Iowa advocate: Exemptions could ‘rip the heart out’ of RFS

Source: By Marc Heller, E&E News reporter • Posted: Friday, April 19, 2019

Giving small refineries a pass on ethanol blending requirements could “rip the heart out” of the federal law encouraging the use of renewable fuels, a leading biofuel advocate in Iowa said yesterday.

The executive director of the Iowa Renewable Fuels Association, Monte Shaw, said at a news conference that if EPA grants more than 30 outstanding requests for exemptions from ethanol blending requirements, more than a billion gallons of the corn-based fuel could be affected, throwing off the renewable fuel standard.

Shaw joined Iowa Agriculture Secretary Mike Naig in urging EPA to reject small refiners’ requests for exemptions based on economic hardship, an issue that’s ignited a fierce debate in the petroleum and biofuels industries in the past year. The agency hasn’t said when it will decide on the refiners’ petitions.

“Congress didn’t say give blanket exemptions,” Shaw said, referring to a provision in the renewable fuels law that allows EPA to temporarily lift RFS requirements for small refineries that demonstrate economic harm from meeting them. Refineries are required either to blend ethanol into fuel or to buy renewable fuel credits from refiners that do in order to meet the law’s mandate.

The Trump administration has already granted 39 such exemptions, which the IRFA said account for about 2.5 billion gallons of “demand destruction,” a term the ethanol industry has adopted to portray lost or potentially lost ethanol production.

If pending exemptions are granted, Shaw said, “that’s enough gallons to rip the heart out of the RFS.”

Refiners and other stakeholders favoring the exemptions say the mandate has been costly to small refineries that have little practical choice but to buy renewable fuel credits at market prices. Those prices were more than $1 per gallon in the past few years but have crashed more recently to less than 10 cents, which industry sources attribute in part to the exemptions EPA granted.

Petroleum industry sources also say EPA is required by law to grant exemptions in certain situations, and they point to federal court cases in which the Obama administration was found to be overly stingy in granting them.

And while ethanol groups blame exemptions for falling demand, petroleum industry sources say there’s little evidence to support that. A researcher at the University of Illinois who often writes about ethanol has written that he doesn’t see a strong link between the refinery exemptions and falling ethanol demand, given that the vast majority of ethanol goes into standard gasoline that’s 10% ethanol.

The bigger hardship now is on farmers, Naig said. The Department of Agriculture reports falling farm incomes, including a 24% drop in Iowa between 2012 and 2017, reflected in the most recent Census of Agriculture.

With Andrew Wheeler taking over at EPA from ex-Administrator Scott Pruitt, Naig said, “it’s an opportunity for him to do the right thing now.”

Politically, any moves that undercut ethanol would hurt in Iowa, Shaw said. Moves that boost ethanol, such as rejecting the petitions and encouraging more sales of higher-ethanol fuel, would be political winners there. President Trump has repeatedly promised Iowa farmers he’ll stand up for ethanol.

Ethanol advocates blame Pruitt, who had ties with the oil industry, for seeking ways to scale back ethanol. Now, Shaw said, the decision about refinery exemptions seems to be more broadly in the hands of the administration.

Pruitt was “a little bit of a rogue EPA administrator,” Shaw said. “This is now an administration decision.”