for agriculture and biofuels.
BIODIESEL SHUT OUT
Among the industries waiting for RFS resolution and relief is biodiesel. To this point the biodiesel industry has been largely shut out of the negotiations but is waiting to see what the White House will eventually propose.
"We're pleased the president has heard the outcry, primarily from the Midwest, both from biofuels producers and those in the ag industry, and is responding to that," said Kurt Kovarik, vice president of federal affairs for the National Biodiesel Board.
NBB leaders and farmer leaders on the American Soybean Association met with reporters Tuesday in Washington, D.C., to talk about the RFS negotiations.
The biodiesel board wants to "return integrity to the RFS" blend volumes in the law and set by EPA, as well as ensure biodiesel volumes will continue to grow. The small-refinery exemptions granted have set the biodiesel industry backward.
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"We are uniquely harmed as a result of those small-refinery exemptions, and we need a specific remedy that makes our industry whole," Kovarik said.
The biodiesel industry grew from less than 100 million gallons produced in 2005 to a peak of 2.9 billion gallons in 2016, Kovarik said. The industry now finds itself spending most of its efforts "fighting an entrenched oil industry" rather than focusing on growing more volume and increasing markets, he said.
"We fight every day to maintain the viability of the industry through the policies that are in place now," Kovarik said. "If they were implemented as Congress intended, we would be growing volumes and fighting less."
TRADE SITUATION
The trade situation has focused the American Soybean Association directors even more on the small-refinery exemptions for biodiesel because there are significantly more soybean stocks in the country as a result. ASA leaders also are turning more attention to state policies, looking for ways to mimic what Minnesota has done by raising its state mandate to 20% biodiesel blends.
"In Iowa, I think this latest round with the SREs and the volume being very negligible, there's getting more traction from our local representatives and state senators to look at what Minnesota is doing and add on to our tax policy and maybe do a program similar to Minnesota," said Morey Hill, an Iowa farmer and director for the American Soybean Association.
Biodiesel volume set for 2020 is 2.43 billion gallons. If EPA grants another 30 SREs without reallocation, the volume of biodiesel mandated under the RFS would be lower in 2020 than it is now. Under the waivers granted in August, the biodiesel industry lost 250 million gallons of volume.
Currently, the biodiesel industry domestic capacity is about 2.6 billion gallons, and the industry is producing at a shade above 70% of capacity. So there is room to increase capacity by nearly 800 million gallons just by existing plants increasing production.
Tim Keaveney, executive vice president for Hero Bx, which owns biodiesel plants in Alabama, Iowa, Illinois, New Hampshire and Pennsylvania, said the company invested heavily in biodiesel facilities as a direct result of the RFS. When volumes are lost, "That puts a serious threat on our investment," Keaveney said.
Biodiesel industry leaders also pushed back on the argument by petroleum refiners that any increase in biodiesel volumes would have to be met by imports.
"That case simply isn't the truth," Keaveney said. "Investments are going forward in the United States and will go forward in the United States as long as there is a policy going forward and investors know what that is. We have the raw materials in the United States to continue to be a growing marketplace."
The petroleum industry and its backers on Capitol Hill have criticized USDA's involvement in negotiations, particularly USDA Deputy Secretary Steve Censky, who was the long-time CEO of the American Soybean Association before being nominated to his current post. Yet, former lobbyists and attorneys for the refining industry have found their way into EPA posts to influence the direction of the RFS.
"USDA has a role in agriculture, right? It's in the name," said Donnell Rehagen, CEO of the National Biodiesel Board. "It makes all the sense in the world that the president would rely on USDA to come to the conclusion that he should on policy decisions that affect agriculture and biodiesel."
Rehagen later said the biodiesel industry has been trying to have a conversation with EPA for several years about small-refinery exemptions and implementation of the RFS, but that hasn't happened.
REPORTED AGREEMENT
Trump reportedly has tentatively agreed to reallocating biofuel gallons lost to small-refinery exemptions to the RFS over a three-year period, starting in 2020.
A report by Bloomberg citing anonymous sources said Trump tentatively agreed to the action as part of a big package for the agriculture and ethanol industries, following a meeting last Thursday with Grassley and fellow Iowa Sen. Joni Ernst, as well as Iowa Gov. Kim Reynolds.
Reuters reported on Monday the plan would require the EPA to calculate a three-year rolling average of the total biofuels exempted since 2016 via small-refinery exemptions. The agency would then add the average to annual renewable volume obligations in the RFS.
In addition, the agreement also would include increasing 2020 RFS volumes by about 1 billion gallons. That would include 500 million for corn-based ethanol and 500 million gallons for biodiesel and other advanced biofuels. In 2016, the U.S. Court of Appeals for the District of Columbia Circuit ruled the EPA illegally cut RFS volumes by 500 million gallons.
In a letter to Trump last Thursday, a group of eight senators from oil-producing states said they remain opposed to reallocation.
"Any reallocation of volumes from statutory small-refinery exemptions or increase in renewable volume obligations for the 2020 compliance year would have a costly impact on consumers, the American refining sector, and thousands of well-paying, blue-collar jobs in our home states," the senators wrote.
The letter was signed by Sens. Ted Cruz, James Inhofe, Pat Toomey, James Risch, John Barrasso, Michael Enzi, Shelley Moore Capito and John Kennedy.
Frank Maisano, senior principal at Bracewell LLP in Washington, which represents refining interests, told DTN the senators are on tap to meet with Trump sometime this week.
PRESIDENT SURPRISED
Grassley said that, based on his conversations with the administration, he believes Trump was surprised at rural America's reaction to the latest 31 waivers.
"So then he asked people close to agriculture and close to ethanol to respond to what he thought was a legitimate complaint, that he was hearing one thing from soybean people, another thing from corn people, another thing from ethanol, and ethanol industry has two or three different points of view, and with biodiesel," Grassley said.
"So you got different people pounding the president. He said, 'I need to know what the industry wants. So can you get the industry together?'"
All sides were brought to the table and within 48 hours came up with something that was presented to the president, Grassley said.
Todd Neeley can be reached at todd.neeley@dtn.com
Follow him on Twitter @toddneeleyDTN
Chris Clayton can be reached at Chris.Clayton@dtn.com
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