By Keith Reid
Editor: This article was developed and finalized shortly before Scott Pruitt announced his resignation as director of the USEPA. His leadership had been under heavy attack particularly from the DNC led Resist Movement, primarily because of his effectiveness at rolling back stringent Obama era carbon-focused regulations. However, his critics were able to highlight a string of internal administrative actions that suggested unethical behaviors that might not have been particularly unusual by Washington standards, but were at odds with an administration working to “drain the swamp.”
As noted in this article, Pruitt also seemed to be taking a harder line on the RFS than Trump’s previous policy commitments to an “all of the above” energy policy. The ethanol industry was pushing back aggressively, and the Renewable Fuels Association contends this played a possible factor in his dismissal. The actions of interim Director Andrew Wheeler and any permanent replacement will tell the true commitment of the Trump administration to the RFS.
The battle between Big Agribusiness and Big Oil relative to the Renewable Fuel Standard (RFS) and most specifically ethanol, is heating up once again over a range of moves by the Trump administration and by its proxy, the Scott Pruitt EPA.
The first issue has been the willingness of the Trump EPA to issue RFS volume exemptions to smaller refineries. This was a component of the RFS during its first two years for refineries with a throughput of no more than 75,000 barrels per day (bpd) of crude oil. After that initial period, a refinery could ask for an extension if the RFS program was causing that particular facility a “disproportionate economic hardship.”
Unsurprisingly, such exemptions were rare during the Obama years. Equally unsurprising such exemptions are not so rare under the Trump administration, with the Renewable Fuels Association (RFA) noting that in recent months EPA has granted over two dozen exemptions and that small refinery exemptions granted for the past two years have effectively reduced volumes of renewable fuel by as much as 1.6 billion gallons. By comparison, the current volume requirement is approximately 15 billion gallons of conventional biofuel.
Seeing this as an end-around on the RFS volume requirements while wanting greater transparency in the process, RFA, National Corn Growers Association (NCGA), American Coalition for Ethanol (ACE) and National Farmers Union (NFU) with support of Farmers Union Enterprises recently filed suit to challenge three of these waivers. The refineries in question estimated in financial disclosures that the exemptions have saved them a collective $170 million in compliance costs according to the ethanol supporters.
“EPA is trying to undermine the RFS program under the cover of night,” said Bob Dinneen, CEO and President of RFA in a release. “And there’s a reason it has been done in secret—it’s because EPA is acting in contravention of the statute and its own regulations, methodically destroying the demand for renewable fuels. With the little information we’ve been able to piece together through secondary sources, it’s clear that EPA has been extending these exemptions to refineries that didn’t qualify for them.”
RFA noted that although EPA typically publishes its proposed actions and final decisions in the Federal Register, EPA has not followed those protocols for small refineries, nor has EPA informed the public by any means that it had received or acted on such carve-out requests. Instead, ethanol producers learned of the exemptions second-hand, through media reports and secondary sources.
“EPA left us with no choice but to challenge their systematic cuts to ethanol blending in the U.S. by distorting the intent of the law to grant secret hardship waivers to refineries, which in some cases exceed the definition of ‘small’ and fall short of demonstrating ‘disproportionate economic hardship,’” said Brian Jennings, CEO of ACE in a release. “We cannot sit by and allow EPA to violate the RFS, which requires increasing the use of renewable fuels in the U.S.”
The release noted that the petitioners are not challenging EPA’s underlying authority to exempt certain small refineries, rather, they are challenging three granted exemptions as abuses of EPA’s authority. EPA should be forced to explain why an otherwise profitable refinery faces disproportionate hardship from compliance with the RFS. “We want EPA to explain why it is reasonable for HollyFrontier, which apparently could not afford to comply with the RFS, could nonetheless afford to undertake a $1 billion stock share repurchase program during the same time—and that’s before the company received over $300 million in tax cuts last year. Likewise, the petitioners would like to understand how EPA could find hardship at CVR Energy, which reported a $23 million profit in the biofuels credit market in the first quarter of 2018, due to what it called a lower RFS obligation.”
Oddly enough, American Petroleum Institute (API), which is no friend of ethanol and has called for the repeal of the RFS many times, is also against these exemptions—but for far different reasons. “Any RFS volume reductions contemplated by the agency must maintain a level playing field in the marketplace, and must apply equally across the whole refining sector. The ongoing issues with the RFS program are structural in nature, apply to all regulated parties, and need to be addressed on a nationwide basis. API recommends that EPA should deny the state waivers and should not approve any small refinery exemptions,” said API Downstream and Industry Operations Director Frank J. Macchiarola in a February 12 filing.
RINs for Exports and E15 Summer Exemptions
Another issue has been the Trump administration’s May 8 proposal to have EPA waive Reid Vapor restrictions for E15 in order to allow it to be sold in the summer, or essentially year-round. Also proposed was allowing Renewable Identification Numbers (RINs) to be used for exported biofuels. This was discussed at an RFS meeting that included Sens. Chuck Grassley (R-Iowa), Joni Ernst (R-Iowa), Ted Cruz (R-Texas) and Pat Toomey (R-Pa.) A previous proposal to cap RIN prices, which had been high but subsequently dropped, was shelved.
On the surface, both the E15 and RIN export proposals would seem to be a win/win, as Tweeted by oil supporting Senator Ted Cruz: “More corn will be sold (good for farmers), plus lower RINs (saves blue-collar refinery jobs), plus more ethanol exports (good for America).”
It also seemingly reflects Trumps’ desire to maintain his campaign promises (support for an all-of-the-above energy policy including biofuels) with his desire to make “good deals.” While RIN-supported exports would seemingly be a wash, a contention strongly refuted by the ethanol industry, it’s hard to argue that they would not impact the stability of the RFS program by reducing blend volumes in the United States.
“Attaching a RIN to ethanol exports would have a crippling impact on American agriculture—significantly reducing demand for ethanol and corn,” said Emily Skor, CEO of Growth Energy in a release. “It would also have major trade implications, as export RINs would be considered a subsidy by our global trading partners, who will likely challenge this as unnecessary advantage to U.S. ethanol. Further, export RINs would be a clear violation of the RFS, which is intended to increase the domestic use of biofuels. We continue to thank our Congressional champions for standing firm against efforts to destroy ethanol demand.”
Under pressure from the ethanol lobby, Trump has apparently backed away from the RIN/Export proposal while remaining committed to the year-round E15 offer. The major concern there now becomes the actual implementation of that policy beyond the verbal commitments.
Most of the impacts from these policy initiatives are framed in the releases relative to the economic hardship for farmers or ethanol producers. Our focus is, of course, on fuel marketers and retailers. Many are moving to E15 and in some cases E85. So why are these bad policies for our industry? ACE senior Vice President Ron Lamberty noted in an FMN interview that at the user end it’s not so much the impact of these moves on RIN prices, but the potential fundamental shifts in RFS policy and the availability of domestic RINs to smooth out price swings and add stability for marketers and retailers.
“It takes away a market from us, essentially. Right now, we export ethanol to make up for times when we get excess supply here,” said Lamberty. “Assigning RINs to exported gallons would actually reduce the amount of ethanol required to be sold here. Every gallon sold in another country would replace a domestic gallon, so we’d be hurting ourselves by exporting if those gallons generated RINs. They (RINs) need to apply to U.S. ethanol for the reason the oil companies wanted RINs in the first place. What if there’s no ethanol? What do I do? I bought extra last year. Can I use it this year? Sure. Here’s the credit. On the flip side of things, we shouldn’t have to be exporting any gallons at all right now, because when ethanol is super cheap it should be selling like crazy, and since RINs come along with it for nothing, RIN price wouldn’t matter because they have extra RINs to use later.”