EPA Targeting Dec. 20 Release of Final 2020 Renewable Fuel Volumes

December 3, 2019

DANA POINT, Calif. -- EPA is targeting a Dec. 20 release of its final 2020 Renewable Volume Obligation (RVO) rule, agency officials have told biofuel industry representatives.

The Dec. 20 target would land on the Friday before Christmas and come three weeks after the comment period closed on a supplemental rulemaking the agency released in mid-October. The agency is required under the Renewable Fuel Standard (RFS) statute to release annual renewable fuel blending targets by Nov. 30 of the previous year but has missed that deadline in the past.

"They know that they're already behind schedule so that's a date that they have circled," a biofuel industry source told OPIS at the RNG 2019 Conference here.

"They also know that they have a lot of work to turn around in a three-week period."

Word that EPA could release the number before Christmas comes a day after Frank Machiarrola, senior vice president of policy, economics and regulatory affairs with the American Petroleum Institute (API), offered a "ballpark estimate" that would have the agency issue a final RVO in late December or early January. EPA, he said, will clearly need additional time, but "we're in uncharted territory."

The agency in July proposed an RVO of 20.04 billion gal of renewable fuels to be blended next year, a 120-million-gal increase from this year's 19.92 billion gal. Within that total, EPA left unchanged the volume for conventional biofuel at 15 billion gal, the statutory level, and proposed to increase the advanced biofuel volume to 5.04 billion gal from 4.92 billion gal this year.

The 2020 total includes the already-finalized 2.42-billion-gal RVO for biomass-based diesel (BBD). EPA, which is required to set BBD volumes a year ahead of the others, has proposed to maintain that target for 2021. The cellulosic biofuel target was set at 540 million gal, up from the 2019 target of 420 million gal.

EPA in mid-October requested comment on a plan that would see it redistribute volumes of gasoline and diesel lost to RFS compliance through small-refinery exemptions (SREs) based on a three-year rolling average of relief recommended by the U.S. Department of Energy.

The proposal was widely criticized by the biofuels industry, which argued that it fell short of a commitment it believed it had received from the Trump administration that would prohibit EPA waiving more gallons than it would prospectively reallocate when developing annual RVOs.

--Jordan Godwin, jgodwin@opisnet.com

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Biofuels Proponents Urge EPA to Change Supplementary Proposal

October 30, 2019

YPSILANTI, MICH. -- Biofuels industry proponents on Wednesday urged the U.S. Environmental Protection Agency (EPA) to consider changing its proposed supplemental rulemaking for how it will factor in small-refinery exemptions (SREs) in setting annual Renewable Volume Obligations (RVOs) under the Renewable Fuel Standard (RFS).

About 60 biofuels advocates, mostly representing fuel and feedstock producers, testified before EPA here, saying the proposal would cause further harm to their industries.

In its supplemental rulemaking proposal released on Oct. 15, EPA said it would project the volume of gasoline and diesel that would be lost to RFS compliance through SREs based on a three-year rolling average of the relief recommended by the U.S. Department of Energy (DOE), including petitions where DOE had recommended the agency provide partial exemptions.

American Coalition for Ethanol (ACE) CEO Brian Jennings said the prospective calculation methodology "betrays" what was represented to the industry in negotiations with the Trump Administration, calling it a "classic bait-and-switch."

"Refiners should no longer be allowed to drive the RFS into the ditch," Jennings said. "It's time for EPA to finally take back the keys to the program."

Renewable Fuels Association (RFA) President and CEO Geoff Cooper cited a six-fold increase in the reduction of blending requirements in the three-year period from 2016 to 2018 when compared to the three-year period from 2013 to 2015. Cooper added that proving economic hardship under the SREs should be more difficult for small refiners considering the depression of Renewable Identification Number (RIN) credits values.

"Unfortunately, the proposed supplemental rule bases its estimates of gasoline and diesel that will be exempted in 2020 on the historical recommendations for exempted volumes it received from the Department of Energy rather than the actual exemptions it has granted," Cooper said. "The problem with this proposal is that EPA has typically ignored DOE recommendations in deciding SRE petitions."

Growth Energy CEO Emily Skor urged EPA to use the rolling average of actual exempted volumes from the three most recently completed compliance years in the final rule, as she said was promised by the administration.

"As drafted, EPA's plan fails to accurately account for lost gallons and betrays President Trump's promise to rural America," Skor said. "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."

National Biodiesel Board (NBB) Director of Regulatory Affairs Kate Shenk echoed Skor's calls to change the way it considers the exemptions in the final rule, adding that the agency should limit the number of SREs it issues.

National Corn Growers Association (NCGA) Ethanol Action Team member Brian Thalmann said Midwest farmers have been disproportionately harmed by EPA's recent actions around the RFS.

"We're in the thick of harvest and, quite frankly, I would rather be in the field. But the issue we're discussing today is too important to corn farmers like me not to be here," Thalmann said. "I have a simple message -- when it comes the Renewable Fuel Standard, we need EPA to follow the law. As farmers, we follow rules put in place by state and federal agencies, including the EPA. We are simply asking EPA to do the same for us."

Iowa Renewable Fuels Association (IRFA) Executive Director Monte Shaw emphasized what a tremendous loss the 2019 compliance year could be for the ethanol industry. Iowa Secretary of Agriculture Mike Naig also testified, painting a bleak picture of the economic harm done to farmers in his state.

"Ethanol plants have been shut down and hundreds of families have been impacted by those closures," Naig said. "They've been forced to make hard, life-changing decisions because of EPA's failure to uphold President Trump's promises."

About a dozen petroleum industry advocates also testified against the proposals on Wednesday morning.

"The misguided policy to exempt small refinery exemptions punishes the companies already complying with the standard," American Petroleum Institute (API) senior policy advisor Patrick Kelly said. "Reallocating these exemptions distorts the competitive marketplace."

Tim Hogan, Director of Motor Fuels for the American Fuel & Petrochemical Manufacturers (AFPM), said his group opposes reallocation of SRE volumes and said the SREs are a symptom of a larger problem that the RFS mandates are unrealistic.

"Biofuels groups have established a false narrative that biofuel volumes have been lost or unrealized -- this is verifiably false," Hogan said. "Government data shows year-over-year increases in ethanol blend rates."

Fueling American Jobs Coalition representative Alex Gazmararian said EPA's proposal of forecasting future SREs is "arbitrary and capricious," calling the proposal "unlawful."

"The supplemental proposal is deeply flawed because it's based on the false premise that SREs destroy ethanol demand," Gazmararian said. "Independent analysis and empirical data alike prove these exemptions have no impact on ethanol production, while keeping RFS compliance costs in check."

--Jordan Godwin, jgodwin@opisnet.com

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EPA Adm. Wheeler Says RFS Ethanol Volumes Will Net 15 Billion Gal

October 8, 2019

Future conventional ethanol volumes under the Renewable Fuel Standard (RFS) will "net out at" 15 billion gallons as EPA begins to prospectively account for small-refinery exemptions (SREs), agency Administrator Andrew Wheeler said on Tuesday.

Wheeler's comments, which came during an interview on WZFG radio in North Dakota, were made a day after President Donald Trump said conventional ethanol volumes next year will be "close to 16 billion" gallons.

Trump originally misspoke, saying the volumes will be close to 16 billion barrels, rather than gallons, but he was quickly corrected by Iowa Lt. Gov. Adam Gregg at a White House ceremony for the U.S.-Japan trade agreement.

"That's a lot of gallons," Trump said. "So I think they - so they should like me out in Iowa and all of the different places, huh?"

"Very appreciative of your actions, sir," Gregg said, to which Trump replied, "I think so."

Trump was touting his administration's compromise proposal, released Friday, on how EPA will handle RFS obligated volumes lost to SREs.

In an outline of the plan released Friday, EPA said it would release a supplementary proposal to begin accounting for SREs on a three-year rolling average. The plan was hailed by most biofuels advocates and industry groups as a win, but uncertainty around the specifics of the proposal remain.

Asked during the radio interview whether EPA sides with refiners over farmers on the RFS, Wheeler said the Obama administration's policy toward SREs was successfully challenged in court by small refiners. He added that under the Trump administration, the volumes waived by SRE dropped to 1.4 billion gal in 2018 from 1.7 billion gal in 2017.

"Going forward, we're going to estimate how many small-refinery exemptions we expect to grant next year and increase the number for 2020 by that amount," Wheeler said. "So, at the end of the day, we will net out at the 15 billion gallons that's in the Clean Air Act for the ethanol program."

In its Friday press release, the agency said, "EPA will seek comment on actions to ensure that more than 15 billion gallons of conventional ethanol be blended into the nation's fuel supply beginning in 2020."

Whether the total will be "net" 15 billion gallons as Wheeler said Tuesday, "more than 15 billion gallons" as EPA said Friday or "close to 16 billion galls" as Trump said Monday remains unclear.

The proposal has had a bearish reaction on ethanol-related D6 Renewable Identification Number (RIN) credit values, which have tumbled nearly 30% from Friday's peaks of 27cts/RIN to as low as 19.5cts/RIN on Monday.

"Going forward, it should not impact or hurt the corn farmers," Wheeler said.

"We'll still have some small-refinery exemptions, but it should not negatively impact the corn farmers or the ethanol industry, and we'll end up at the 15-billion-gallon level."

Wheeler also highlighted the warm reception the proposal received by most in the ethanol industry.

"I think people are very pleased with the compromise," Wheeler said. "The small refineries are pleased that they will still get that relief if they need it, and the ethanol industry across the board has been very pleased and has spoken in favor of it to make sure that we net out the 15 billion gallons."

--Jordan Godwin, jgodwin@opisnet.com

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As Ethanol Margins Return, So Could Production: Sources

October 1, 2019

With ethanol prices rallying for much of the last week, values touched levels not seen in more than two years, boosting margins to their highest levels in at least six months.

But the question many in the market are now asking is, "How long can the higher prices last?"

"We're about to find out in the next two weeks," one ethanol trader said. "We'll see how disciplined the industry can be."

The OPIS Chicago Argo ethanol assessment on Monday jumped to $1.64/gal, up nearly 25cts, or 18%, over the last week of September. The OPIS September average of $1.3909/gal was up from $1.3640/gal in August and $1.2778/gal in September 2018, closing out the third quarter at an average of $1.4162/gal, the highest since Q2 2018.

That boost sent margins at a representative Iowa dry-mill ethanol plant to 18.2cts/gal on Sept. 27, the highest level since late March, according to the most recent weekly data released by Iowa State University's Center for Agricultural and Rural Development (CARD). The margin, which frequently dipped into negative territory this summer, averaged just 3.9cts/gal in Q3, down from 4.2cts/gal in Q2 and 19.52cts/gal in Q3 2018.

The irony for many ethanol producers, however, is that margins have begun to rebound only after the industry finally began to make material production cuts.

Ethanol prices rallied in the back half of last week after the U.S. Energy Information Administration (EIA) on Wednesday released its weekly data that showed production had fallen to a three-year low in the week ended Sept. 20.

EIA estimated production that week at just 943,000 b/d, down 60,000 b/d from the previous week to the lowest level since the week that ended April 29, 2016, when output was 923,000 b/d.

The Q3 average production rate (with one reporting week remaining) was at 1.026 million b/d, down 2.5% from the Q2 average of 1.052 million b/d and nearly 3% from 1.058 million b/d in Q3 2018.

Roughly a dozen ethanol plants with annual production capacity approaching 800 million gal/yr, or more than 52,000 b/d, have been shut. Many in the industry have blamed the closures on the poor margin environment and the wave of small-refinery exemptions (SREs) granted by the Trump administration.

One of the most recent plants to go offline, Siouxland Energy Cooperative, two weeks ago said it was idling production at its 70-million-gal/yr plant in Sioux Center, Iowa, and blamed the SREs for undermining the Renewable Fuel Standard and reducing ethanol demand by "4 billion gallons."

Further, an unknown number of plants are producing well below nameplate capacity, with many producing at minimum levels to meet their contracted volumes, sources said.

"A lot of people had to make a lot of tough decisions over the past few months," one producer source said. "But once margins are back, a lot of that production will come right back with it."

Several sources estimated Tuesday that plants in "warm shutdown mode," rather than a full-blown idle, could likely come back online in less than two weeks.

Those units that have fully shut, however, would likely need at least a month to come back online, and those owners of those plants would likely want to see more proof that the higher margins will be sustained for a longer period before they decide to resume production, the producer source said.

"If this rally is for real and prices are really back, you'll see plants ramp up again, maybe even as soon as by the end of the month," the source said.

"Won't take long."

--Jordan Godwin, jgodwin@opisnet.com

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EPA Official Says Agency 'Anticipates' Releasing 2020 RVO by Nov. 30

September 24, 2019

CHICAGO -- EPA "anticipates" that it will release its final 2020 Renewable Volume Obligation (RVO) by the statutory Nov. 30 deadline, Dallas Burkholder with the agency's Office of Transportation and Air Quality said Tuesday at the OPIS 11th annual RFS2, RINs and Biodiesel forum here.

Burkholder's comment comes as the White House continues to work toward completing package of proposals designed to placate a biofuels industry angry over EPA's increased approval of small refinery exemptions (SREs) under the Renewable Fuel Standard (RFS).

Sources familiar with the White House talks believe the administration will look to significantly boost next year's renewable fuel blending targets and could seek to add still more volume by restoring some of the gallons waived through prior-year SREs.

Burkholder said that while EPA is still awaiting word from the administration, it does not have a set, "go, no-go" date by which it must receive a proposal in time to incorporate it into a final RVO.

The agency, he said, has a range of "flexibilities" that would allow it to incorporate the proposal and still meet the Nov. 30 deadline, he said.

--Jeff Barber, jbarber@opisnet.com

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