University of Missouri analysis finds EPA waivers could cost ethanol industry $20 bln

Source: BY CHRIS GALFORD, Transportation Today • Posted: Wednesday, September 12, 2018

By allowing exemptions for small refiners from their blending obligations under the Renewable Fuel Standard, economists at the University of Missouri’s Food and Agriculture Policy Research Institute (FAPRI) have declared the United States Environmental Protection Agency (EPA) could cost the ethanol industry nearly $20 billion annually.

Their recently published updated analysis concluded that implementation of the Renewable Fuel Standard is likely to follow recent practices, including small refinery waivers. The result could be as many as 4.6 billion gallons of domestic demand lost over the next six years, along with the hit to revenue. Conventional biofuel such as corn ethanol stands to fall in use, along with consumption of ethanol in flex fuels and mid-level blends, and wholesale ethanol prices could plummet by 19 cents per gallon on average.

“The FAPRI analysis clearly shows that demand destruction from small refiner exemptions is real and has substantial economic consequences,” Scott Richman, chief economist for the Renewable Fuels Association, said. “If EPA continues to retroactively grant these exemptions, it will cause further harm to the ethanol industry through lower prices, reduced production, and additional demand erosion. The solution to this problem is straightforward: EPA should project exempted volumes when it sets the annual RVOs, which effectively reallocates them to other obligated parties and keeps the RFS whole.”

If things continue as they are, the university economists found that U.S. ethanol consumption stands to drop 761 million gallons per year on average between 2018 and 2023. As a result, the ethanol inclusion rate in gasoline will also fall. All of this could lead to a decline in gross ethanol sales revenues, with an average of $3.3 billion lost per year – a greater fall than economists previously predicted in March.