RFS risks ‘implosion’ as US refiners seek retrospective biofuel waivers 

Source: By  AgriCensus • Posted: Thursday, May 28, 2020

US biofuel sources are warning that the primary legislation underpinning the country’s entire biofuel use could “implode” if the government agencies that oversee the scheme allow oil refiners to apply for retrospective biofuel waivers. 

The development is the latest twist in a protracted struggle between the oil and biofuel sectors, with the unfolding drama causing chaos for both biofuel producers and the global market for its dominant feedstock, corn. 

A decision from the US 10th Circuit Court of Appeal in January seemed to have closed matters, as the court ruled that the Environmental Protection Agency (EPA) could only issue extensions to existing waivers for refiners, and not expand the scheme to new refiners. 

That seemingly curtailed the expansion of a provision that the biofuels sector claimed has led to the loss of up to 4 billion gallons of demand for ethanol and millions of tonnes of corn. 

A Washington DC-based biofuel lobby group, the Renewable Fuel Association (RFA), raised the alarm on Tuesday after the EPA’s administrator, Andrew Wheeler, gave evidence to the US Senate stating refiners were looking at retrospectively applying for waivers. 

“Following the 10th Circuit decision, we felt like integrity would be restored to the RFS program. But if this ploy is allowed to play out, it could lead to the implosion of the RFS program as we know it,” Geoff Cooper, president and CEO of the RFA told Agricensus. 

Making waivers 

At the heart of the debate is a provision grandfathered into the RFS covering small refineries, defined as one with capacity of under 75,000 barrels of crude oil a day, which enables the refinery to avoid biofuel obligations if it can demonstrate they bring severe economic hardship. 

EPA data shows that between 2013 and 2015, the scheme received an average of 14 petitions a year, with 8 being granted – a 57% hit rate. 

However, since 2016 the average number of petitions jumped to 33 per year, with 28 granted – an 85% approval rate. 

The expansion left no opportunity for biofuel producers to claw back lost demand as the scheme is effectively administered in arrears. 

The process appeared to have been halted with the 10th Circuit decision, which ruled that the EPA could only issue extensions to existing exemptions and not fresh waivers. 

However, there does not appear to be a time limit set on when refiners can apply for exemptions, potentially paving the way for another cascade of applications as refiners facing being dropped from the scheme attempt to establish an earlier precedent. 

Committee 

In a Senate committee meeting on May 20, Wheeler was called to account for the actions of the EPA and faced a barrage of questions from senators representing shale oil states or states with small refineries. 

While acknowledging that the ethanol sector has been hit hard by Covid-19 lockdown measures, Wheeler confirmed that EPA is “working with (small refiners) to see what we can do to help them during this time,” and the agency will pass any retrospective requests for waivers to the Department of Energy. 

Later the same day, in a separate Senate committee, Utah senator Mike Lee asked Deputy Secretary of Energy Mark Menezes if he was willing to consider past year applications. 

“We take our obligations under the RFS to serve in a consulting role with EPA very seriously,” Menezes told the committee, saying “these are small refineries that are entitled to make the application”. 

Ethanol hit 

At the extreme, the oil sector could push for exemptions for all of the 45 or so small refineries that meet the definition, predating them to 2013 in a move that could return up to 5 billion biofuel credits – or RINS – to those small refiners. 

The move would also represent a massive blow to current blending outlooks, with existing demand loss estimated at 4 billion gallons to date, leading to further loss of potential demand at a time when the sector has contracted. 

The US Energy Information Administration lists 200 ethanol production facilities in the country, almost 90% of them concentrated in the corn-belt of the Midwest. 

Around 40% of the country’s ethanol production capacity is thought to be offline currently, with another 40% said to have cut back on production as it wrestles with huge stocks and faltering demand. 

Typically, around 40% of the US corn crop heads into ethanol production, with the USDA expecting the industry to use 132 million mt in the 2020/21 marketing year, up almost 5% from the 125.7 million mt in 2019/20. 

The RFA has written to the EPA asking them to deny the application. 

“We’re going to do everything in our power to prevent that from happening,” Cooper told Agricensus. 

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