USDA memo encourages EPA to account for small refinery waivers

By Erin Voegele | August 29, 2018

A recent memo sent to the U.S. EPA by the USDA Office of the Chief Economist shows the USDA believes the EPA should account for the impact of small refinery hardship waivers in its annual Renewable Fuel Standard rulemaking.

The memo, dated Aug. 15, was filed as a public comment with regard to the EPA’s proposed rulemaking to set 2019 renewable volume obligations (RVOs) under the RFS, along with the 2020 RVO for biomass-based diesel. The public comment period on the rulemaking closed Aug. 17.

Within the memo the USDA said that although it is one of the agencies that participates in the internal comment period as publication of the final rule is in development, the department also elected to “publicly comment on specific points appearing from all commentators in the dock concerning issues, after reviewing the docket and proposed rule, which the USDA feels strongly should be considered when addressing the final rule.”

The memo outlines USDA support for accounting the impact of small refinery hardship waivers in annual RFS rulemakings. “USDA agrees with points in the docket which suggest that the current methodology in projecting zero small refinery waivers and volumes in the preliminary rule is inappropriate and results in an analytical inconsistency, significantly reduces the transparency of EPA operations and increases the uncertainty for market participants,” said the USDA in the memo. “Furthermore the USDA supports corrective suggestions for using a realistic projection of waived small refinery volumes of gasoline and diesel production in the docket concerning these points.”

The USDA cites a comment from interagency review that states the EPA should include an estimate for 2019 small refinery waivers based on waivers granted over the past two years, as current procedures ensure the RVO isn’t met.

“The USDA strongly agrees with this conclusion,” said the department in the memo, stressing that lack of a proper or correct estimate of small refinery waivers causes an inconsistency between the EPA analysis of available supplies used in setting the RVOs, the percent standards, the costs calculated for the program, and EPA assertions that actions are “RIN stock neutral.” According to the USDA, “current methodology results in over estimating costs, a failure to hit the total RVO supported by the analysis, and has resulted in a more than doubling of carry in stocks of RINs, despite the year over year increase in the stated total RVO.”

The USDA also expresses its agreement with a comment that asks the EPA to provide information on total volumes waived, the status of 2018 waivers at the time of release, and a discussion about the use of small refinery waiver estimates for gasoline and diesel. According to the UDSA, a lack of public information regarding the number and size of small refinery waivers adds volatility to the RIN markets, reduces market transparency and efficiency, and raises costs of the program.

The memo also discusses the EPA’s use of its cellulosic waiver authority. While the USDA said it does not disagree with the appropriateness of using the cellulosic waiver authority to lower the total and cellulosic standards, the department stressed that it does disagree with newly stated constrains the EPA has placed on the agency when those waivers are applied. The memo explains that there has been a change in tone within the RFS rulemaking under which the agency has imposed on itself the idea that total and advanced RVOs must be reduced by the same amount. A comment cited by the USDA states this change of tone should be removed to “remain consistent with [the agency’s] previous rules noting that this simply reflects a preference for advanced over conventional fuels, if available, when backfilling the cellulosic waiver.”

In the memo, the USDA states “it is unclear why EPA would add or reinforce language which places a constraint on future actions.” The USDA goes on to explain that under a scenario where the market was able to absorb ethanol, but supplies of advanced biofuels were constrained, the result of the artificial constraint laid out by EPA in the proposed rule would give preference to gasoline usage, which results in no greenhouse gas (GHG) reductions, over corn ethanol, which results in a 20 percent GHG reduction.

A full copy of the memo can be downloaded from the Regulations.gov website.