On The Front Lines

FROM THE JUNE ISSUE: The old battle between ethanol and oil takes center stage with the RFS. Ethanol Producer Magazine recaps the many recent attempts to hinder the policy, and looks beyond 2022.
By Erin Voegele | May 25, 2018

When President Donald Trump pledged his support for year-round E15 availability during a meeting at the White House April 12, the entire ethanol industry seemed to breathe a sigh of relief. It was an important policy victory that punctuated a long, sometimes confusing, war the industry had been fighting all spring.

The Trump Administration confirmed plans to allow year-round sales of E15 during a May 8 meeting with several senators, and announced it will abandon plans to pursue a price cap on renewable identification numbers (RINs). The administration, however, has indicated it likely will allow RINs to be attached to exported volumes of biofuels, a move strongly criticized by the ethanol industry.  

To many, it appears Philadelphia Energy Solutions’ January bankruptcy was the spark that ignited the current discussions and fight over the Renewable Fuel Standard. But leaders in the ethanol industry are quick to point out this fight is not new; it’s the same battle over market share the ethanol industry has been fighting with the oil industry since the RFS was first implemented more than a decade ago. PES’s bankruptcy filing merely brought that fight to the surface.

PES filed for Chapter 11 bankruptcy in January, blaming the price of RINs for its financial difficulties. Sen. Ted Cruz, R-Texas, latched onto the story and helped turn it into a matter of national interest.
Brian Jennings, CEO of the American Coalition for Ethanol, calls Cruz one of the best opportunists in Congress, noting he really elevated the issue. “Sen. Cruz exploited the PES situation to get more press attention…and the attention of the White House,” Jennings says. A special election in Pennsylvania and Cruz’s midterm primary election in Texas both were held March 6. “Cruz wasn’t going to lose the republican primary election, but this sure was a convenient way for him to raise his visibility and gain more attention leading up to that Tuesday vote, which he won handily,” Jennings says. “So, certainly, politics played a role.”

The issue also grabbed Trump’s attention. On Feb. 27, Sens. Cruz; Chuck Grassley, R-Iowa; Joni Ernst, R-Iowa; and Pat Toomey, R-Pa.; met with Trump at the White House to discuss the RFS. Agriculture Secretary Sonny Perdue and EPA Administrator Scott Pruitt were also in attendance. The meeting focused on the elusive “win-win” solution Trump is seeking.

A few days later, Trump met with a variety of stakeholders from the biofuels and refining industries to continue the discussion. Merchant refiners argued for a price cap on RINs, a move the ethanol industry said would squash demand. Ethanol producers, alternatively, have been calling on Trump to quickly implement a Reid vapor pressure (RVP) waiver, which would allow E15 to be sold year-round, increase blending and reduce the price of RINs. Merchant refiners, however, aren’t on board with that solution.

A third White House meeting on the RFS was scheduled to take place March 12, but was later cancelled.

On April 4, the U.S. Bankruptcy Court for the District of Delaware approved a proposed settlement with the U.S. government under which PES was able to waive a significant portion of its renewable volume obligations (RVOs). The move was widely criticized by the biofuels industry, which argued that the settlement undermines the RFS and sets a bad precedent.

One day before the PES settlement announcement, news broke that EPA had effectively circumvented its mandate to enforce refiner RVOs by granting small refiner hardship waivers to refining companies that are neither small, nor experiencing economic hardship. Initial reports have found that at least 25 of these waivers have been awarded retroactively for the 2016 and 2017 compliance years.

During an April 24 hearing held by the Senate Committee on Agriculture, Nutrition and Forestry, Agriculture Secretary Sonny Perdue called the EPA’s actions “demand destruction” and estimated approximately 1.12 billion gallons of the 15 billion-gallon RVO for conventional biofuel were waived through the EPA’s misuse of its waiver authority.

Pruitt appeared before two House committees on April 26, fielding several questions on the RFS. When asked about how many waivers are set to be approved for 2018, he said “applications are still pending in 2018,” but added that there are already more than 25.

Rep. David Loebsack, D-Iowa, pointed out that the EPA is required by law to reassign waived gallons to other obligated parties and asked Pruitt if the EPA has taken such action. “It’s my understanding that that process has happened as it’s supposed to under the statute,” Pruitt responded.

Pruitt was also asked about the holdup in issuing an E15 waiver. He said the EPA “is just trying to ensure the legal basis is solid because there will be litigation that will ensue.”

A Waiting Game
As of press time for the June issue of Ethanol Producer Magazine, the industry continued to wait for the details of an RVP waiver to be finalized and for the administration to release details on its plans for RINs and exports.
 
While Jennings notes there is a real concern that the RFS could be changed in a substantial manner, he stresses nothing can happen overnight. “Amid this sense of urgency, I think people sometimes get carried away,” he says.

Jennings also points out that many proposed changes that aim to undermine the RFS would likely violate the statute and fail to survive litigation. He says there does not seem to be enough votes in Congress to dismantle the program. “This has been the case for 10 years now,” he says, referencing repeated past efforts by some lawmakers to end or hobble the RFS.

Brent Erickson, executive vice president of the Biotechnology Innovation Organization, also says legislative action seems unlikely at this point. “The unilateral changes EPA has made to the RFS with the waivers make it unlikely that Congress will agree on additional intervention in the program at this juncture,” he says. “EPA’s recent actions favor one group of oil refiners over others, so I would not expect the oil industry to unite behind any congressional proposal.

“Additionally, with commodity prices in bad shape already, Midwest representatives and senators may be wary of rattling those markets further,” Erickson adds. “As such, Congress will likely have a hard time getting votes for RFS changes right now, and they would also be hard pressed to complete legislation with the limited time left this year.”

Market Share
Since its inception, the RFS has faced a myriad of challenges from the food vs. fuel debate, to disputes associated with water use and indirect land change, and many others. While not all of the challenges have come from the same parties, the disputes with Big Oil have largely boiled down to market share. “The real complaint the refiners have is they don’t want to see ethanol continue to creep into their territory in terms of market share,” Jennings says. “They want to limit ethanol’s market share—and at the end of the day, we want to expand market share. We believe that is one of the primary purposes of the RFS.”

Emily Skor, CEO of Growth Energy, says, “As long as we’re taking market share away from an entrenched incumbent, we’re going to see these types of challenges. This is part of our daily existence. We have had so much success as an industry. As a nation, we are blending more than 10 percent ethanol into our fuel supply, so now we have to fight for continued market access.

“We’ve saturated E10,” she adds. “So, now we need to look at E15 and even higher blends. So, that is going to have to be a fight—because again—higher blends means that we are taking market share away from the oil industry. It is straight up competition and they are not going to like it. … We are seeing that play out in politics and in terms of some of the allegations that are made about ethanol.”
While members of the ethanol industry continue the fight over the RFS and E15, they are also looking to the future—to the post 2022-RFS, when fights between ethanol producers and Big Oil are likely to escalate.

RFS After 2022
“Contrary to popular belief among some, the RFS doesn’t simply end in 2022,” Jennings says.
In EISA, Congress only set statutory RFS blending targets through 2022. “After 2022, EPA must set the annual volumes based on six specific factors,” Jennings adds. These factors include environmental effects, energy security, production, infrastructure costs, and things like jobs and commodity prices, Jennings explains. “So, there are goal posts, if you will,” he says. “There are parameters to their consideration. It’s not going to be the Wild West.”

Rep. John Shimkus, R-Ill., questioned Pruitt on EPA’ plans for the post-2022 RFS during an April 26 House hearing.  “As you know, under the statute, we have an ability to reset those volume obligations and we are evaluating that,” Pruitt said. “There is a cap of 15 billion for conventional [biofuels] presently. But another area I know … you’ve been interested in is high octane. … There needs to be a serious consideration of us pursuing, as a country, fuel choices and options to meet those [Corporate Average Fuel Economy] standards and provide high octane as an option to the American people. I think there is a potential that will serve both the ag sector as well as the auto sector and consumers across this country that we could pursue together.”

Jennings say ACE’s RFS focus for post-2022 will be on making sure EPA is evaluating the correct factors when proposing the RVOs.

Erickson points out that the process for setting annual volumes after 2022 is laid out in law. “Recent court decisions provide clarification on how EPA must set RVOs,” he says. “So long as EPA complies with the requirements of the law, there should be no surprises in how the RVOS are set after 2022.”

Even though many would like to see improvements to the RFS, the ethanol industry has historically been hesitant to seek legislative changes. That seems unlikely to change between now and 2022.
“We have a long list of improvements that we’d like made to the RFS,” Jennings says. “But the political calculus has always been if we open the statute up, it’s likely that more damage will get done than improvements be made.”

“I think, at the end of the day, our goal is to have the ability to compete,” Skor says. “The reason we are so adamantly protective of the RFS is because that is the thing that gives us the ability to compete. The fuel market is not an open marketplace. I wish it were. Life would be a lot easier if it were, but it isn’t. That’s why we are so protective and zealous about the RFS.”

Skor says most of the reform efforts pitched to date are actually attempts to cut or cap the ethanol industry’s ability to grow. She offers the recently introduced Welch-Udall bill, which aims to sunset the RFS, as an example. 

“The RFS program still presents tremendous opportunities for growth of the ethanol industry—such as expansion of cellulosic ethanol production from corn kernel fiber and corn stover, or growth of drop-in fuels, such as biobutanol,” Erickson says. “After 2022, the program still provides a floor for the starch ethanol industry.”

The 2020 presidential election could have some impact on the RFS and other policy issues important to the ethanol industry. “I’m a believer that every election has consequences,” Jennings says, adding that the fact that the Iowa caucuses hold such a pivotal place in the election-year calendar bodes well for the ethanol industry.

“I think the industry was smart to leverage the Iowa caucuses the way that we did for the 2016 election,” he adds. “I hope that we continue to do that and educate not only the candidates, but also the voters about what the important issues are.”

Five years from now, Skor says her goal is to see E15 become the new norm. “That’s 7 billion gallons of new biofuels,” she says, stressing the importance of an RVP waiver for E15. “E15 is the stepping stone for E25 or E30,” she continues. “That is the fuel of the future, needed for the car of the future, for the consumer of the future.”

Jennings says the ethanol industry struck lightening in a bottle with the RFS. He says there may be potential for that lightening to strike again, perhaps in the form of a minimum octane standard that would help push the market toward higher blends, like E25 or E30.

Erickson notes BIO’s five-year wish list includes prompt approvals for biofuel pathways and new refineries. “On average, cellulosic and advanced biofuel pathway petitions have been waiting for more than three years for EPA to begin addressing them,” he says. “These are pathways for which EPA has not even proposed rules or greenhouse gas emission analysis. That wait is inexcusable—multiple biofuel producers have gone bankrupt while waiting for approval.”

Stay Engaged, Stay Involved
Those who work in the ethanol industry might wonder what they can do to help ensure a positive future for ethanol-related policies. Jennings, Skor and Erickson all point to grassroots efforts.
“All politics is local,” Erikson says. “It really helps to keep inviting members of Congress and their staff to tour facilities and to make sure employees engage with local congressional offices on a quarterly basis.”

Jennings urges those in the industry to not become fatigued by some of the political fights that replay over and over. “Stay engaged, stay involved,” he says. “Organizations like ACE are only as effective as our members are contributing and engaged.

“Members of congress get sick and tired of hearing from people like me—the paid lobbyist who they’ve come to know over the years,” Jennings continues. “But there is something incredibly disarming and persuasive and authentic about having a retailer who is selling E15 and E85 meet with the EPA administrator and members of congress and explain that his or her business is hurt because they can’t sell E15 year round—that the sales of their fuel go down in summer months and so do sales inside the store, where they make most of their money…I feel ACE’s role is to provide opportunities to our members to speak up and speak out for the industry to demonstrate there is a strong, diverse grassroots network of people around the country that benefit from ethanol.”


Author: Erin Voegele
News Editor, Ethanol Producer Magazine
701.738.4963
evoegele@bbiinternational.com