Biofuels Gallons Waived Remain Lost

OMAHA (DTN) -- Despite calls on EPA from agriculture and biofuels groups to reallocate for biofuels gallons lost to small refinery waivers, the agency left its June Renewable Volume Obligations proposal virtually untouched in the final version released on Friday, Nov. 30.

Every category of biofuels -- except corn ethanol -- received a bump in Renewable Fuel Standard volumes for 2019.

There was one number that matters most: the percentage of the renewable volume obligations. That number moved little, accounting for about an overall 3% bump in total volumes.

The EPA finalized an increase in overall biofuel volumes from 19.29 billion gallons in 2018 to 19.92 billion gallons in 2019. That includes leaving corn ethanol at 15 billion gallons, as implied volume. The agency also finalized an increase in biomass-based diesel volume from 2.1 billion gallons in 2018 and 2019 to 2.43 billion gallons in 2020.

In addition, cellulosic ethanol was increased from 288 million gallons to 418 million gallons in 2019, and the advanced biofuel number from 4.29 billion gallons to 4.92 billion gallons in 2019. The proposed RVOs in June had the cellulosic ethanol number at 381 million gallons and the advanced biofuel number at 4.88 billion gallons.

NO MARKET EFFECT

DTN Lead Analyst Todd Hultman said the volumes mean little to markets.

"I don't see any significant price changes to expect in either corn or ethanol from this announcement," he said. "The larger issue seems to be how depressed ethanol prices are after all the refinery waivers were handed out."

Spot ethanol was near $1.23 on Thursday's close and is the lowest level since futures began in 2005, Hultman said.

Renewable Fuels Association President and Chief Executive Officer Geoff Cooper said he's hopeful that the agency's lack of accounting for waivers is good for biofuels.

"Hopefully, that means EPA is not intending to issue any small refiner waivers at all in 2019 because it knows there is no rationale or basis for doing so," he said.

"We urge acting Administrator Andrew Wheeler to faithfully and strictly enforce the 15-billion-gallon conventional renewable fuel requirement in 2019, rather than allowing the standard to be eroded through the use of clandestine small refiner waivers as former Administrator (Scott) Pruitt did."

By EPA's own calculations, about 2.25 billion gallons of biofuels were not blended with gasoline as a result of 48 small refinery waivers granted by the agency in 2016 and 2017. So far, none have been approved for 2018.

Reuters reported this week that EPA has put the waiver program on hold, pending a review.

EPA told DTN that the agency is continuing to follow the RFS law on waivers. Biofuels and agriculture interest groups have filed a number of lawsuits challenging how the EPA implements the waiver program.

Attorneys for the EPA, however, have argued in the U.S. District Court for the District of Columbia that the agency already accounts for waivers.

The National Biodiesel Board filed a court brief last summer arguing EPA should provide an estimate of how many biofuels gallons might be waived under small refinery exemptions and then set the required percentage volumes higher to account for waivers.

A group calling itself Producers of Renewables United for Integrity Truth and Transparency, or PRUITT, asked EPA in July to remove invalid RINs from the market and to stop issuing small refinery waivers until the agency changed the regulation. The agency didn't respond and was sued by the group at the end of July.

On Nov. 13, the group asked the U.S. Court of Appeals for the District of Columbia Circuit to force EPA to freeze the program.

Emily Skor, chief executive officer of Growth Energy, said, if not for waivers the final numbers would be beneficial.

"But the latest EPA rule is also a missed opportunity to correctly account for billions of gallons of ethanol lost to refinery exemptions," she said. "Until these are addressed properly, we're still taking two steps back for every step forward.

"The current acting EPA Administrator, Andrew Wheeler, has a valuable opportunity to chart a new course for biofuels and rural America. To reverse the damage done by his predecessor, the EPA must follow the law and reallocate lost gallons, ensuring the ethanol targets set by Congress are actually met," Skor said.

Brian Jennings, chief executive officer of the American Coalition for Ethanol, said the EPA's inaction on waivers continues to hurt rural America.

"On paper, EPA appears to be resisting refiner demands to reduce conventional biofuel blending in 2019 below the statutory 15-billion-gallon level," he said. "However, in reality, as long as EPA fails to reallocate the over 2 billion gallons worth of blending obligations waived for small refineries, renewable fuel demand will remain flat, causing farmers and rural biofuel producers to continue suffering the consequences."

Chris Bliley, vice president of regulatory affairs at Growth Energy, said the waiver program should face scrutiny based on recent news that large refining companies have benefitted.

"What makes it even more laughable is that it comes on the heels of reports that Chevron, who in 2017 reported a net income of $9.2 billion, was granted a small refinery exemption for 'disproportionate economic hardship' by former EPA Administrator Scott Pruitt," he said.

The Fueling American Jobs Coalition, which consists of a number of refining companies, said in a statement biofuels demand hasn't been lost from waivers.

"The calls for ever higher RVOs mistakenly assume that demand for ethanol has declined," the group said in a statement. "However, pro-ethanol experts and earnings-call statements alike concede that legally required efforts to address harms to small refiners have had no adverse effect on ethanol production, sales or demand."

Brent Erickson, executive vice president of the Biotechnology Innovation Organization's industrial and environmental section, said if EPA is planning to reset the RFS after 2022 it should include better incentives for advanced technologies.

"Going forward, BIO looks forward to working with EPA as it develops its planned reset of the RFS to ensure a favorable and supportive investment climate for advanced and cellulosic biofuel producers," he said.

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

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