Numbers game at heart of high-stakes ethanol fight

Source: Marc Heller, E&E News reporter • Posted: Monday, March 20, 2017

Supporters of change say the number of responsible blenders would be about 200, the same as the number of refiners already compelled to meet the mandate. Opponents say 10 times that number might suddenly be thrust into the program, straining an EPA that under President Trump is likely to be working with smaller budgets in the next few years.

“It’s the most important issue in this point-of-obligation discussion,” said Rich Walsh, senior vice president and deputy general counsel for Valero.

The debate involves points along the supply chain that brings ethanol-blended fuel to gas stations. The renewable fuel standard now requires refiners and importers to meet the mandate, even though ethanol isn’t generally put into gasoline until trucks receive it at terminals, also known as “the rack” in the industry. Refiners and importers meet the mandate by buying renewable fuel credits called renewable identification numbers.

Refiners say the responsibility belongs at the rack, so that the mandate and the blending occur at the same point. That would make the system work more smoothly, said Walsh, who accused EPA of falling for flawed analysis by ethanol advocates.

“The EPA knows that they set the point in the wrong spot,” he said.

EPA late last year denied a petition by Valero to move the point of obligation, citing the same arguments made by groups that want the renewable fuel standard left alone. The agency said its records show 1,100 facilities registered as blenders.

“It is very difficult to obtain a comprehensive list of all position holders and blenders,” EPA said. “Based on the facts before us, EPA believes shifting the obligation to either the position holder or to blenders would likely significantly increase the number of obligated parties and would result in a significant increase in administrative burden for EPA to implement and enforce the RFS program.”

Moving the point of obligation resurfaced recently when the billionaire investor Carl Icahn and the Renewable Fuels Association reportedly discussed a deal that could make the change while also making higher-ethanol fuel easier to sell year-round (Greenwire, March 8). But there’s little sign the change will come anytime soon, while the industry argues about how disruptive such a move would be.

To refiners supporting the change, the disagreement about numbers is a big misunderstanding being perpetuated by opponents and EPA. The American Fuel and Petrochemical Manufacturers, Valero and others calling for change say the high estimates assume retailers and others down the supply chain would become obligated parties, even though the companies aren’t proposing that.

To find reliable numbers, Valero hired the Oil Price Information Service — which doesn’t take policy positions — and examined federal excise tax statistics, since fuel terminal operators are required to file reports with the IRS, Walsh said.

“EPA estimates that moving the obligation would create over 1,000 new parties subject to the RFS. This is simply impossible,” Valero said after EPA denied industry requests. “There are only approximately 200 parties that fit within the new definition — and that is a high estimate.”

But opponents such as Pro Petroleum, which operates terminals, say each terminal has multiple position holders, and thus more obligated parties, many of whom aren’t familiar with the intricacies of RFS compliance.

In February, the debate spilled into a tiff between EPA and the Oil Price Information Service.

The environmental agency said that it reached its estimates in part by consulting OPIS, a division of the publicly traded company IHS Markit, and that the information service hadn’t been able to verify Valero’s analysis. In addition, EPA said, OPIS told officials that relying on its client list to help determine the number of obligated parties would underestimate them.

OPIS complained to the agency in a Feb. 21 letter, saying that EPA’s depiction was a “complete misreading” of its comments and that estimates by Valero and IHS Markit agreed that the number of obligated parties would fall under the proposal.

How EPA will handle the issue under new leadership remains to be determined. The agency’s administrator, Scott Pruitt, has been critical of the RFS, and the agency is reviewing public comments that it invited on the issue before the change in administration. Lobbyists following the issue said the first clear indication of the administration’s position on the mandate may not come until spring, when EPA is due to propose renewable fuel volumes for 2018.

In the meantime, pro-RFS lawmakers in Congress continue pressing the argument that a change in the point of obligation would be chaotic. Twenty-three senators, led by Sens. Heidi Heitkamp (D-N.D.) and Chuck Grassley (R-Iowa), wrote to Trump yesterday, asking him to keep the RFS as is and saying a change would result in an “exponential” increase in the number of obligated parties.

“It would also complicate the administration of the program and unnecessarily result in significant uncertainty and market disruption,” they wrote.