States Ask EPA for Nationwide Biofuel Waiver to Help Oil Refiners Weather Coronavirus

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April 16, 2020

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by Laura Sanicola (Reuters) The governors of five U.S. states have asked the Trump administration for a nationwide waiver exempting the oil-refining industry from the nation’s biofuel laws to help it survive a demand meltdown caused by the coronavirus outbreak, according to letters seen by Reuters.

The request places Republican President Donald Trump, who is seeking re-election in November, in a tough spot between the oil and agriculture industries, two important constituencies. They are being particularly hard-hit by the global pandemic as it decimates energy consumption, breaks transport supply chains and makes labor harder to come by.

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“As our country comes to grips with this national emergency, continuing to implement the current (biofuel requirements) imposes an added obligation that would ‘severely’ harm the sector, and consequently harm the economy of the States and the Nation,” according to one of the letters, signed by the governors of Texas, Wyoming, Utah and Oklahoma and addressed to Environmental Protection Agency Administrator Andrew Wheeler. The letter was dated on Wednesday.

Louisiana also made such a request, according to a separate letter seen by Reuters and addressed April 7.

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The governors argued that because the coronavirus pandemic had sharply reduced U.S. demand for gasoline since that mandate was announced, it would be unfeasible for refiners to hit those targets. They pointed out that prices for blending credits had also recently tripled, raising the costs for refiners. READ MORE

GOVERNORS CALL FOR RFS WAIVER (Politico's Morning Energy)

Oil State Governors Wrong to Target Renewable Fuel Standard, Rural Jobs (Renewable Fuels Association)

Ethanol Blog: Five States Ask EPA for Waiver From Renewable Fuel Standard, Citing COVID-19 (DTN Progressive Farmer)

Governors Ask Trump to Waive Biofuel Quotas Amid Pandemic (Bloomberg)

Oil-state governors seek renewable fuel waiver for refiners: Refiners say the economy's swoon makes the requirements too costly. Biofuel backers say their industry is suffering as well (Roll Call)

TRUMP GETTING PUSHED AND PULLED BY OIL PRODUCERS: (Washington Examiner)

OIL STATES SEEK RELIEF FROM BIOFUEL MANDATE: (Washington Examiner)

NO FOSSIL FUEL BAILOUTS AMID PANDEMIC, DEMOCRATS SAY: (Washington Examiner)

Five oil-refining states ask US EPA to waive biofuel mandate amid plunging fuel demand (S&P Global Platts)

COVID-19 Cited in Waiver Request -- Governors in Five States Asked EPA for Renewable Fuel Standard Waiver (DTN Progressive Farmer)

Five oil state governors ask the EPA to waive 2020 RFS RVOs (Ethanol Producer Magazine)

Ethanol Report: Ethanol groups criticize oil states’ RFS waiver request (Energy.AgWired.com includes AUDIO)

Five governors ask for RFS exemption, RFA says they’re wrong (Fence Post)

Waive the RFS? That’s nonsense, says ethanol industry. (Fern's Ag Insider)

RFA President Says Refineries Request For Total RFS Waiver Is Ridiculous (WNAX)

RFS FIGHT CONTINUES: (Washington Examiner's Daily on Energy)

US refiner Valero supports request for EPA waiver on biofuel mandate (Independent Commodity Intelligence Services)

Friendly Fire: Ethanol Battles Oil As COVID Destroys Demand For Both (Forbes)

Also likely to come up: Chairman John Barrasso (R-Wyo.) (Politico's Morning Energy)

Excerpt from Renewable Fuels Association: “Apparently toilet paper isn’t the only thing in short supply in oil states these days—clearly, these governors are experiencing an acute shortage of facts and reality too. It’s clear they know absolutely nothing about how the Renewable Fuel Standard actually works. They outrageously claim that a waiver is needed because of ‘depressed demand for transportation fuel.’ But because EPA translates the RFS into a percentage each year, the renewable fuel blending requirements already adjust in tandem with changes in gasoline and diesel consumption. So, if COVID-19 causes 2020 gasoline and diesel demand to drop 15 percent, for example, the renewable fuel blending requirements drops by the exact same amount.

“In any event, the EPA has no authority to grant relief when the RFS itself is not the cause of the ‘severe economic harm,’ a fact that has been reconfirmed by EPA multiple times in the past when it denied similar nonsensical waiver requests. The governors themselves acknowledge the problems facing refiners today are driven by COVID-19 and cratering oil prices, not the RFS. These same factors are impacting the ethanol industry as well, and to an even greater extent: Nearly half of the nation’s ethanol production capacity has been idled as a result of falling gasoline demand. A general waiver at this point would only serve to close more ethanol plants and kill more jobs across rural America.

“The governors also apparently have forgotten about the record supply of low-cost banked compliance credits (RINs) available to refiners. Today, refiners can purchase two or three RIN credits—each representing a gallon of renewable fuel—for the same price as one physical gallon of ethanol. COVID-19 is exactly the sort of market disruption that EPA had in mind when it developed the RIN credit trading market mechanism.

“The bottom line is, this letter comes nowhere close to satisfying the well-defined statutory criteria and requirements established for requesting a waiver. It can’t even be called a petition. EPA should reject it out of hand and return to focusing on efforts that will actually help Americans get through this challenging period. These governors may still be practicing social distancing, but they should not be distancing themselves from the facts as well.” Explainer: Impact of Gas & Diesel Demand Loss on RFS Volume Obligations READ MORE

Excerpt from DTN Progressive Farmer: Previous economic studies -- including EPA's own analysis -- have shown refiners pass RFS compliance costs onto consumers at the pump. READ MORE

Excerpt from Bloomberg: If the EPA rules in favor of the governors, it will be yet another big blow to the American ethanol producers, who make the biofuel primarily from corn. The entire industry is facing a reckoning. Long before the pandemic emptied roads and exacerbated an oil price war, producers were battling chronic oversupply and trade upheaval. Now slumping demand and prices mean smaller producers and those with heavy debt loads will struggle to ride out the losses.

The battle over biofuel blending also pits two factions of Donald Trump’s political base -- farmers and oil companies -- against each other as the 2020 presidential election approaches.

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The general waiver request is distinct from targeted, refinery-specific exemptions. Under the federal Renewable Fuel Standard, the EPA has the authority to waive blending mandates if domestic fuel supply is inadequate to satisfy them or implementing the requirements would “severely harm the economy or environment of a state, a region or the United States.”

The EPA must consult with the Energy and Agriculture departments and ask for public comment before making a decision. However, the EPA has been reluctant to grant such widespread waiver requests in the past, including in 2012 when a U.S. drought hit the corn harvest, prompting a price surge. Typically, each gallon of gasoline sold in the U.S. is mixed with about 10% ethanol.

University of Illinois agricultural economist Scott Irwin said it may be difficult to win a general waiver now, since it would be tough to prove that economic harm was not only widespread and broad-based but also caused by the biofuels rule.

‘High Hurdle’

“There’s a high hurdle to invoke that authority,” Irwin said by telephone. “Certainly, the present EPA would be much friendlier than in the past to a waiver request.”

Irwin said EPA Administrator Andrew Wheeler has shown “creativity” in how the agency interprets the RFS, which could create an opening here. Biofuel advocates already upset with the administration’s decision to exempt small refineries from the mandates would view an even broader waiver as a “declaration of war,” Irwin said.

The long-running squabble between the oil and farm sectors over biofuel blending requirements has only intensified amid the coronavirus.

Refining industry leaders argue the waiver is absolutely essential as they pare production and shutter facilities amid an unprecedented collapse in fuel demand.

The waiver request isn’t a bid to take away biofuel’s share of the market, said Derrick Morgan, a senior vice president with the American Fuel and Petrochemical Manufacturers association. READ MORE

Excerpt from Washington Examiner's Daily on Energy: RFS FIGHT CONTINUES: Two Ohio cities are joining the calls of several oil states for the EPA to lower biofuels mandates under the Renewable Fuel Standard, as refiners struggle with dramatically depressed demand for fuel amid the coronavirus pandemic.

The mayors of Toledo and Oregon asked EPA Administrator Andrew Wheeler in recent letters to lower the requirements for conventional biofuels to below 10% and reduce the advanced biofuels mandate to “no greater than last year’s actual domestic production” of such fuels. The officials say the cost of RFS compliance credits (or RINs) have tripled, adding “hundreds of millions” in compliance costs for refiners already struggling to stay open. (Worth noting: The Ohio mayors’ pleas might have some personal sway for Wheeler, who is from the state.)

Rewind to earlier this week: Ethanol producers say their industry has also been devastated by declines in fuel demand. “The RFS is essential,” Mick Henderson, general manager of Commonwealth Agri-Energy, a 100% farmer-owned ethanol plant in Kentucky, told reporters Monday. “To kick us when we’re down, for oil state governors to throw a letter to the EPA to try to take us offline totally because now is the time to do it, well that hurts.” READ MORE

Excerpt from Politico's Morning Energy: Also likely to come up: Chairman John Barrasso (R-Wyo.) may question Wheeler on reducing blending requirements under the Renewable Fuel Standard. A group of 15 oil-state Republicans led by Barrasso called on Wheeler to do so in a letter Tuesday, citing the crash in fuel consumption and the rise in RFS compliance costs. "A failure to grant, in part or in whole, the governors' petitions would render this provision within the Clean Air Act utterly meaningless. It would be a gross example of a federal agency nullifying an act of Congress," the letter says.

Carper also unveiled a staff report this morning that highlights all of EPA's proposed or final rules since March 1 that Carper's staff says will lead to increases in air pollution. The report follows research out of Harvard that linked air pollution with higher Covid-19 mortality, which at least one GOP lawmaker and the American Petroleum Institute have urged Wheeler to be skeptical of. READ MORE

Senators pressure Wheeler to ease blending requirements (E&E News)

Ethanol Blog: Group of 15 Republican Senators From Oil States Ask EPA For RFS Waiver (DTN Progressive Farmer)