Biodiesel advocates say RFS growth is futile if waivers continue

By Ron Kotrba | July 18, 2018

Renewable Fuel Standard proponents and detractors alike gathered in Ypsilanti, Michigan, July 18 to testify before the U.S. EPA during a public hearing on the agency’s proposed 2019 renewable volume obligations (RVOs) for conventional, cellulosic and overall advanced biofuels, as well as the 2020 volume proposal for biomass-based diesel.

EPA released its volume proposals June 26 totaling 19.88 billion gallons of biofuels to be blended into the U.S. fuel supply next year, up from 19.29 billion gallons this year, including up to 15 billion gallons of corn ethanol and 4.88 billion ethanol-equivalent gallons of advanced biofuels. Nested in the advanced bucket, EPA proposed setting the cellulosic biofuel requirement at 381 million gallons. The 2019 biomass-based diesel standard was previously set late last year at 2.1 billion gallons (more than 3 billion ethanol-equivalent gallons). The 2020 biomass-based diesel proposal released last month seeks to grow the category by 330 million gallons over next year’s volume requirement, moving from 2.1 billion to 2.43 billion gallons.

While the proposed growth of the biomass-based diesel standard is welcomed for 2020 after two flat-lined years, biodiesel industry stakeholders are advocating two major agenda items: further growing the 2020 volumes to 2.8 billion gallons and stopping EPA from granting illegitimate refinery exemptions to the RFS, a growing problem that has come to light in recent months.  

EPA estimates the small refinery hardship exemptions it retroactively granted to refiners reduced the 2016 and 2017 RVOs by a combined 2.25 billion renewable identification number (RIN) credits. The National Biodiesel Board estimates the 2016 and 2017 exemptions reduced demand for biodiesel by more than 300 million gallons and jeopardized 9,600 jobs.

“To provide the certainty that the biodiesel industry needs, EPA should raise the 2020 volume for biomass-based diesel to at least 2.8 billion gallons,” testified Donnell Rehagen, CEO of the NBB. “That number better aligns with the goals Congress set for the RFS program. And it will better fulfill the promise of the RFS program.”

Kurt Kovarik, NBB’s vice president of federal affairs, added, “I appreciate the agency’s recognition that the biodiesel industry has proven year after year that it can deliver increasing volumes. At the same time, I would like to emphasize that the volumes EPA finalizes will be meaningless if the agency continues to retroactively reduce them through refinery exemptions.” Kent Engelbrecht, biodiesel trade manager at Archer Daniels Midland and NBB chairman said while there are many positive elements in the agency’s proposal, they are “rendered meaningless unless EPA accounts for waived gallons to make sure the RVOs are real numbers.”

Tom Brooks, general manager of Western Dubuque Biodiesel and chair of the Iowa Biodiesel Board, said the 300-million-gallon loss of biodiesel demand resulting from the refinery waivers is equivalent to Iowa’s total production in 2017. “The impact of these exemptions is like wiping out a year’s worth of production in the nation’s top biodiesel-producing state,” Brooks testified. “EPA itself acknowledges that the small refiner exemptions have created carryover RINs that will flow into 2019, reducing the demand for biofuels below the volumes it has proposed. You have the opportunity to repair this fault by further expanding biodiesel volumes.” Brooks noted that many biodiesel expansion projects are on hold, including at Western Dubuque Biodiesel, until the industry sees the federal government is committed to year-over-year growth of the RFS.

Iowa Renewable Fuels Association Managing Director Lucy Norton urged that the final RFS rule for 2019 must reflect the law and President Trump’s commitment to the RFS. She said the exemptions are a cancer that not only eat away at the RFS categories, but also at EPA’s credibility.

Founder and CEO of World Energy, Gene Gebolys, who also serves as chairman of NBB’s RVO Working Group, said, “The proposed RVOs on which the EPA seeks comment today are absolutely meaningless, unless the agency also addresses its own abuse of its waiver authority and addresses the inconsistency with which it has administered the statute.” Gebolys added that he intends to make crystal clear that whatever the EPA projects for waivers in 2019 is what the agency must hold itself to over time. “The gig is up,” he said. “If the agency projects zero waivers as it has done in this proposal, then it must explicitly bind itself to issuing zero waivers going forward. If the agency chooses to reserve the option to issue billions of gallons worth of exemptions per year as it has been doing recently under previous management, then it must project those exemptions forward in the final rule and thus shift the obligation from small refineries to large ones.”

Gebolys went on to rebuke the agency’s leadership under former administrator Scott Pruitt. “The secret cronyism that has governed the EPA’s RFS decisions in the past can longer continue to happen in the shadows in the future,” he said. “New EPA leadership must come out into the light and address this matter with clarity, simplicity and openness or double down on previous mistakes and prepare to be held to account for doing so by the no-longer-oblivious public.”

Opponents of the RFS also showed up to EPA’s hearing to testify in full force. “The primary RFS concern is the ethanol blend-wall,” said Patrick Kelly, senior fuels policy advisor for the American Petroleum Institute. “Congress provided the waiver authority that EPA should use to further reduce the 2019 volumes to avoid negative impacts on America’s fuel supply and prevent harm to consumers.” 

Kelly said API continues to believe the best solution to fix the RFS is comprehensive legislation that includes a sunset of the program in 2022. 

“The Philadelphia Energy Solutions bankruptcy was the result off sky-high RIN costs leading to hundreds of lost jobs, with thousands more at risk,” testified Scott Hayes, the health, safety and environment department manager for the Toledo Refining Co. “EPA recognized this reality in approving the PES bankruptcy plan earlier this year. An RVO that risks RIN prices spiking could once again threaten thousands of jobs in Philadelphia and in merchant refiners across the country.” Hayes said he encourages EPA to reduce the proposed RVO increase for advanced biofuels. “Biodiesel is essentially the only fuel available to meet the advanced mandate,” he said. “EPA RIN data indicates domestic biodiesel production will fall short of this year’s requirement. This situation results in a de facto foreign biodiesel mandate, which is costly and runs counter to the energy security goals of the RFS.”

As chairman of the Iowa Biodiesel Board, Brooks said he knows firsthand the biodiesel industry stands ready to meet growing volumes. “In fact, on the promise of a brighter future, the Iowa biodiesel industry has increased its capacity by more than 20 percent in the last few years,” he said. “But we’re operating at 25 percent under capacity. We can meet production demand, and we have substantial room for growth.”

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