US Midwest, farm belt in crisis as US-China trade war, Corn-Oilco RFS war escalate

In Washington, China has proposed a 25 percent tariff on US soybeans in response to a list of 1300 Chinese products that may be subject to a 25 percent tariff. China purchases 61 percent of total U.S. soybean exports, and more than 30 percent of overall U.S. soybean production.

In other news, the US Environmental Protection Agency granted a “small refiner” waiver from compliance with the US Renewable Fuel Standard to refineries operated by one of the nation’s largest refining companies, Andeavor.

Action on Soybeans

The background: The U.S. Trade Representative here determined that the acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation covered in the investigation are unreasonable or discriminatory and burden or restrict U.S. commerce. USTR now is seeking public comment and will hold a public hearing regarding a proposed determination on appropriate action in response to these acts, policies, and practices.

US Soybean association response: “It should surprise no one that China immediately retaliated against our most important exports, including soybeans.”, said ASA President and Iowa farmer John Heisdorffer. “We have been warning the administration and members of Congress that this would happen since the prospect for tariffs was raised. That unfortunately doesn’t lend any comfort to the hundreds of thousands of soybean farmers who will be affected by these tariffs. A 25 percent tariff on U.S. soybeans into China will have a devastating effect on every soybean farmer in America. Soybean futures are already down nearly 40 cents a bushel as of this morning. At a projected 2018 crop of 4.3 billion bushels, soybean farmers lost $1.72 billion in value for our crop this morning alone. That’s real money lost for farmers, and it is entirely preventable.”

Action on the RFS

Yesterday, we reported that the Environmental Protection Agency has “so far” granted hardship waivers for 25 smaller refiners, letting them out of the requirement to blend biofuels or purchase sufficient RINs to make up the difference. Applications continue to be received by the agency who says the conditions for receiving the waiver have not changed with the new administration despite 12 to 15 application being the norm for an average year when only half would be granted.

Response from Sen. Chuck Grassley:  “If the reporting is accurate, it appears EPA granted a secret waiver that is legally reserved for small refiners to one of the largest oil refining companies in the country. If refineries are being allowed to retroactively get out of the renewable volume obligations the EPA assigned them in November, that fundamentally undermines the Renewable Fuel Standard. It would also amount to a massive government handout to a big corporation that made billions in profits just last year. Giving big corporations like Andeavor a free pass when other companies are required to follow the law of the land isn’t just unfair, it may be illegal.”

Growth Energy: Growth Energy sent a letter to Environmental Protection Agency (EPA) Administrator Scott Pruitt condemning the waiver decision and demanding a moratorium on waivers being issued by EPA. “We ask that EPA immediately cease issuing waivers,” said Growth Energy CEO Emily Skor, “and pause any waiver applications being considered until the agency conducts a full, transparent public comment process to help assure all stakeholders that the new expansion of small refinery waivers are consistent with the goals of the RFS. EPA appears to be operating under the cover of night in a secretive process where the agency acts as judge, jury, and executioner to effectively reduce the overall demand for biofuels in this country absent any public discourse.”

Renewable Fuels Association: RFA CEO Bob Dinneen termed the move “an outrageous abuse of the statute.”

The American Coalition for Ethanol: ACE CEO Brian Jennings added, “The law allows a small refiner (producing less than 75,000 barrels per day) to seek an exemption from the annual blending obligation if it can prove the RFS is causing ‘disproportionate economic hardship’ on its operations. On what planet does Andeavor’s 2017 net profit of $1.5 billion constitute ‘disproportionate economic hardship’ for a “small refiner”? Refiners are reporting billion-dollar profits today while farmers are facing their fifth year of prices at or below the cost of production.”

EPA backs off on higher efficiency for light-duty vehicles

In Washington, EPA Administrator Scott Pruitt determined that the current standards (the Final Determination of the Mid-term Evaluation of greenhouse gas emission standards for model year 2022-2025 light-duty vehicles) “are based on outdated information, and that more recent information suggests that the current standards may be too stringent.” The Administrator is withdrawing the previous Final Determination issued by the agency on January 12, 2017.

EPA originally released the Phase 2 (12017-2025) standards in 2012, calling for average industry fleetwide level of 163 grams/mile of carbon dioxide (CO2) in model year 2025, which is equivalent to 54.5 miles per gallon.

Bad news? Maybe not, says Clean Fuels Development Coalition CEO Doug Durante.

Writing in the Digest, Durante said, “The recent announcement that the Trump Administration was taking another look at Corporate Average Fuel Economy (CAFE) standards was a welcome reality check for what is a complex and multi-layered issue. There was an immediate knee jerk reaction that this will send us back to the days of muscle cars and wanton pollution when in truth it may be one of the most positive environmental actions anyone in the ethanol space could have hoped for.

“We have argued to anyone who would listen that vehicles and fuels must be looked at as an integrated system and questioned why EPA would not use all the tools at their disposal, including fuels, and more to the point, high octane fuels. The auto industry, the Department of Energy, and countless others have made it abundantly clear that significant gains in efficiency are there to be had with higher octane fuels in conventional engines.”

Growth Energy CEO Emily Skor added, “For several years, Growth Energy has strongly emphasized the fact that fuels and engines are a system and that high-octane fuels – such as ethanol blends like E25-E30 – should be part of this discussion,”

“We have provided a wealth of data to show that midlevel ethanol blends can be used by automakers to produce smaller, more efficient engines that will help meet future vehicle standards. We will continue to remain engaged with automakers and government stakeholders to ensure that biofuels are part of any long-term plan for engine efficiency and greenhouse gas reduction.”

The Bottom Line

Strange days in Washington. Lots of talk about RFS support at the top, but actions at the agency and department level are generally anti-RFS. The emissions order is promising for E30 ethanol, but it remains to be seen if this is an opportunity to consider better paths to high efficiency vehicles, or whether this is more of, as Doug Durante suggest it is not, a return to “days of muscle cars and wanton pollution”. Stay tuned. One thing we can all agree upon is that the Trump Administration is never boring.