US EPA will account for projected SREs in future RFS program

By Ron Kotrba | October 04, 2019

The U.S. EPA held a press briefing Oct. 4 to reveal the newly negotiated Trump biofuels deal to assuage the renewable fuels industries after the agency in August granted dozens of new small refinery exemptions under the Renewable Fuel Standard, leading to significant biofuel demand destruction, renewable fuel plant closings, and significant backlash from biofuel and farm groups.

EPA plans to use a rolling three-year average of SREs in future implementation of the RFS program to account for projected waived gallons, a move the biofuel industries say is long past due to account for lost demand from the waivers. While the deal will help reduce demand destruction from future waivers, it does little to restore lost demand from the previous exemptions.

How the agency has administered the RFS since the Trump administration took over has been to finalize its RFS rule and then, after the fact, hand out copious amounts of SREs to oil refiners that are obligated under law to blend certain volumes of renewable fuels. Under former President Obama’s administration, the EPA approved 23 SREs for compliance years 2013-’15, accounting for a combined 690 million renewable identification number (RIN) credits. The Trump EPA has approved 85 SREs, equaling more than 4 billion RINs, with more SREs granted on Aug. 9—31 of them—than all of those granted by the agency under Obama. Biofuel industry advocates say this activity has been a way to subvert the RFS in the interest of Big Oil, but farmers, key farm-state legislators and biofuel stakeholders insisted President Trump and his administration follow the law and close the loophole on this backhanded sidestep of the RFS.

During the press call, an EPA official said the agency will soon issue a supplementary proposal to solicit comments on how and what levels to project for small refinery relief in the 2020 compliance year. The agency said it will ensure “that the volume obligation for biomass-based diesel is met.”

In EPA’s previous proposal for 2020 RFS volumes and 2021 biomass-based diesel, the agency sought comment on a 2020 advanced biofuel obligation of 5.04 billion ethanol-equivalent gallons and keeping the 2021 biomass-based diesel volume at 2.43 billion gallons, the same as the 2020 final volume issued in 2018. The National Biodiesel Board has pushed for 5.54 billion gallons for the 2020 advanced volume and 2.76 billion gallons for the 2021 biomass-based diesel volume requirement. Those numbers are purely to provide growth, however, and are not meant to account for projected future SREs, according to Paul Winters, NBB’s director of federal communications.

Winters told Biodiesel Magazine that the supplemental proposal EPA is expected to issue soon will solicit comment on how EPA will project future SRE volumes beginning in compliance year 2020, and it will not include new volume proposals to supersede the previously issued proposal released in July. Winters further said what he does expect, however, is for the final rule coming out later this year to include modifications to the renewable volume obligation (RVO) formula employed to calculate how much biofuel is used in the upcoming compliance years. Moving forward, Winters said, no longer will only the numerator in the RVO formula—the biofuel volumes—be reduced as a result of SREs, but so will the denominator, or the projected volume of gas and diesel to be used in a given compliance year. This, he said, will make the RVOs issued “more trustworthy.” He said NBB wanted higher volumes to be guaranteed, but this is not how the organization is interpreting the announcement. Winters does consider this to be a win, however, since it is not yet another concession to Big Oil.

Larry Schafer, co-founder and principal at Playmaker Strategies, said there is really no clarity on exactly what EPA is proposing at this point. “I wished they would have waited to announce this until the supplementary proposal was released,” he told Biodiesel Magazine. He added that since Sens. Grassley and Ernst and the biofuels industries are on board with the negotiated deal, then whatever the final proposal looks like must be considered a win.

“We look forward to working with this administration, senators and members of Congress in getting this right,” Schafer said. “And it’s imperative that we see increased biofuel volumes for 2020 and 2021.”

EPA also announced it would continue to evaluate options for RIN market transparency and reform and address ethanol and biodiesel trade issues. The biggest trade issue facing the U.S. biodiesel industry today is the Trump administration’s preliminary decision by the commerce department to significantly reduce countervailing duties on Argentine biodiesel imports announced in early July. The final determination on this reevaluation of CVDs, which was initiated by request from Argentina’s government, is expected soon.

“We are grateful that President Trump is taking a huge step to restore integrity to the Renewable Fuel Standard,” said Donnell Rehagen, CEO of the National Biodiesel Board. “Today’s announcement is a first step in reversing the loss of production and restoring [lost] jobs. The biodiesel industry deeply appreciates the consistently strong advocacy of Agriculture Secretary Sonny Perdue and Iowa’s political leaders.”

Grant Kimberley, the executive director of the Iowa Biodiesel Board, said, “As we face continued tax policy uncertainty and ongoing trade disputes, the biodiesel industry depends upon the RFS program in planning for market access and growth more than ever. Addressing the fast leak of lost gallons from future exemptions is very helpful, but we still look forward to working with the administration on additional growth in gallons of biomass-based diesel in 2021.”

Kurt Kovarik, NBB vice president of federal affairs, said, “Proper accounting of the exemptions is vital to ensure that the annual RFS volumes send a reliable signal to biodiesel producers, who are making investments and plans for the future. The biodiesel industry relies on the RFS program to support continued growth and market development. While today’s proposal addresses the lost gallons from future exemptions, it does not provide for additional volumes of biomass-based diesel in 2021. We will continue to press EPA to send signals for future growth for biodiesel producers and soybean farmers. We appreciate President Trump’s commitment to make biofuels producers and soybean farmers whole by accounting for waived biofuel gallons using a three-year average of exempted gallons as an estimate. We look forward to working with EPA to ensure that the president's commitment is fully and faithfully implemented and the RFS program is made whole from the prior damage.”

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