By Keith Reid

Another RFS milestone passed on May 30, 2019, when EPA finalized the required regulatory adjustments to allow gasoline containing 15 percent ethanol, or E15, to be sold year-round. The primary impediment from an EPA perspective had been the increased evaporative nature of ethanol blended fuels. This is exasperated in the hotter, summer months. To allow the now ubiquitous E10 gasoline to be sold under Clean Air Act requirements, it was granted a 1-psi Reid Vapor Pressure waiver for summer blends and that is now been extended to E15. (See full rule HERE.)

In related news, EPA took advantage of the rulemaking opportunity to address some concerns with the renewable identification number (RIN) compliance system. RINs are a market mechanism that was added to the RFS program to boost biofuel adoption.

Obligated parties, which are gasoline and diesel refiners/importers use RINs to demonstrate compliance with the RFS’ Renewable Volume Obligation (RVO). These RVOs are set each year to help push a determined amount of biofuel into the market. A RIN is generated when an obligated party produces a gallon of renewable fuel. They can be traded between parties or bought independently or attached to a gallon of biofuel on the open market. Further, obligated parties can carryover unused RINs.

EPA had become concerned though commentary feedback in the rulemaking process that there were manipulations and fraud int the RINs market. EPA explored a range of adjustments they considered useful to address these concerns. Considerable blow back resulted to many of the proposals, and in the end, two proposed changes to the RIN program were adopted out of five:

  • Requiring public disclosure when RIN holdings exceed specified thresholds
  • Collecting additional data to improve market transparency and enhance EPA oversight

These have generally been well received, especially compared to the proposals that were dropped.

 

Pushing E15

The Trump administration had been promoting the idea of allowing year-round E 15 sales as far back as early 2018. The push for this solidified October 9, 2018, when Trump announced publicly that he had signed a memo directing EPA to move forward. As he stated, “Today we are unleashing the power of E15 to fuel our country all year long. Promises made, promises kept.”

Since early in his presidential campaign Trump had pushed for an “all of the above” energy policy that would support coal, oil and gas from fracking, conventional oil and gas as well as a continuation of the RFS maintaining ethanol and biodiesel in the fuel mix. While this broad approach was not necessarily a win for the specific, and highly competitive, corporate fuel and agribusiness entities, it did have strong appeal to farmers, coal miners, oilfield “roughnecks,” pipeline builders and any unions that help support these professions. It fit in well with his campaign focus on American jobs, grassroots votes and cheaper energy.

The administration’s move on E15 can be seen in a similar light. The low-level trade war being fought against China has already seen tariffs put in place that impact American agricultural producers. In addition to a range of multibillion-dollar aid packages year-round E15 will certainly benefit corn growers. Interestingly, a March CNN/Des Moines Register poll of registered Republicans in Iowa found the Trump support remain strong with 81% approving of trumps job performance. The administration’s policy and cash support undoubtably help, but as a May 19, 2019, CNBC AP article covering the poll results reported, the previous trade relationship with China was hardly a great deal for American farmers.

The agricultural considerations are noted in the rule: In sum, the primary consideration underlying the 1-psi waiver is to limit gasoline volatility while promoting the use of ethanol due to its importance to energy security and the agricultural sector.

EPA addressed a handful of regulatory hurdles to cover E15 under the E10 waiver that can be found in the full rule PDF link noted at the end of the article. Essential, as the rule noted: The interpretation in this action represents a change in EPA’s prior interpretation and, as explained in more detail below, is appropriate in light of the increased presence of E15 in the gasoline marketplace. This interpretation is further supported by the fact that the conditions that led us to provide the original 1-psi waiver for E10 in 1990 are equally applicable to E15 today.

EPA anticipates E15 to have “similar (if not slightly lower) RVP than E10.”

The changes do not establish that E15 is “substantially similar” to E10 in regard to its use in vehicles produced prior to 2001, heavy-duty gasoline engines and vehicles, on and off-highway motorcycles, nonroad engines, vehicles and equipment. The fuel is still prohibited for those engines.

The response from the impacted industry parties broke along expected lines. Needless to say, ethanol producers were pleased with the new E15 regulation.

Renewable Fuels Association (RFA) President and CEO Geoff Cooper issued the following statement: “The ethanol industry thanks President Trump for personally championing this critical regulatory reform that will enhance competition, bolster the rural economy, and provide greater consumer access to cleaner, more affordable fuel options. We have always agreed with the President’s assertion that the outdated summertime prohibition on E15 was ‘unnecessary’ and ‘ridiculous.’”

The American Coalition for Ethanol (ACE) CEO Brian Jennings issued the following statement: “EPA’s rule means U.S. retailers finally have the opportunity to offer E15 to their customers year-round as the peak summer driving season kicks off this weekend. We’re grateful EPA kept the President’s promise to get the rulemaking done on time and we will work to ensure retailers understand their hands are no longer tied by red tape preventing them from offering a lower priced, higher octane E15 fuel to their customers all year starting this summer. For the ethanol industry and farmers, this means greater market access — more ethanol demand over the long term as additional retailers begin offering E15.”

Ethanol industry association Growth Energy CEO Emily Skor stated: “With year-round E15, retailers will have the regulatory certainty they need to offer American drivers a cleaner, more affordable fuel choice throughout the year. This action also means savings for American motorists at the pump and a sorely needed market for farmers who are facing a devastating economic downturn. We estimate this one change will generate over a billion new gallons of ethanol demand in the next five years. Over time, demand for E15 could boost the market for American grain by an additional two billion bushels.”

“Big Oil,” as big agribusiness likes to call the fossil fuel industry was not amused, to put it mildly.

“Extending this waiver is an anti-consumer policy that risks causing costly engine and fuel system damage to nearly three out of four vehicles on the road today,” said API Vice President of Downstream and Industry Operations Frank Macchiarola. “EPA has acted outside its statutory authority in granting year-round E15 and rushed through the rulemaking process in order to meet an arbitrary deadline. This premature policy attempts to push E15 into the market before it is ready.”

Even less amused was the American Fuel & Petrochemical Manufacturers association. Perhaps this was due, in part, to the unrelenting attack on small refinery exemtions covered below. Regardless, Chet Thompson, President and CEO of the AFPM issued the following statement about a petition filed by AFPM with the U.S. Court of Appeals for the District of Columbia Circuit for review of the EPA E15 rule: “We fully expect the court’s ruling to align with what the EPA and Congress have each previously concluded: the plain language of the Clean Air Act does not authorize an RVP waiver expansion beyond E10. Nothing has changed – a waiver for E15 is unlawful, plain and simple.”

Thompson also issued a statement on the need for reform of the Renewable Fuel Standard (RFS), as the President prepares to visit an Iowa ethanol plant on Tuesday: “An E15 waiver is in no way a fix for the shortcomings of the RFS, which has for years plagued markets with volatility. Following his visit to Iowa, we invite the President to listen to refinery employees and constituents in Pennsylvania, Ohio and elsewhere to fully understand the economic harm the RFS is causing and the overwhelming need for its reform.”

Growth Energy has announced a counter by filing a motion in the U.S. Court of Appeals for the District of Columbia Circuit to intervene in support of the EPA. “It’s no surprise that oil companies want to block consumer choice at the fuel pump,” Skor said. “We saw the same kind of frivolous challenges when Growth Energy first secured approval of E15 in 2011. We beat them then, and we’ll beat them now.”

Fuel marketers and retailers were, for the most part, neutral on the issue as a whole. A joint release from NATSO (the national association representing truckstops and travel plazas), the National Association of Convenience Stores (NACS) and the Society of Independent Gasoline Marketers of America (SIGMA) stated that they “did not object to the sale of E-15 year-round.”

Hardly a raging endorsement, but one that reflects the reality in the marketplace. As Growth Energy points out, E15 is sold at more than 1,800 locations in 31 states, with more expansion on the horizon. Retailers include some of the larger operations such as Sheetz, Kwik Trip, Cenex, RaceTrac, QuickTrip, Casey’s, Family Express and MAPCO sell E15 at least at some of their sites.

“This fix provides major regulatory relief for all retailers seeking to offer lower-cost, higher-octane options at the fuel pump,” said Mike Lorenz, Executive Vice President for Sheetz in a Growth Energy press release. “For too long, retailers had to pay millions to retool and relabel pumps each summer and fall, which creates needless confusion for drivers. Now our customers will have uninterrupted, year-round access to E15 and a chance to save money during the busy summer travel season.”

On the flip side, there remain concerns over such issues as misfuelling liability and dispensing equipment compatibility. Petroleum Marketers Association of America (PMAA) is one of the industry groups that has objected to the expansion of E15, primarily over materials compatibility concerns with underground storage tanks.

 

RIN Reforms

Going into the most recent rulemaking process, EPA had received some comments that stated concerns over manipulations of the RIN market. When EPA announced its initial proposed rule in March, it included the following proposals in its RIN Market Reform Proposal:

  • Prohibiting certain parties from being able to purchase separated RINs.
  • Requiring public disclosure when RIN holdings exceed specified thresholds.
  • Limiting the length of time a non-obligated party can hold RINs.
  • Increasing the compliance frequency of the program from once annually to quarterly.

After considerable pushback from virtually all parties, it amended its requirements.

The agency stated the following: EPA takes claims of RIN market manipulation seriously. Though, as stated in the proposal and reaffirmed in this action, we have yet to see databased evidence of such behavior, the potential for manipulation is a concern. Accordingly, we are finalizing two reforms to increase our market monitoring capabilities, bring more transparency to the RIN market, and discourage RIN holdings in excess of normal business practices. Specifically, we are finalizing the following RIN market reforms:

  • Requiring public disclosure when RIN holdings held by an individual actor exceed specified limits.
  • Requiring the reporting of additional price and affiliate data to EPA.

API was pleased with the changes, though it reiterated its desire to end the RFS. “While we are encouraged that EPA limited the scope of the proposed RIN reforms, the rule does nothing to address the ethanol blendwall, which is the main structural problem with the RFS,” said API Vice President of Downstream and Industry Operations Frank Macchiarola.

NATSO, NACS and SIGMA commended EPA for finalizing only those aspects that enhance disclosure requirements. In its combined statement: “We are still analyzing the rule, but at first glance we are pleased that EPA appears to have hit the sweet spot here by reasonably enhancing disclosure requirements without altering market participants’ behavior. We appreciate that EPA chose not to promulgate unnecessary regulations that came with a high likelihood of unintended, counterproductive consequences.”

ACE echoed the other biofuel players in its statement: “We’re also grateful EPA considered the comments ACE and many others made in opposition to sweeping and unnecessary reforms to the way RIN credits are handled under the Renewable Fuel Standard (RFS). Had EPA gone forward with the so-called RIN reforms, it would have dulled the upside benefit of E15 year-round.”

 

Refiners Exemption

As predictable as API’s desire to see the RFS eliminated, was the Ethanol lobby’s desire to see absolutely no impediment to ethanol expansion even with such a significant win. The issue, not surprisingly given the long running complaits, was their claimed abuse of small refinery exemptions from ethanol volume requirements which RFA has referred to as a “nightmare.”

In a less hysterical response, RFA President and CEO Geoff Cooper stated: “The promise of today’s E15 announcement could be undermined if EPA continues its unprecedented assault on the RFS with indiscriminate small refinery hardship waivers. Against the intent of Congress, EPA has been granting RFS exemptions to refiners without requiring them to demonstrate their claimed ‘hardship’ is somehow connected to the RFS. The demand destruction caused by EPA’s waivers must end. We urge the President to build upon the momentum of today’s announcement by reining in EPA’s abuse of the small refiner exemption program.”

As a response, these groups are supporting the bipartisan Renewable Fuel Standard Integrity Act of 2019 from House Committee on Agriculture Chairman Collin Peterson (D-MN), and Reps. Dusty Johnson (R-SD), Dave Loebsack (D-IA), Rodney Davis (R-IL), and Roger Marshall (R-KS). As the National Biodiesel Board notes the legislation would require small refineries to petition for RFS hardship exemptions by June 1 each year. The change would ensure that EPA properly accounts for exempted gallons in the annual Renewable Volume Obligations (RVOs) it sets each November.

“NBB and its members appreciate Representative Peterson’s legislative solution to EPA’s recent flood of small refinery exemptions. This is just one of the many things EPA could do on its own to ensure that the RFS volumes it sets each year are met and the market for biodiesel and renewable diesel remains open,” said Kurt Kovarik, NBB’s Vice President of Federal Affairs.