EPA’s proposed RFS biofuel volumes for 2020 being slammed by biofuel industry : Biofuels Digest

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Maybe it was too many fireworks, too many hot dogs, or the summer heat in D.C., but the EPA came back the day after the 4th of July holiday with a whopper for next year’s biofuel targets under the Renewable Fuel Standard that have the farming and biofuel sectors reeling in frustration and disappointment. Maybe the EPA thought the industry would still be on cloud nine from the year-round E15 news or hung-over from a late night of Independence Day celebrations, but people were paying attention and the reactions are ripping apart the EPA’s targets for 2020.

Some are saying “Enough is enough.” Some are asking is this a joke?

In today’s Digest, the facts and RVO numbers, EPA’s statement, riveting reactions from Renewable Fuels Association, Growth Energy, National Biodiesel Board, and more.

First, the facts.

EPA’s proposed volume requirements under the RFS for 2020, including biomass-based diesel volume standards for 2021 are as follows:

Proposed and Final Renewable Fuel Volume Requirements for 2019-2021
  2019
Final
2020
Statutory Volumes
2020
Proposed Volumes
2021
Proposed Volumes
Cellulosic biofuel (billion gallons) 0.42 10.50 0.54 n/a
Biomass-based diesel (billion gallons) 2.1 ≥1.0 N/Ac 2.43
Advanced biofuel (billion gallons) 4.92 15.00 5.04 n/a
Renewable fuel (billion gallons) 19.92 30.00 20.04 n/a

Ok, so what’s so bad about this? Let’s start with cellulosic fuel…not much of an increase there with a 120-million-gallon increase which in the grand scheme of things is tiny, but ok, at least it’s an increase.

Maybe advanced biofuel is a bit better, right? Surely there must have been an increase there! Well, from 4.92 to 5.04, it’s not really moving the needle. Heck, if you round up 4.92 to 5 and round 5.04 down to 5 it’s almost the same.

Ok, ok, we get the point, not much increasing there either…how about ethanol. After all, corn farmers, year-round E10, ethanol is big here in the heart of the U.S., so surely there would be an increase there? Since it falls under “renewable fuel” in this table here, that leaves us with about 14.5 billion gallons. Wait, what? Let’s double check the numbers…2019 had about 14.58 billion gallons of renewable fuel and now in 2020 it’s actually decreased to 14.46 billion gallons? Can that be right?

What about the small refinery waivers? Were they accounted for at all in the EPA proposed numbers? What does EPA have to say about all this?

EPA’s key message – “On time” and “maintained”

Interestingly, EPA’s press release focused on meeting a deadline rather than the actual volume numbers. Not once, but twice, they mention it saying “This puts EPA on target to publish the final RFS Renewable Volume Obligations (RVOs) on time for the third consecutive year.” And a quote from EPA Administrator Andrew Wheeler, “Unlike the previous administration, we have consistently issued the annual renewable volume obligations rule on time, which is critically important to America’s farmers and all stakeholders impacted by the Renewable Fuel Standard program. We are on track to meet the deadline on time for the third year in a row and continue to provide greater regulatory certainty to farmers and refiners across the country.”

Ok, so they met a deadline. But the EPA statement sums up the proposed volumes that are causing quite a stir in the biofuels industry:

  • “Conventional” renewable fuel volumes, primarily met by corn ethanol, would be maintained at the implied 15-billion gallon target set by Congress.
  • EPA is proposing an advanced biofuel volume requirement for 2020 of 5.04 billion gallons, which is 0.12 billion gallons higher than the advanced biofuel volume requirement for 2019.
  • The cellulosic biofuel volume requirement of 0.54 billion ethanol-equivalent gallons for 2020 is based on our production projection which is 0.12 billion ethanol-equivalent gallons higher than the cellulosic biofuel volume finalized for 2019.
  • We are proposing to maintain the biomass-based diesel (BBD) volume for 2021 at 2.43 billion gallons.”

The reactions

So there’s the chart and the numbers – how do you feel about it? Here’s how some in the biofuels industry are reacting, with many of them focusing on small refinery waivers and lawsuits. You’ll notice they all have one thing in common – upset and disappointment about EPA’s proposed RVOs.

The Renewable Fuels Association has possibly the most amusing reaction, posing the question, “Are EPA’s Proposed RFS ‘Obligations’ Actually Just Suggestions?” They continue:

By neglecting to prospectively reallocate small refinery exemptions and blatantly ignoring a court order to restore improperly waived gallons, the U.S. Environmental Protection Agency’s proposed 2020 renewable volume obligations (RVOs) completely betrays President Trump’s commitment to uphold the integrity of the Renewable Fuel Standard (RFS).

“As long as EPA continues to dole out compliance exemptions to oil refiners without reallocating the lost volume, the agency may as well start referring to the annual RFS levels as ‘renewable volume suggestions’ rather than ‘renewable volume obligations,’” said Geoff Cooper, RFA’s President and CEO. “It is a complete misnomer to call these blending volumes ‘obligations’ when EPA’s small refinery bailouts have essentially transformed the RFS into a voluntary program for nearly one-third of the nation’s oil refineries.”

Most notably, EPA failed to prospectively account for any expected small refinery exemptions in the 2020 proposal, even though it is almost a foregone conclusion at this point that the Agency will continue to grant more exemptions.

“Congress gave EPA the direction and tools necessary to ensure that the statutory RFS volumes are enforced, and that includes prospectively reallocating exempted volumes to non-exempt parties. Instead, EPA has chosen to continue its demand destruction campaign that has been crippling to both ethanol producers and the farmers who supply our industry. Enough is enough.”

Making matters worse, EPA’s proposal continues to flout the D.C. Circuit Court’s 2017 order requiring the Agency to restore 500 million gallons of renewable fuel obligations that it inappropriately and illegally waived from the 2016 RVO. Unbelievably, the Agency is proposing to snub the court’s ruling by refusing to restore the 500 million gallons remanded volume.

“EPA’s stubborn refusal to obey a court order to restore lost demand is yet another kick in the teeth to U.S. further demand destruction for renewable fuel producers and farmers already facing the worst market conditions in a generation. EPA’s suggestion that following the court’s directive would place an ‘additional burden’ on obligated parties is an insult and an affront to the farmers and ethanol producers who trusted this administration would follow the law. The RFS wasn’t intended to make oil refiners comfortable; it was intended to change the status quo by guaranteeing renewable fuels would have access to a marketplace otherwise closed to competition. Yet, EPA appears to be selling out to oil refiners—again—at the expense of rural America. The court found in favor of renewable fuel producers in 2017 because it was clear our industry had been harmed by EPA’s illegal use of a general waiver—now EPA is doubling down on that harm to the ethanol industry and farmers.”

Cooper said today’s proposal undermines the pledge President Trump made to farmers and renewable fuel producers that his administration would enforce the statutory RFS volumes. “By failing to prospectively reallocate, failing to commit to a more judicious and restrained approach to refinery waivers, and failing to follow a court’s order to restore lost demand, EPA is blatantly undercutting President Trump’s commitment to ethanol, which he restated less than a month ago when he visited the Southwest Iowa Renewable Energy ethanol plant. We urge the President to resolve the disconnect between the oval office and EPA and get the RFS back on track.”

Growth Energy had this to say:

“It’s unconscionable that EPA continues to undermine the president’s commitment to a strong rural America,” said Skor. “The 2020 RVOs are a drop in the bucket compared to the demand lost due to a flood of refinery exemptions. Unless EPA restores demand destroyed through secret handouts to oil giants like Exxon and Chevron, these targets offer nothing but another year of lost opportunity and rural hardship.

“Making matters worse, EPA chose to flout the 2017 court ruling requiring the agency to revisit 500 million gallons of biofuel that were inappropriately waived. Today’s proposal is a slap in the face to the farmers dealing with the toughest years on record.”

American Coalition for Ethanol (ACE) CEO Brian Jennings issued the following statement:

“While EPA says it is proposing to maintain the 15-billion-gallon conventional biofuel blending target for 2020, refinery exemptions without reallocation of waived volumes have effectively reduced the RFS by more than 2 billion gallons below statutory volumes. President Trump asked EPA to remedy this issue following his trip to Iowa a few weeks ago and this proposal is a missed opportunity to reallocate the 2.61 billion gallons waived through Small Refinery Exemptions (SREs).

“It’s also a missed opportunity to restore the 500-million-gallon shortfall the D.C. Circuit Court ordered EPA to handle following the Americans for Clean Energy et al v. EPA lawsuit, which recently resigned EPA Assistant Administrator for Air and Radiation William Wehrum told ACE members EPA intended to address in the 2020 proposed rule at our D.C. fly-in in April.

Iowa Corn Growers Association said they are “disappointed that EPA fails to account for small refinery waivers in proposed RVO rule” and continues:

“We are discouraged by the EPA’s decision to not uphold the integrity of the RFS and account for its heavy usage of the Small Refinery Exemption process as required by law,” said Curt Mether, President of the Iowa Corn Growers Association and a farmer from Logan, Iowa. “Farmers are facing a tough economic environment, and the waivers from the EPA are degrading the top priority for Iowa’s corn farmers while impacting our bottom line.”

“The damage created by the EPA through SREs undermines the RFS and destroys markets for Iowa’s corn farmers. We need President Trump to keep the EPA in alignment with his promises on ethanol,” stated Mether.

Iowa Biodiesel Board said farmers are “dismayed by the EPA proposal” and expressed “extreme dissatisfaction with the EPA proposed rule. Grant Kimberley, executive director of the Iowa Biodiesel Board and director of market development for the Iowa Soybean Association, said:

“Since this RFS proposal holds biodiesel volumes flat while doing nothing to account for the high number of so-called ‘small’ refinery exemptions, EPA effectively intends to reduce market potential for biodiesel and renewable diesel compared to this year. This sends a shocking signal to our biodiesel producers that the Administration wants to unravel the RFS. It also undermines one of our country’s best opportunities to grow a low-carbon fuel supply while supporting American manufacturing jobs, many located in small-town Iowa.

“The Administration must understand that a feeble RFS also affects Americans beyond the biodiesel manufacturing industry itself. Farmers are already in one of their worst years in recent memory, with many trying to hold on to their family farms. This proposal is yet another blow to them when farm income is down by 50 percent compared to five years ago, according to the U.S. Department of Agriculture. Supporting their participation in the energy market through common sense policies like the RFS can soften this blow.

“Meanwhile, we stay in painful limbo on trade with China, the biodiesel tax credit remains expired, and the Commerce Department has relaxed duties on imports on Argentine biodiesel. We’re becoming fed up with the lack of commitment to this industry in Washington.

National Biodiesel Board talked about flatlining and slamming EPA’s proposal:

The agency’s proposed advanced biofuel volume of 5.04 billion gallons provides no additional market growth for biomass-based diesel. Similarly, the proposal to set the 2021 biomass-based diesel volume at 2.43 billion gallons — the same as the 2020 volume — flatlines growth for the industry. EPA’s proposal could actually reduce market space for biodiesel and renewable diesel compared to this year, because it does not account for small refinery exemptions.

“The proposal sends a chilling signal to America’s biodiesel and renewable diesel producers of EPA’s intent to limit market growth for cleaner fuels. EPA appears to have simply repeated the previous biomass-based diesel volume of 2.43 billion gallons for 2021 without analyzing our industry’s ability to achieve higher volumes,” said Kurt Kovarik, NBB’s Vice President of Federal Affairs.

“Worse, EPA refuses to reconcile its RFS rules with its small refinery exemption handout spree,” Kovarik added. “EPA Administrator Andrew Wheeler asserts that by law he must grant RFS hardship exemptions to every refiner that asks. Yet in the proposed rule, EPA claims it can’t possibly predict whether oil refineries will once again take advantage of EPA’s open spigot on these handouts. We know that Administrator Wheeler’s public statements and EPA’s calculation of small refinery exemptions in the annual volumes can’t both be true.”

EPA’s calculation of the 2020 annual percentage standards uses 0 as the number of gallons of diesel and gasoline produced by exempt small refineries. For 2015, 2016 and 2017, EPA exempted nearly 28 billion gallons of gasoline and diesel produced by small refineries, without accounting for them in the RFS program. Those exemptions reduced demand for biodiesel and renewable diesel by hundreds of millions of gallons. According to University of Illinois Professor Scott Irwin, the demand destruction for biodiesel and renewable diesel could reach 2.45 billion gallons over the next few years causing a $7.7 billion economic loss for the biodiesel industry.

Kovarik continued, “Even one small refinery exemption has the potential to put a biodiesel plant out of business, impacting hundreds of jobs in the surrounding community. Consider a so-called small refinery such as Exxon’s in Billings, Montana, which reportedly received an RFS hardship exemption. It can process more than 60,000 barrels of oil each day — producing 1.9 million gallons of gasoline and diesel every day and 712 million gallons every year. The annual RFS obligations for that fuel would provide a market for more than 17 million gallons of biodiesel and renewable diesel for the year. There are dozens of biodiesel producers who produce less than that on an annual basis and who could be put out of business.”

Advanced Biofuels Business Council’s Executive Director, Brooke Coleman, said:

“Today’s proposal does nothing to repair 2.6 billion gallons of demand destroyed by refinery exemptions, which means the EPA is not fulfilling the president’s promise to rural America. Moreover, it explicitly rejects calls to reallocate gallons that will be lost to future waivers. If the EPA doesn’t fully account for lost gallons, we’ll continue to see investments in advanced biofuels frozen by uncertainty, shrinking farm markets, and more rural plants idling production. The president knows that E15 could unlock incredible opportunities for rural America, but that won’t happen unless the EPA upholds the law as Congress intended.”

National Corn Growers Association (NCGA)’s President, Lynn Chrisp, said:

“We are frustrated the EPA did not account for potential waived gallons going forward in the proposed rule. If the EPA continues to grant retroactive waivers, the RVO numbers are meaningless and the EPA is not following the law. Farmers are facing a very tough economic environment and the continued waiver abuse chips away at farmers’ bottom line.”

POET’s Kyle Gilley, Senior Vice President of External Affairs and Communications said:

“We’re disappointed with the RVO targets proposed by the EPA.  These numbers do not account for the billions of gallons of ethanol blending lost through the EPA’s expanded use of Small Refinery Exemptions. Barring a clear and meaningful reallocation of waived gallons, the RVO will not instill confidence in the US farming community during a year in which they’ve been hard hit with historically bad weather.  Forward progress is needed to offset the harm done by the unprecedented number of small refinery waivers issued last year and continue support for industry advancements, including cellulosic biofuels.  We urge the EPA to reconsider these levels during the rulemaking process.”

Americans for Energy Security and Innovation (AESI)’s Co-Chairs, Jim Talent and Rick Santorum, said:

“The only certainty offered by the agency’s proposal is that strong biofuel targets promised by President Trump will continue to be rolled back, gallon by gallon, through the EPA’s secretive handouts to well-connected refineries. Just this week, Russia and its allies in the Middle East agreed to hold down global oil supplies, forcing U.S. consumers to pay more at the fuel pump. The EPA should do more to shield our economy from global markets and drive investment in rural America, where farm communities continue to struggle. That starts with biofuel targets that go beyond the status quo and repair the damage to America’s rural economy. President Trump directed EPA Administrator Wheeler and Agriculture Secretary Perdue to address the exemptions and ‘take care of our farmers.’ We couldn’t agree more, and we urge regulators to get to work before it’s too late.”

Coalition for Renewable Natural Gas (RNG Coalition) co-founder and CEO, Johannes Escudero, said:

“While EPA’s projection methodology results in a 29.2-percent increase over the prior year that recognizes significant ongoing production growth in renewable natural gas by an industry working to decarbonize our natural gas fuel supply, a 540 million gallon volume falls short of accounting accurately both for volumes waived via small refinery exemptions and for actual real-world RNG production,” said Coalition for Renwable Natural Gas (RNG Coalition) co-founder and CEO, Johannes Escudero.

Bottom Line

Flatlining, fed up, rolling back, disappointing, dismayed, betrayal…these are the words folks in the ag and biofuels world are using to describe the proposed EPA volumes and until EPA changes those proposed numbers, they will keep using those words…and probably much harsher ones behind closed doors.

Hopefully someone at the EPA is listening and will make some changes, so in the future we’ll be hearing words like “moving forward, improving the bioeconomy, increasing demand and support for biofuels” instead. The public hearing date hasn’t been set yet but that will provide another opportunity for farming and biofuels voices to be heard.



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