Biofuel groups call on EPA to fix SRE proposal

By Erin Voegele | October 30, 2019

Representatives of the biofuels industry expressed frustration with the U.S. EPA’s bait and switch regarding its supplemental notice of proposed rulemaking on small refinery exemptions (SREs) during an Oct. 30 hearing in Michigan and called on the agency to fix the flawed proposal.

The hearing was held to gather public comments on the EPA’s supplemental notice of proposed rulemaking that was issued on Oct. 15. That rulemaking proposes to use a three-year rolling average of U.S. Department of Energy SRE recommendations to project future waived volumes in annual RFS rulemakings. The biofuels industry, however, was initially told the EPA would use a three-year rolling average of actual waived SRE volumes. Unlike data on actual waived SRE volumes, DOE recommendations are not publically available and have largely been disregarded by the EPA in recent years during its process to evaluate and approve or deny SRE applications.

A number of biofuel industry representatives testified at the hearing, including those representing the Renewable Fuels Association, Growth Energy, the American Coalition for Ethanol, the National Biodiesel Board, and the Iowa Renewable Fuels Association. State officials and other stakeholders also delivered testimony at the event.

The RFA called the EPA’s SRE proposal weak and said it will not counter the damaging effects of SREs. “This proposal fails to reflect the letter and spirit of the president’s commitment to restore integrity to the RFS, fails to assure that the statutorily-required 15-billion-gallon level for conventional biofuels will be met, and fails to restore stability in the marketplace by definitively ending the practice of allowing small refinery exemptions from eroding RFS biofuel demand,” said Geoff Cooper, president and CEO of the RFA.

In his testimony, Cooper recounted the impact of the waiver, with lost demand leading to the closure or idling of 19 ethanol plants and the decimation of RIN prices—blending credits that measure the success of the RFS program and the ethanol industry.

“RFA does not oppose the granting of small refiner waivers to any company that can demonstrate it is being harmed by the RFS,” Cooper said.  “We do believe this is a high bar, however, particularly as RIN prices have fallen precipitously and EPA itself has concluded the cost of RIN compliance is recovered in the market.  Indeed, we believe it highly unlikely any company is being negatively impacted by the RFS today.”

Cooper also explained why the new supplemental proposal won’t succeed. EPA bases on the average of what the Department of Energy has recommended for waivers, not the waivers actually granted—and the formers is significantly less than the latter.

“The problem with this proposal is that EPA has seldom followed DOE’s recommendations in deciding SRE petitions,” Cooper continued.  “For the 2016-2018 compliance years, DOE on average recommended that 7.3 billion gallons of gasoline and diesel be exempted from RFS obligations, but EPA actually exempted an average of 12.8 billion gallons–75 percent more.”

Growth Energy called on the EPA to fix its flawed SRE proposal and reverse the demand destruction that has shuttered plants across the heartland. “As drafted, EPA’s plan fails to accurately account for lost gallons and betrays President Trump’s promise to rural America,” said Emily Skor, CEO of Growth Energy. “It cuts the fix we were promised in half, if not more, and destroys what may be our last chance to bring back the ethanol plants that have shut down and help ease the burden facing American farmers.”

To begin repairing the damage, Skor called on the EPA to uphold the president’s commitment to farmers and biofuel workers.

“Midwestern lawmakers and governors have seen the damage firsthand and worked with the president to secure a deal that would start to undo the damage—a deal that would honor this administration’s commitments to farmers, biofuel producers, rural America, as well as small refineries. But instead, the EPA has undercut the president’s promise and has yet again tilted the table in favor of the nation’s largest oil companies—all at the expense of the American farmer.”

Among other changes, she urged regulators to use the rolling average of actual exempted volumes from the three most recently completed compliance years in the final rule, as promised by the administration. She also called on the agency to formally bind itself to the revised methodology for future years and expedite work to remove additional barriers to the sale of E15.

“EPA must fix this rule immediately by properly accounting for exempted gallons and restoring lost demand. American biofuel producers and farmers cannot afford anything less,” concluded Skor.

ACE urged the EPA to stop riding the breaks on the Renewable Fuel Standard and stick by its original deal on SREs. “For far too long, farmers and renewable fuel producers who have been trying to help EPA successfully implement the RFS have instead encountered an agency persistently riding the brakes on the program and constraining opportunities to blend more ethanol,” said Brian  Jennings, CEO of ACE. “To make matters worse, EPA’s recent abuse of SREs recklessly turns the keys to the RFS to refiners who have taken the program on a joy ride.

“ACE members are furious with EPA’s double-standard: when it came to helping refineries escape RFS obligations from 2016 through 2018, EPA rejected DOE recommendations to exercise restraint, but now that EPA must restore volume to the RFS, the agency is suddenly embracing DOE recommendations because the result will keep a lid on refinery obligations going forward,” Jennings continued.

"While this proposal is not going to make renewable fuel producers whole for EPA’s prior abuse of SREs, we urge the agency to take a small step in the right direction by issuing a final rule which reallocates the actual average volume waived from 2016 through 2018 and ensures at least 15 billion gallons for the 2020 compliance year.

“Refineries should no longer be allowed to drive the RFS in the ditch, it’s time for EPA to finally take back the keys to the program,” Jennings said.

The NBB encouraged the EPA to fully account for SREs in its final rule. "EPA should change how it accounts for small refinery exemptions in the final rule in order to ensure that the renewable volume obligations are achieved," said Kate Shenk, NBB director of regulatory affairs. "EPA could do so by taking further steps to limit the number of exemptions it grants in the future. Or, it could base its estimate for the number of small refinery exemptions in 2020 on the number of exemptions it has actually granted in recent years."

Kent Engelbrecht, chairman of the NBB and trade manager, biodiesel, at ADM, also stated, "Because this proposal provides no certainty that EPA will follow DOE's recommendations going forward, it leaves the industry skeptical that the rule will prevent the demand destruction that the industry has been experiencing since EPA increased the granting of SREs in 2016. If EPA proceeds with using an average of DOE's recommendations, rather than an average of actual waived gallons, the agency will continue to reduce the applicable volumes, creating an effective volume requirement well below what EPA is bound to ensure."

NBB also highlighted parts of the overall 2020 RFS annual rule that need to be improved.

"The supplemental notice does not propose to do anything about small refinery exemptions before 2020. Yet, over 4 billion gallons of demand for biofuels has been lost due to small refinery exemptions from 2016 through 2018," added David Cobb, NBB federal affairs director. "This impact has been particularly significant for biomass-based diesel producers because biomass-based diesel can be used to satisfy multiple categories of fuel under the RFS."

The IRFA said the EPA’s proposal fails to address the cancerous market uncertainty created by rampant abuse of SREs. “The market uncertainty generated by EPA’s SRE shenanigans is a cancer at the heart of the RFS,” said Monte Shaw, executive director of the IRFA. “The proposal before us today does not remove that cancer and its victims are the farmers who grow our crops and built our biofuels industry.”

At today’s hearing, Shaw challenged the lack of certainty EPA’s proposal creates, especially as it pertains to the granting of SREs for the 2019 compliance year, which is not addressed in this rule. Shaw said EPA’s proposal incents DOE to “aim low” and recommend a small number of SREs for 2019 and EPA to “shoot high” by granting a large number of SREs, ensuring a small number goes into the three-year rolling average for estimating future SREs while a huge number of RINs goes into the carryover RIN piggybank for refiners to use in the future in lieu of actual biofuel gallons.

“EPA is asking farmers to trust that they will follow DOE recommendations in 2020,” Shaw said. “But this proposal gives EPA the opportunity in 2019 to destroy additional demand and to dig an SRE hole so deep that 15 billion gallons will never be 15 billion gallons in the future. EPA should immediately declare their intended approach to 2019 SREs."

Shaw continued, “Furthermore, the SRE process remains locked in a black box as DOE recommendations are secret. Today I call on the EPA to add DOE recommendations to the SRE dashboard on the EPA website.”

 A public comment period on the supplemental notice of proposed rulemaking is open through Nov. 29. Comments can be filed online at www.Regulations.gov under Docket ID No. EPA-HQ-OAR-2019-0136.