Reps. Peterson and Young introduce bill to require EPA to make up retroactive refinery waivers.

September 11, 2018

3 Min Read
Jim Parkin iStock

A recent analysis by economists at the University of Missouri’s Food & Agricultural Policy Research Institute (FAPRI) shows that the U.S. ethanol industry could lose 4.6 billion gal. of domestic demand and nearly $20 billion in sales revenue over the next six years if the Environmental Protection Agency continues its current practice of exempting dozens of small refiners from their blending obligations under the Renewable Fuel Standard (RFS).

The Renewable Fuels Assn. (RFA) said the analysis demonstrates the need for EPA to prospectively reallocate small refiner exemptions to larger refiners to ensure that statutory RFS volumes are maintained.

FAPRI recently published an update to its March 2018 "U.S. Baseline Outlook for Agricultural & Biofuel Markets." The update adopts a new assumption that future implementation of the RFS "follows recent practices, including small refinery waivers."

The result of integrating this new assumption into the outlook underscores the impact of the small refiner exemptions on the ethanol industry, RFA said.

Comparing the March 2018 outlook to the updated outlook reveals the following effects of the small refiner waivers through 2023. For instance, the de facto RFS requirement for conventional biofuels like corn-based ethanol will fall from the statutory level of 15 billion gal. annually to just 13.7 billion gal.

U.S. ethanol consumption will drop by an average of 761 million gal. per year between 2018 and 2023, or a total of 4.6 billion gal. over the six-year period. That is equivalent to 1.64 billion bu. of corn demand, or nearly 300 million bu. per year.

The average ethanol inclusion rate in gasoline will fall under 10.0% in 2019 and steadily slides to 9.5% by 2023. By comparison, the March 2018 outlook projected the national average blend rate above 10.0% every year, rising steadily to 10.4% by 2023.

The outlook also shows that consumption of ethanol in flex-fuel (like E85) and midlevel blends (like E15) will fall 17% between 2018 and 2023. Wholesale ethanol prices will plunge by an average of 19 cents/gal., or 11%, between 2018 and 2023. Ethanol prices are hit especially hard in the longer term, with the updated outlook lowering 2023 ethanol prices by 27 cents/gal., or 15%, compared to the March 2018 outlook.

FAPRI found that the combination of reduced U.S. ethanol production and lower ethanol prices will reduce the industry’s gross ethanol sales revenues by an average of $3.3 billion per year, or $19.7 billion over the 2018-23 period. That’s 12% below the March 2018 projection. In addition, conventional ethanol renewable identification number prices will plummet, averaging just 10 cents between 2018 and 2023 -- 85% lower than the 64-cent average in the March 2018 outlook.

“The FAPRI analysis clearly shows that demand destruction from small refiner exemptions is real and has substantial economic consequences,” RFA chief economist Scott Richman 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 [renewable volume obligations], which effectively reallocates them to other obligated parties and keeps the RFS whole.”

Bill stops harm from RFS exemptions

On the legislative front, Reps. David Young (R., Iowa) and Collin Peterson (D., Minn.) introduced the Restoring Our Commitment to Renewable Fuels Act to keep the RFS whole. Their legislation specifically requires that, when EPA grants exemptions to small refineries, each exempted gallon must be reallocated to other refineries and blenders. The bill also stipulates that small refinery exemption petitions must be subject to public disclosure.

Although the RFS provides EPA with the tools to ensure that exemptions are accounted for when setting RFS volumes, EPA is not using them. EPA has retroactively waived 2.25 billion gal. of ethanol equivalent and failed to reallocate those gallons to others, effectively reducing RFS requirements. This legislation specifically requires EPA to make up waived gallons and ensures that EPA is no longer able to reduce the RFS through retroactive refinery waivers. It also brings essential transparency to the small refinery exemption process.

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