The comment period closed on Nov. 29 for the Environmental Protection Agency's proposed rule on the 2020 Renewable Volume Obligations for biofuels under the Renewable Fuels Standard. Lawmakers and the biofuels industry asked EPA to uphold the RFS and the deal they cut with the president in September.
As part of President Donald Trump's Sept. 12 deal, EPA was to reallocate biofuels volumes from the 85 Small Refinery Exemptions granted in the past three years that have cost the industry 1 billion bushels plus of lost corn demand. However, the agency's 2020 RFS proposal fell well short of that agreement.
Geoff Cooper, Renewable Fuels Association CEO says there is a real disconnect between the Oval Office and the EPA. "This is not the first time that we've heard one thing from the President and seen something completely different from EPA. We had some kind of touch and go moments on the E15 rulemaking," Cooper says.
In the deal, EPA was also charged to use a three-year rolling average of lost biofuels volumes. "That total volume was 4 billion gallons," Brian Jennings, American Coalition for Ethanol CEO says. "The average of that over the three years is 1.35 billion gallons. The deal we thought we had was that 1.35 billion gallons, the average of actual volume exempted those years, would be added on to the 2020 RVO (Renewable Volume Obligations)." However, that was not reflected in the initial RFS proposal from the EPA.
Farm state senators, including South Dakota's Mike Rounds, helped negotiate the biofuels deal and have been pushing the president. Rounds says several Senators were recently at the Oval Office when Trump called EPA Administrator Andrew Wheeler and told him to uphold the deal he made. "And the president has made very clear his expectation of the Environmental Protection Agency and that their rules should reflect a plan in place that will end up with a net of 15 billion gallons being blended in 2020," he says.
Biofuels supporters also provided thousands of comments on the proposed rule to EPA during the recent comment period.
"They've got the chance to fix it," Kevin Ross, National Corn Growers Association vice president says. "The fact is we can do better moving forward and I think they know that, but they need to listen to what was said and agree and go back and fulfill the promises that were made."
Cooper said he is hopeful the final rule, now expected in January, will clean up the mess and reflect the deal that was agreed to. Without a fix, it could hurt the president next November in farm country. "The president understands how critically important rural America is going to be electorally for him in 2020," Jennings says.
But even if EPA follows the deal, the ethanol industry will lose 2.7 billion gallons of mandated ethanol from the waivers that will never be reallocated.
"We've lost 4 billion gallons of RFS requirements over the last three years," Cooper says. "This deal would not address that lost volume. It would simply, you know, look forward and hopefully stop the bleeding."
Unfortunately, the collateral damage already has been done to the industry. Cooper says six or seven biodiesel facilities have been idled and the casualties are even higher in the ethanol industry.
"So we're looking at just south of 20 ethanol plants are either shut down entirely or running far below capacity," Jennings says.
That trickles down to hurt corn and soybean farmers. Iowa corn farmer Kevin Ross says it goes right to his bottom line. "Every ethanol plant that shuts down or slows or shutters, any time that happens, you know, basis changes directly impacting the market for my corn," Ross says.
In the meantime, the industry is looking at exports to make up for the lost demand, with Mexico the brightest spot, Craig Willis, Growth Energy senior vice president of Global Markets says. "Mexico back in 2017 allowed E10 for most of the country," Willis says. "So two-thirds of the country right now can use E10 and that's about 800 million gallons a year of new demand."
He says many retailers are using ethanol because it replaces MTBE and it allows them to offer a lower priced product. Ethanol is a quick fix to gas prices near $4 a gallon in Mexico but is a longer-term solution overall.
"Total country uses about 12-billion gallons of gasoline," Willis says. "If we had E10 allowed country wide it would be 1.2 billion gallons of demand."
India also holds great potential for ethanol exports and China was a big customer before the trade war, according to Willis. He says China is essentially out of the market since they imposed the 70% tariff on U.S. ethanol imports, so the hope is for a trade deal to reopen that market.