RFA: Ethanol demand destruction clearly resulting from SREs

By Renewable Fuels Association | August 22, 2019

In a letter sent Thursday morning to U.S. Environmental Protection Agency Administrator Andrew Wheeler, the Renewable Fuels Association challenged the federal agency on its claim there has been “zero evidence” that small refiner exemptions from Renewable Fuel Standard compliance obligations have had a negative impact on ethanol producers.

“Such a crass statement is entirely at odds with the facts and demonstrates a woeful lack of understanding about the actual marketplace implications of EPA decisions on small refiner exemption petitions,” wrote RFA President and CEO Geoff Cooper. “The U.S. ethanol industry has indeed been negatively impacted by the dramatic increase in small refiner exemptions that have been issued by your Agency. U.S. ethanol consumption in 2018 was far below the level forecast by the U.S. Energy Information Administration at the start of the year. Further, 2018 domestic ethanol consumption fell from 2017 levels—the first year-over-year decline in 20 years. Ethanol’s share of U.S. gasoline consumption (the “blend rate”) also fell in 2018 relative to 2017, likely the first-ever annual decline in the blend rate.”

The EPA’s controversial August 19 statement came the same day as an Oval Office meeting where President Trump reportedly sought to “assuage farmer unrest” and “allay farm-state uproar” over the refinery exemptions, and only worked to further fuel farmer and ethanol industry concerns.

“On the very same day your Agency suggested there is ‘zero evidence’ of demand destruction, two major ethanol producers announced they were idling production,” Cooper wrote. “In fact, in the week following EPA’s August 9 announcement that 31 more SREs had been approved, ethanol prices plunged 18 cents per gallon (12 percent), corn prices fell 47 cents per bushel (11 percent), and RIN credit values dropped from the already-low level of 20 cents to just 12 cents (43 percent). All told, the August 9 announcement alone could result in a staggering $10 billion transfer of wealth from the agriculture and biofuel sectors to the oil industry. There’s your evidence of demand destruction.”

With the letter, RFA also submitted to Wheeler a short background document providing further evidence of waiver-induced demand destruction.

“I respectfully encourage you to review this information, especially the statements of numerous ethanol company executives regarding the negative impacts of SREs,” Cooper wrote. “No one is more qualified to provide perspective on the economic impacts of SREs than those who participate in these markets every day. I hope you take their views to heart and ask your staff to revisit whatever analysis it conducted that ultimately led to the absurd conclusion of ‘zero evidence’ of negative market impacts from SREs.”