RFS Roundup: White House’s “Last Meeting” on RFS Raises More Questions than Answers

Source: By Jessie Stolark, EESI • Posted: Monday, May 14, 2018

On Tuesday, May 8, the President held what was widely reported to be his last meeting on the fate of the Renewable Fuel Standard (RFS). Over the course of the past several months, the White House has had at least a half a dozen meetings with industry, oil and agriculture state lawmakers, as well as Secretary of Agriculture Perdue and EPA Administrator Pruitt, in an attempt to broker  a ‘deal’ over disagreements on the RFS between the oil and biofuels industry.  The problem is, there appears to be no existing authority to administratively accomplish what the White House has proposed, and there is little agreement among lawmakers about the best way forward.

Lawmakers present at the meeting reported that there were two proposals put forward by the President. Allowing the year-round sale of E15 (15 percent ethanol, 85 percent gasoline), and allowing biofuels exports to receive RINs, the tradable compliance mechanism attached to each gallon of biofuels.  While the biofuels industry was pleased that Senator Cruz’s (R-TX) proposal to cap RIN prices was not advanced, the meeting left parties with more questions than answers. Both moves would likely require changes to the RFS by lawmakers, and could not be accomplished administratively, as the White House suggests.

The backdrop to the meeting is the EPA’s increasing use of small refiner exemptions, which are reserved for cases where refiners would face undue economic hardship in meeting the RFS. While completely legal and previously used upon occasion, EPA has chosen to exempt 25 refiners for the 2017 compliance period, a record number. This includes small refineries owned by refining giants such as Chevron Corp and Exxon Mobil.  While EPA has not released the names of the 25 refineries granted the waiver, in April, Reuters reported that the exemptions would save refinery owner Andeavor alone $50 million in 2017.

Industry watchers now place the number of exempt gallons at 1.6 billion gallons of ethanol production, about 10 percent of the domestic biofuels market.   With this downward pressure on domestic demand, the President seems to be seeking ways to appease supporters in the biofuels industry, while maintaining the goodies he has already handed to the oil industry.

At the meeting, there were three primary issues raised: 1) Expanding E15 use by lifting the RVP (Reid Vapor Pressure) waiver, 2) Re-allocation of exempted gallons going forward, and 3)attaching RINs to exported gallons of biofuels.

Over the past few years, the biofuels industry has been extremely focused on allowing the year-round sale of E15 as a way to increase biofuels blending, and, therefore, reduce RIN prices.  However, Dr. Scott Irwin, an agricultural economist at the University of Illinois, has cautioned that allowing year-round sale of E15 will not alone solve the issue.

During a recent interview, Irwin commented, “On its own, the economics of blending E15 versus E10 are not economical. To make E15 blending economical and attractive, you have to have high RIN prices.”  But in an uncertain regulatory environment, just the opposite has occurred, with OPIS Biofuels reporting this week that RIN prices have fallen 58 percent since the beginning of the year. While increases of E15 sales will be an incremental help to the biofuels industry, Irwin noted that the oil industry is likely to challenge any administrative move to allow the year-round sale of E15.

With the EPA showing no signs of reversing its decision to grant waivers to seemingly any small refiner that applies for an exemption, pro-biofuels lawmakers have put pressure on the Administration to re-allocate these gallons to large refiners.  According to Irwin, EPA rulemaking on re-allocation is very clear. Without re-allocating these gallons, the biofuels industry is left with a 1.6 billion gallon shortfall in domestic demand.

This leads to the Administration’s proposal to allow exported gallons to receive RINs. Conveniently, the volume of ethanol exports is 1.4 billion gallons for 2017, close to the exempted gallons granted to small refiners.  While the Administration is likely hoping to spare its friends in the oil industry, there seems to be no shortage of opposition to this proposal from the biofuels and agriculture community. Not only would this depress domestic blending and possibly incite a trade war, RIN prices would likely further plummet.  According to Mike McAdams, President of the Advanced Biofuels Association, RIN prices could fall under a nickel if exported gallons could receive RINs.

And finally, one is left wondering if any of this is even possible, or if it would require Congressional intervention to accomplish.  Indeed, the core purpose of the Renewable Fuel Standard is to increase domestic blending of biofuels, as it was passed as part of the Energy Independence and Security Act of 2005. If domestically produced gallons are allowed to receive RINs upon export, this would decrease domestic blending due to trade retaliations, as reported in an analysis commissioned by Growth Energy, a renewable fuels trade group.

According to Irwin, attaching RINs to export gallons is “an idea that deserves a quick death,” as it has unknown impacts on the domestic markets and on U.S. trade relations.  He noted that the “RFS is clearly a technology-forcing domestic blend mandate. If you allow ethanol that is exported to generate a RIN, it’s clearly not blended in the domestic fuel supply. That’s a strike at the heart of the Congressional intent of the RFS.”

And in a rare moment in the land of RFS, even lawmakers are relatively mum on the presented options, with Senator Grassley summing it up succinctly, stating “the devil is in the details.”

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