Ethanol use plunges; industry blames EPA

Source: By Marc Heller, E&E News reporter • Posted: Friday, March 15, 2019

Ethanol consumption fell in 2018 for the first time in 20 years, an industry group said today, blaming the decline on EPA’s decision to ease ethanol blending requirements for some small refineries.

The Renewable Fuels Association said the blending waivers, granted when Scott Pruitt was EPA administrator, contributed to a decline of 103 million gallons compared with a year earlier, or roughly the equivalent of two midsize ethanol plants. The percentage of ethanol in the nation’s fuel supply also fell, defying predictions of an increase from the U.S. Energy Information Administration.

The decline came despite lower prices for ethanol compared with gasoline — about a 55-cent spread, according to the RFA. It may have cost the industry more than $1 billion, said RFA’s chief economist, Scott Richman, in a conference call with reporters.

“These are real impacts,” Richman said.

The industry group’s analysis comes as EPA prepares to expand availability of higher-ethanol fuel called E15 this summer, a major victory for ethanol marketers. The agency is also reviewing 37 applications from small refineries looking for exemptions from the ethanol mandate; decisions on a few of those could come later today from Administrator Andrew Wheeler, RFA officials said they’ve heard from EPA.

Exemptions free refiners from buying renewable fuel credits called renewable identification numbers, or RINs. With those obligations lifted, prices for RINs tumbled last year, industry sources said, cutting into demand for ethanol.

EPA is also considering changes to how RIN markets work, including limiting participation and the period of time that parties that aren’t obligated to comply with the RFS can hold on to the credits. Changes should make the market more transparent, the agency has said.

Those potential changes, as well as the pending exemption applications and a broader “reset” of renewable fuel volumes, could have a big effect on ethanol in the next three to five years. They’ve become a focus of lobbying efforts by the ethanol and petroleum industries.

Expanded sales of E15 and a resolution of trade disputes with China will play heavily into future demand, setting up a pivotal period for ethanol, said Neil Koehler, CEO of Pacific Ethanol Inc., who joined on the conference call.

Advocates for the exemptions say refineries granted the waivers have demonstrated economic harm, the measure by which the law allows EPA to temporarily ease the requirements. They’ve pointed to the example of Philadelphia Energy Solutions Inc., which declared bankruptcy for its refinery in Philadelphia, citing high RIN costs in 2016.

EPA’s moves on E15, which is 15 percent ethanol, could draw a lawsuit from the petroleum industry. The American Petroleum Institute is “going to look at all possible legal options,” said Frank Macchiarola, vice president of downstream and industry operations for API.

API, which calls for revamping the renewable fuel standard, believes that EPA doesn’t have authority to expand E15 sales into the summer — a limitation based on ozone pollution regulations — and that its proposed changes to the RIN market could backfire and make the credits more expensive, Macchiarola told E&E News.