Exemptions unresolved: EPA finalizes renewable fuel obligations

Source: By Tom C. Doran, AgriNews • Posted: Friday, December 14, 2018

WASHINGTON — The U.S. Environmental Protection Agency finalized renewable fuel obligations under the Renewable Fuel Standard Nov. 30, setting the amount of renewable fuels required to be blended in the transportation fuel supply at 19.92 billion gallons.

The final rule maintains the current 15-million-gallon target for corn ethanol for 2019. The 2020 requirements for biomass-based biodiesel volumes were set at 2.43 billion gallons, a 330-million-gallon increase over the 2018 and 2019 levels. Cellulosic biofuel volumes for 2019 will increase by nearly 130 million gallons over the 2018 standard of 288 million gallons.

Total advanced biofuel volumes, which are largely filled by biodiesel, are increased by 630 million gallons to 4.92 billion gallons.

EPA’s final rule did not address the small refinery exemption issue and whether the agency would reallocate volumes waived under the exemption to ensure the RFS levels established by law are met.

Under EPA’s RFS program, a small refinery may be granted a temporary exemption from its annual renewable fuel obligations if it can demonstrate that compliance would cause the refinery to suffer disproportionate economic hardship. “Small” refineries are defined as those producing less than 75,000 barrel per day.

Under former Administrator Scott Pruitt, the EPA granted 19 RFS exemptions retroactively for the 2016 compliance year and an additional 29 for 2017, compared to seven or eight granted each of the three previous years.

Obligations to blend biofuels into a combined 21 billion gallons of gasoline and diesel were excused for 2016 and 2017, according to a Renewable Fuel Association report.

Exempt refineries no longer have to blend biofuels or buy credits to comply with the law; and they can sell any credits they had previously purchased to use for compliance.

“Small refinery exemptions effectively reduced the conventional ethanol mandate for 2017 from 15 billion gallons to 13.9 billion gallons. This was not only a large reduction in absolute terms, but it also resulted in the conventional mandate being set below the E10 blend wall,” Scott Irwin, University of Illinois agricultural economist, wrote in a recent farmdoc daily.

Unmet Volumes

While agriculture groups were pleased, the EPA maintained the implied conventional ethanol volume of 15 billion gallons and increased the total 2019 renewable fuel volumes as intended by the RFS, there was concern that nothing was done to account for the lost volumes.

“If EPA continues to grant large amounts of waivers in this manner, the volumes set in this final rule cannot be met,” said Lynn Chrisp, National Corn Growers Association president.

In comments on the rule, NCGA and its grower members urged EPA to take steps to maintain the integrity of the RFS, including projecting 2019 waivers and accounting for those gallons to keep the RFS volumes whole.

By failing to account for waivers in this final rule, EPA ensures that any 2019 exemptions will reduce the volumes the agency sets today.

“Ethanol has been and continues to be a strong market for U.S. corn farmers, especially during these tough times in the farm economy. When the EPA continues to grant waivers and does not account for those volumes in this rule, domestic demand for our crop is lost, impacting farmers’ livelihood and the economy of rural America,” Chrisp said.

Larger Soy Role

“We welcome this increase, as it helps a growing market for soybean oil. We are glad to see EPA acknowledge that biodiesel can play a larger role in our nation’s fuel supply,” said John Heisdorffer, American Soybean Association president.”

While ASA appreciates the increased biomass-based diesel volumes for 2020, Heisdorffer reiterated the ability and capacity for additional growth.

“As ASA communicated to EPA during the rulemaking process, soybean farmers and our biodiesel industry partners can meet these targets, and we have the production capacity and feedstock to reasonably achieve even further growth,” he said.

The EPA’s data shows that the retroactive small refinery exemptions reduced demand for biodiesel by more than 300 million gallons in 2018.

“The biodiesel industry supports agriculture by creating jobs, diversifying fuel sources, and reducing America’s dependence on foreign oil. EPA is moving in a better direction, but we urge the administration to address the waived volumes and support the full potential of U.S. soybean farmers and biodiesel producers,” Heisdorffer said.

On Paper Versus Reality

“On paper, EPA appears to be resisting refiner demands to reduce conventional biofuel blending in 2019 below the statutory 15-billion-gallon level. However, in reality, as long as EPA fails to reallocate the over 2 billion gallons worth of blending obligations waived for ‘small refineries,’ renewable fuel demand will remain flat causing farmers and rural biofuel producers to continue suffering the consequences,” said Brian Jennings, American Coalition for Ethanol CEO.

“While we are fighting this injustice with a challenge of three specific small refinery exemptions in the U.S. Court of Appeals for the 10th Circuit and a petition asking EPA to account for the lost volumes resulting from retroactive small refinery exemptions, Acting EPA Administrator Andrew Wheeler should be fixing this problem.

“Economic hardship is real, but not for oil refiners. The truth is farmers and ethanol producers are struggling to make ends meet because of depressed prices caused by man-made limits or waivers on demand,” Jennings said.

“Assuming the president formally nominates Acting Administrator Wheeler to lead EPA, we call on U.S. senators to insist he provides them with tangible evidence EPA will reallocate the blending obligations waived for small refiners before voting to confirm him.”

“Acting EPA Administrator Wheeler has a valuable opportunity to chart a new course for biofuels and rural America. To reverse the damage done by his predecessor, the EPA must follow the law and reallocate lost gallons, ensuring the ethanol targets set by Congress are actually met. This would plug the leak in America’s biofuels targets and give farmers the boost they need to keep the rural economy moving,” said Growth Energy CEO Emily Skor.

RFS Broken

The American Petroleum Institute said EPA’s final ethanol and biodiesel volumes for 2019 and 2020, respectively, is a reminder that the RFS is broken.

“EPA’s latest biofuel mandate that increases ethanol volumes in our fuel supply should concern consumers,” said Frank Macchiarola API vice president of Downstream and Industry Operations.

“Automakers have warned that increased blends of ethanol such as E15 could void car warranties. Testing found that E15 could harm engines and fuel systems in millions of cars. About 75 percent of the vehicles on the road today were not built for E15 and consumers could potentially face costly repair bills.

“Implementing this broken program year after year simply doesn’t make sense. We need a comprehensive legislative solution that sunsets the RFS. The reality is that outdated assumptions made at the inception of the program, market forces, and technological innovations in the oil and natural gas industry have combined to necessitate a new policy framework.

“The waivers EPA has used in attempt to make this broken program function have triggered the agency’s obligation to ‘reset’ the volume tables Congress set back in 2007. Until Congress can fix the program, EPA should reset the RFS obligations for ethanol below 9.7 percent of gasoline demand, to allow for E0 sales and to recognize the vehicle and infrastructure constraints that limit the ability to use E15 and E85.”