EPA RFS RVOs Fail to Recognize Potential Damage from ‘Hardship’ Waivers

Source: By Ernie Shea, Solutions from the Land • Posted: Friday, December 7, 2018

EPA last Friday formally announced its biofuel blending requirements for 2019 under the Renewable Fuel Standard (RFS), otherwise known as Renewable Volume Obligations, or RVOs. Despite a boost in the amounts of biofuels to be used under the RFS, the rule remains a disappointment because of its failure to reallocate the billions of gallons lost to a flurry of “hardship” waivers granted by former EPA Administrator Scott Pruitt.

Let’s first take a look at the numbers. The total renewable fuel volume for 2019 is set at 19.92 billion gallons, about a three-percent increase over the 19.28 billion required for this year. Of that total, 4.92 billion gallons are advanced biofuel, a jump of nearly 15 percent from this year’s 4.29 billion. Of the biofuel volume designated “advanced” (capable of reducing emissions by at least 50 percent compared to their petroleum-based equivalents), 418 million gallons are to come from cellulosic ethanol. Biomass-based diesel for this year remains at 2.1 billion gallons.

The requirement for conventional biofuel, which consists mostly of corn ethanol, will remain at 15 billion gallons. But even though that’s the same level required by the 2007 law reauthorizing the RFS, it’s a number jeopardized by EPA granting an inordinate number of refineries

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permission to avoid their RFS obligations – the aforementioned waivers – in recent years. Refineries have claimed the blending requirements would impose a financial hardship.

The exponential increase in waivers over the past two years, many to oil firms that are earning record profits, were granted in relative secrecy. When they did come to light, exemptions covering well more than 2 billion gallons of ethanol had been granted, costing the U.S. ethanol industry’s corn growers, ethanol producers and ethanol blenders more than $5 billion in economic losses. The waivers also reduced 2018 biodiesel blending requirements by 300 million gallons – the equivalent of the entire state of Iowa’s biodiesel production.

The abusive use of these waivers represents a massive economic blow to the agricultural sector (and its rural community), which is already deep in a five-year, 52-percent economic downturn. USDA estimates that inflation-adjusted, net cash farm income will ultimately decline this year by $10.9 billion, a 10.5-percent drop from 2017, to $93.4 billion. This represents farm income’s lowest real-dollar level since 2009.

After Pruitt’s exit and Andrew Wheeler’s appointment as acting administrator, EPA is moving forward under new leadership. But the agency has chosen not to remedy the shortcomings wrought by the waivers, instead favoring the interests of the oil industry by refusing to provide for reallocation of the lost gallons to “healthier” refineries.

The agency says it has received no small refinery exemption petitions for 2019 and is thereby estimating zero gallons of exempted fuel in its RVO formula for next year. EPA has estimated zero gallons exempted every year since 2015, and yet the agency later retroactively issued nearly 50 exemptions from 2016 and 2017 RFS requirements, compared to a handful over all of the years of the Obama administration.

The University of Missouri’s Food and Agriculture Policy Research Institute’s recently published an update to its March 2018 U.S. baseline outlook for agricultural and biofuel markets. If the agency continues to grant waivers at its current rate, this update shows a potential loss for the ethanol industry of about 4.6 billion gallons of domestic demand and almost $20 billion in sales revenue in the next six years.

By failing to include waivers in the formula for determining annual volumes as required under the RFS to bring those volumes up to required levels, EPA is cutting demand for ethanol and biodiesel. The RFS program was established by a bipartisan vote of Congress 11 years ago. However, the agency is working against the goals of the program to the detriment of motorists, the nation’s environmental goals, and agricultural producers.

Even a waiver process made more transparent earlier this year seems to have placed little restraint on EPA’s generosity to those with little need for it. It was disclosed late last month that the agency granted a waiver of 2017 RFS requirements for a Chevron refinery in Utah. The relief was granted despite the fact that Chevron posted net profits of nearly $10 billion in 2017, hardly a circumstance meriting the “disproportionate economic hardship” threshold needed to help justify a small refinery exemption.

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Ethanol advocates, who have challenged the waivers in federal court, also charge that the waivers fail to comply with a 2017 federal appeals court ruling addressing the criteria for reducing RFS blending requirements below the levels set by the original enacting legislation more than a decade ago.

The legal questions aside, it is a matter of fairness that the Trump administration reinforce its promises to rural America and give the agriculture sector a fighting chance to regain its economic vitality. EPA’s RFS waivers display a seeming indifference to the economic struggles of rural America and must end.

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