President Trump's 'Giant' Biofuels Package Is Decidedly Small

October 08, 2019

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by Tristan R. Brown (Seeking Alpha) Summary -- The "giant package" that President Donald Trump had promised to the U.S. biofuels sector back in August was finally unveiled late last week. While the plan's details continue to be scarce, those that have been provided suggest that the plan won't do much to boost demand for biofuels under the U.S. blending mandate. Time is rapidly running out for even Mr. Trump's modest plan to be implemented due to mandatory administrative deadlines. Investors in the U.S. biofuels sector should not expect Mr. Trump's plan to do much to alleviate producers' current poor operating environment.

The plan's details continue to be scarce despite the fact that it still needs to undergo a lengthy public review process prior to the plan's final release by November 30. The U.S. Environmental Protection Agency [EPA], which oversees the revised Renewable Fuel Standard [RFS2] blending mandate that the plan would modify, simply noted that the plan would "ensure that more than 15 billion gallons of conventional ethanol be blended into the nation's fuel supply beginning in 2020." (Conventional ethanol refers to corn ethanol, as opposed to the cane ethanol, biomass-based diesel fuels, and renewable natural gas that are the other major contributors to the mandate.) It appears that the specific volume will be determined in part by the number of volumes that were waived over the previous three years via EPA awards of small refinery exemptions [SRE], although the calculation methodology was not made public.

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The good news for biofuels producers in the announcement is that the EPA's comments suggest that responsibility for blending of the waived volumes will now be reallocated to those refiners that don't receive SREs, as is required by law. As I noted in September, these waivers have historically reduced the mandated blending volumes by a substantial fraction, so any reallocation will result in higher biofuel demand moving forward.

The use of reallocation in future blending volume calculations is the extent of the good news for biofuels producers, however. The EPA's statement that "more than 15 billion gallons" of corn ethanol must be blended in 2020 under the plan is intentionally vague given the statement's stark legal complications. The Energy Independence and Security Act of 2007, which created the RFS2, implicitly capped corn ethanol blending at 15 billion gallons per year. This cap has long been interpreted by government officials, legal authorities, and market participants as being permanent due to the will of Congress.

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Prof. Scott Irwin at the University of Illinois Urbana-Champaign recently suggested that any blending beyond 15 billion gallons of corn ethanol in 2020 would take the form of reallocated volumes rather than an actual increase to the blending volume. While more than 15 billion gallons of corn ethanol would be nominally blended in 2020 and beyond, then, the excess would only offset the volume that was waived in the previous three years. Or, put another way, the EPA would simply be repaying, without interest, volumes that it had "borrowed" through the award of SRE waivers in earlier years. This would not violate the cap in the same way that the repayment of the principal on a zero-interest loan would not constitute income from a creditor's perspective.

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Any increase to the mandated corn ethanol blending volume in 2020 will represent a tacit recognition by the EPA of the very demand destruction that Mr. Wheeler so recently denied was occurring, with the volumetric increase being equal to the volume of demand destruction.

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Last Friday's announcement has the hallmarks of something drafted by a White House that is eager to broadcast a win amidst a barrage of negative news coverage rather than of a plan that is likely to provide meaningful support to a long-struggling U.S. biofuels sector. Unfortunately for investors in U.S. biofuels producers, this means that little relief is in sight despite the flurry of pronouncements that have been made about Mr. Trump's plan in recent weeks. At best Mr. Trump's plan will offset some of the damage that has been done by the EPA's expanded SRE allocations. At worst, given the plan's continued lack of details less than two months before it must be finalized, none of the proposed changes will actually be implemented until 2021 at the earliest. READ MORE

Clearing the Logjam on the RFS and SREs: A Simple Proposal (FarmDocDaily)

Trump ethanol plan fails to cheer biofuel markets (Financial Times)

Ethanol Announcement Just One Check Off a Pretty Long List of Worries for Farmers (Hoosier Ag Today/WOWO)

Corn Industry Welcomes Trump's Ethanol Boost for Fuel (NewsMax)

Gevo Responds to Trump Administration’s Aim to Boost Biofuels under the Renewable Fuel Standard (RFS) (Gevo/Globe Newswire)

INDIANA FARMERS PLEASED WITH BIOFUELS ANNOUNCEMENT (Brownfield Ag News)

EPA to release supplemental rulemaking to account for future SREs (Ethanol Producer Magazine)

Corn Producers Get A Boost From Trump Proposal to Increase Ethanol Production (Our Daily Planet)

Trump Makes Nice With Farmer Who Chided Him Over Ethanol (Bloomberg)

EPA Adm. Wheeler Says RFS Ethanol Volumes Will Net 15 Billion Gal (OPIS)

Wheeler Sheds More Light on Coming Details of Biofuel Plan (DTN Progressive Farmer)

Trump administration continues to push E15 (Trade Only Today)

Biofuels get a boost: Administration delivers on president’s promise to farmers (The Messenger)

EPA must stop granting refinery exemptions (Clinton Herald)

Iowa farmers face harvest of hope but anxiety (Sioux City Journal)

AEM: MANUFACTURERS WELCOME BIOFUELS REALLOCATION (KRVN)

TRUMP’S VAGUE PLAN TO BOOST ETHANOL HAS THE OIL INDUSTRY THREATENING TO SUE (Successful Farming)

ILLINOIS AG ECONOMIST SKEPTICAL OF BIOFUELS PACKAGE (Brownfield Ag News)

Thune, Poet 'encouraged' by Trump's ethanol proposal (Sioux Falls Argus Leader)

Trump struggles to win back Iowa farmers with new ethanol plan (The Hill)

EPA Official Says Agency ‘Anticipates’ Releasing 2020 RVO by Nov. 30 (Governors' Biofuels Coalition/OPIS)

Wheeler: EPA to add ‘lost’ gallons to ethanol requirement (Fence Post)

Ethanol Blog: Governors Ask Trump to Take Executive Actions on Biofuels (DTN Progressive Farmer)

Big Oil Baffled By Trump’s Flip Flop On Ethanol Policy (OilPrice.com)

Will Trump’s plan put RFS back on track? (Wallace's Farmer)

A ‘positive step’--Local leaders say Trump biofuel agreement will benefit local ethanol plants (The Messenger)

The Renewable Fuel Standard is broken (The Gazette)

Increased ethanol consumption won’t help out the farmers (Washington Post)

Ethanol Report on RFS Moving Forward (Energy.AgWired.com; includes AUDIO)

OIL INDUSTRY TO ‘VIGOROUSLY’ FIGHT TRUMP’S RFS CHANGES: (Washington Examiner's Daily on Energy)

New fueling station welcome news for ethanol market -- Major work is still needed to increase the use of ethanol and biofuels. (Farm Progress)

Not enough action in latest ethanol agreement -- EPA's statement celebrates action, but details show the only action is a promise to open ‘comments.’ (Kansas Farmer)

SDCGA SAYS BIOFUELS PACKAGE A STEP IN RIGHT DIRECTION (Brownfield Ag News)

ETHANOL PLAN TO ‘NET OUT’ AT 15 BILLION GALLONS – EPA’S WHEELER (Successful Farming)

OIL INDUSTRY TO ‘VIGOROUSLY’ FIGHT TRUMP’S RFS CHANGES: (Washington Examiner's Daily on Energy)

Through Washington’s Fog, an Ethanol Deal Emerges: Refiners Not Happy (Dan Macy)

Letters: Trump policy would hurt Louisiana refineries (The Advocate)

President Trump is listening to us on biofuel (The Messenger)

Trump’s Big Biofuel Package Has No Teeth (OilPrice.com)

Excerpt from DTN Progressive Farmer: In an interview with the Red River Farm Network on Tuesday, EPA Administrator Andrew Wheeler offered some additional explanation on what the Friday announcement means. The action, he explained, strikes a balance so that EPA can continue offer the small refinery exemptions (SREs).

“We will estimate what that number will be and add it to the RFS for next year so that after the small refineries are exempted, the final number will still end up being 15 billion gallons.” For corn farmers, he noted, that means there will be a “15-billion gallon certainty” and also means that the SREs will be preserved for “those refineries that truly are in jeopardy of going out of business because of the RFS.”

EPA will come out with the supplemental plan for the 2020 biofuel and 2021 biodiesel levels in the “next week or so,” Wheeler said, with a 30-day comment period.

Asked if the action is to account for the SREs that have been granted so far, Wheeler stressed, “It is not retroactive. It is going forward.” He noted EPA has already proposed the Renewable Volume Obligations (RVOs) for 2020 biofuel.

“We will go out for a supplemental proposal in the next few days and increase that for 2020, so that in 2020, the number will be set somewhere above 15 billion gallons knowing that we will be providing some small refinery relief so that we net out at 15 billion gallons.” That way the 15 billion gallons of conventional ethanol that is in statute will be met “so we provide that certainty so that corn farmers will be able to produce up to 15 billion gallons of ethanol.” READ MORE

Excerpt from The Hill: Trump’s ethanol proposal also requires the EPA to ensure the same number of gallons of ethanol is blended into fuel, regardless of how many waivers are granted.

But that’s already required under law, and critics say there’s little to assure farmers that this time around will be different, particularly in an administration known for reversing major policy decisions.

“Iowans should be careful about taking another [renewable fuel standard] promise at face value. It is very much in question whether this gets done by 2020,” Tim Gannon, an Iowa farmer and former USDA official, said in an email to The Hill.

“Every time the president makes a promise on the RFS, his EPA administrator manages to roll it back for Big Oil, and a lot of the important details will be determined by EPA,” he said, referring to the renewable fuel standard. “The question now is: Will this time be any different?”

The proposal still has to go through a public comment period, and the fossil fuel industry has made clear they aim to sway the president.

“Next week [Trump will] talk to the oil people and give them what they want, I’m afraid. His track record isn’t good,” Samuelson said.

Even with all the skepticism, some say it’s important to recognize Trump’s efforts to fix a problem of his own making.

“If you make him mad, you don’t have access,” Burrack said. “Once you get your door closed, it's hard to get back in. Most of these organizations still need his help. And now that he's finally done something positive, we're going to praise him, because they may need to continue to go in to make sure that what he said was going to happen, will happen.”

Still, Burrack said, it’s taken too long to get here.

“It is so sad that we've got to go through this much political effort; spend this much political capital; make people lose so much money out of their business, out of their lives, out of their retirement; have people lose their jobs, just to get back to the law,” he said. “It's frustrating.” READ MORE

Excerpt from DTN Progressive Farmer: First and foremost, the group asked Trump to expedite any new rulemaking process aimed at the waivers issue.

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As part of the biofuels announcement last week, the Trump administration also directed EPA and USDA to take steps to address barriers to the use of E15 and to expand ethanol's infrastructure.

In the letter the governors also recommended additional steps the Administration could take including:

-Directing EPA to enforce the Clean Air Act and reduce aromatics in gasoline, opening new market opportunities for ethanol to replace toxics and give refiners more options to meet octane demand with high-octane ethanol. "Replacing hazardous aromatics in gasoline with biofuel will reduce carbon emissions and will provide incalculable health benefits, especially for those Americans living in urban areas," the coalition said in the letter.

-Directing EPA to extend the Reid vapor pressure, or RVP, waiver to higher ethanol blends including E30. "Efforts to revitalize rural growth must include a waiver for all ethanol blends above E15, including E30," the letter said.

-Directing EPA to update its lifecycle carbon findings. EPA's estimate of lifecycle carbon emissions associated with ethanol have not been updated in a decade, "thereby permitting the use of obsolete data to distort the public's perception of biofuels' environmental benefits," the letter said.

-Directing EPA to approve applications for the production of cellulosic ethanol from corn kernel fiber for D3 Renewable Identification Number, or RIN, credit. "Applications seeking D3 RIN approval have been delayed in EPA's regulatory process, resulting in millions of cellulosic biofuel gallons withheld from the marketplace because of regulatory delay," the letter said. READ MORE