EPA lifts renewable fuels in 2018-2020 proposal: industry welcomes volumes, warns on refinery waiver impact

In Washington, EPA issued proposed volume requirements under the Renewable Fuel Standard program for cellulosic biofuel, advanced biofuel, and total renewable fuel for calendar year 2019. EPA also proposed biomass-based diesel volume standards for calendar year 2020.

Here are the proposed volumes:

The EPA proposed the Renewable Volume Obligations (RVO) for the biomass-based diesel category would increase from 2.1 billion gallons in 2019 to 2.43 billion gallons in 2020. The advanced biofuel category, for which biodiesel also qualifies, would also increase slightly from 4.29 billion gallons in 2018 to 4.88 billion gallons in 2019, under the EPA’s proposal.

While many biofuels observers on the diesel and advanced side were cautiously optimistic, ethanol-focused commentaors were generally aghast as evidence of demand destruction mounted.

“On the surface, today’s EPA proposal ostensibly raises the total 2019 renewable volume obligation by 3 percent over the 2018 requirement,” argued the Renewable Fuels Association, “and maintains a 15-billion-gallon requirement for conventional biofuels like corn ethanol. However, due to EPA’s failure to stem the tide of small refinery waivers, its refusal to reallocate lost blending volumes, and its brazen repudiation of binding court decisions.” RFA called the proposal “superficial and toothless” and said ity undermines President Trump’s commitment on the RFS.

New Energy America was founded in 2017 to highlight the role of the clean energy industry in creating economic opportunity throughout the United States, and to support policies that create clean energy jobs. “Pruitt’s action will hurt real workers, and real communities in rural America,” Carr added. “These Americans deserve better.”

The complete EPA proposal can be downloaded here.

Key excerpts from the proposed rule

Cellulosic Biofuel 

EPA must annually determine the projected volume of cellulosic biofuel production for the following year. If the projected volume of cellulosic biofuel production is less than the applicable volume specified in section 211(o)(2)(B)(i)(III) of the statute, EPA must lower the applicable volume used to set the annual cellulosic biofuel percentage standard to the projected production volume. In this rule we are proposing a cellulosic biofuel volume requirement of 381 million ethanol-equivalent gallons for 2019 based on our production projection. Our projection reflects consideration of RIN generation data for past years and 2018 to date that is available to EPA through EMTS; the information we have received regarding individual facilities’ capacities, production start dates, and biofuel production plans; a review of cellulosic biofuel production relative to EPA’s projections in previous annual rules; and EPA’s own engineering judgment. To project cellulosic biofuel production for 2019 we used the same basic methodology described in the 2018 final rule. However, we have used updated data to derive percentile values used in our production projection for liquid cellulosic biofuels and to derive the year-over-year change in the rate of production of CNG/LNG derived from biogas that is used in the projection for CNG/LNG. EPA anticipates that our final projection of cellulosic biofuel will be based on additional data we will obtain prior to issuing the final rule, including an estimate of cellulosic biofuel production for 2019 to be provided by the Energy Information Administration (EIA). 

Advanced Biofuel 

If we reduce the applicable volume of cellulosic biofuel below the volume specified in CAA section 211(o)(2)(B)(i)(III), we also have the authority to reduce the applicable volumes of advanced biofuel and total renewable fuel by the same or a lesser amount. We refer to this as the “cellulosic waiver authority.” The conditions that caused us to reduce the 2018 volume requirement for advanced biofuel below the statutory target remain relevant in 2019. As for 2018, we investigated the projected availability of non-cellulosic advanced biofuels in 2019. We took into account the various constraints on the ability of the market to make advanced biofuels available, the ability of the standards we set to bring about market changes in the time available, the potential impacts associated with diverting biofuels and/or biofuel feedstocks from current uses to the production of advanced biofuel used in the U.S., the fact that the biodiesel tax credit is currently not available for 2019, the tariffs on imports of biodiesel from Argentina and Indonesia, as well as the cost of advanced biofuels. Based on these considerations we are proposing to reduce the statutory volume target for advanced biofuel by the same amount as we are reducing the statutory volume target for cellulosic biofuel. This would result in an advanced biofuel volume for 2019 of 4.88 billion gallons, which would be 590 million gallons higher than the advanced biofuel volume for 2018. 

As for advanced biofuel, we are proposing the maximum reduction permissible under the cellulosic waiver authority. We are proposing that the reduction in total renewable fuel would be the same as the reduction in advanced biofuel, such that the resulting implied volume requirement for conventional renewable fuel would be 15 billion gallons. 

2020 Biomass-Based Diesel 

In EISA, Congress specified increasing applicable volumes of BBD through 2012. Beyond 2012 Congress stipulated that EPA, in coordination with DOE and USDA, was to establish the BBD volume taking into consideration implementation of the program to date and various specified factors, provided that the required volume for BBD could not be less than 1.0 billion gallons. For 2013, EPA established an applicable volume of 1.28 billion gallons. For 2014 and 2015 we established the BBD volume requirement to reflect the actual volume for each of these years of 1.63 and 1.73 billion gallons. For 2016 and 2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons respectively. Finally, for 2018 and 2019 the BBD volume requirement was set a 2.1 billion gallons. We are proposing to increase the BBD volume for 2020 to 2.43 billion gallons. 

Given current and recent market conditions, the advanced biofuel volume requirement is driving the production and use of biodiesel and renewable diesel volumes over and above volumes required through the separate BBD standard, and we expect this to continue. While EPA continues to believe it is appropriate to maintain the opportunity for other advanced biofuels to compete for market share, the vast majority of the advanced biofuel obligations in recent years have been satisfied with BBD. Thus, after a review of the implementation of the program to date and considering the statutory factors, and in light of the 500 million gallon increase we are proposing for non-cellulosic advanced biofuels, we are proposing, in coordination with USDA and DOE, an applicable volume of BBD for 2020 of 2.43 billion gallons.

Reaction from the stakeholders

Advanced Biofuels Association

“ABFA is pleased to see that EPA has continued to increase the overall RVO mandates for the RFS program and particularly for the advanced biofuel pool,” said Michael McAdams, president of ABFA. “ABFA is proud to represent several members commercializing new technologies to produce increasing volumes of cellulosic fuels,” McAdams furthered. “Additional cellulosic facilities are scheduled to come on line in the near future, and we are pleased to see an RVO that will ensure a market for these new gallons.”

“We are also pleased with the continued success of the biodiesel and renewable diesel sectors, as these fuels cumulatively provide the greatest greenhouse gas (GHG) emissions reductions under the RFS program at this time,” said McAdams. “Three of our members are currently building new plants in the United States to produce the drop-in diesel fuels of the future.”

“Despite these increases, we continue to be concerned by the rate at which EPA is granting small refiner exemptions under the RFS program,” commented McAdams. “These exemptions have a net effect of reducing the volume of renewable fuels blended in the United States. ABFA will continue to fight this effort to undermine the RVO. We look forward to submitting comments in support of increased advanced, biodiesel, and renewable diesel mandates to EPA as these RVOs are finalized.”

Growth Energy

“The EPA proposed 15 billion gallons for conventional biofuels,” said Growth Energy CEO Emily Skor, “but that still isn’t a real number we can count on. This plan fails to ensure those gallons will, in fact, be blended. By neglecting to reallocate gallons lost to waivers, the EPA is doubling down on another year of an estimated 1.5 billion gallons in demand destruction. 

“The same holds true for advanced and cellulosic biofuels, which are rapidly delivering new economic opportunities for rural communities and driving America’s leadership in clean energy. The targets proposed today promise growth, but those investments can’t move ahead unless the EPA makes it clear that goals set by Congress will be enforced.

“The proposed RVOs also fail to restore the volumes lost to waivers for 2016, despite a court ruling last July that requires EPA to restore 500 million gallons of biofuel demand. The EPA cannot continue to enrich the largest oil companies and refiners at the expense of struggling U.S. farmers. 

“Keeping the RFS on track is the right thing to do – not only for America’s farmers but for the future of clean energy. Americans are breathing cleaner air every day, thanks to the RFS. As a nation, we must not lose sight of what the RFS was designed to do, and we urge the EPA to follow through on the president’s pledge for year-round sales of E15 and to restore the gallons that have been lost due to refinery exemptions.”

National Biodiesel Board

“We welcome the Administration’s proposal to grow the biodiesel volumes, following two flatlined years. This is a positive signal for our industry and we’re pleased the EPA has acknowledged our ability to produce higher volumes. We’ve consistently demonstrated that we can do much more,” said Kurt Kovarik, vice president of federal affairs at NBB. “The fact remains, though, instability in the RFS program caused by the EPA has done significant damage that can only be rectified for biodiesel through consistent and predictable growth in volumes.”

Kovarik pointed to decisions by the EPA Administrator to provide numerous waivers to petroleum refiners that release them from their obligations under the RFS, effectively reducing the overall volumes under the program in 2016 and 2017. Those exemptions have effectively reduced current obligations for biodiesel by 100 million gallons in 2016 and 275 million gallons in 2017.

“As a candidate on the campaign trail, Donald Trump pledged he would support biofuels and protect the RFS,” Kovarik said. “While this is just a proposal, we hope the Administration is serious about growing biodiesel volumes and will fulfill the president’s promise to support and grow the RFS.”

American Coalition for Ethanol

“While EPA says it is proposing to maintain the 15-billion-gallon conventional blending target for 2019, in reality Administrator Pruitt’s ongoing actions will reduce ethanol blending far below 15 billion gallons,” said American Coalition for Ethanol CEO Brian Jennings. This is a missed opportunity to reallocate the 1.5 billion gallons Administrator Pruitt has waived through Small Refinery Exemptions and to restore the 500 million gallon shortfall the D.C. Circuit Court ordered EPA to deal with following the Americans for Clean Energy et al v. EPA lawsuit. 

“Administrator Pruitt continues to disregard President Trump’s campaign promise that ‘the EPA should ensure that biofuel blend levels match the statutory level set by Congress under the RFS.’ The 2019 proposed RVOs reinforce our decision to challenge certain Small Refinery Exemptions in Court and to petition EPA to account for lost volumes of renewable fuel resulting from the unprecedented number of retroactive Small Refinery Exemptions granted by the agency. 

“The proposal to modestly increase cellulosic and advanced RVOs for 2019 is welcome but EPA’s waivers and exemptions have collapsed RIN prices across-the-board discouraging investment in the production and use of cellulosic and advanced biofuels.

“A strong rural economy depends upon growing the use of renewable fuels. The President needs to direct Administrator Pruitt to discard EPA’s refiner win-at-all-costs mentality and carry out another of his promises to allow E15 and higher blends market access year-round.

“Finally, we will carefully consider EPA’s proposals regarding the transparency of the RIN market. The Commodity Futures Trading Commission (CFTC) has authority to investigate claims of RIN price manipulation. In March of 2016, EPA signed a Memorandum of Understanding with CFTC to investigate and identify any market abuse by RIN traders.  It might make sense to disclose more information about the RIN market but we would oppose prohibiting blenders and wholesalers from handling RINs because those parties have used RIN proceeds to reduce pump prices and pay for higher blend infrastructure.”

Renewable Fuel Association

“It would seem a hollow and cynical exercise to praise or thank EPA Administrator Pruitt for appearing to follow the statute with this proposed RVO,” said RFA President and CEO Bob Dinneen. “While we acknowledge that the implied 15-billion-gallon requirement for conventional biofuels like corn ethanol should, in theory, send a positive signal to the market, it comes with the backdrop of 1.6 billion gallons of demand destructed by illegal waivers to small refineries and no commitment that EPA is changing its approach to granting these exemptions. Thus, the proposal means nothing until EPA reallocates those lost gallons and sets forth a more transparent and rational process that assures small refinery waivers are not abused or granted unnecessarily. Unfortunately, over the past few days, Administrator Pruitt buckled yet again to pressure from the oil industry and removed language from this proposal that would have indicated the Agency’s interest in addressing what has clearly become an abused process. That’s not just wrong, it flies in the face of the President’s commitment to farmers and consumers across the country who support the increased use of renewable fuels,” according to Dinneen.

“This RVO proposal is a paean to missed opportunities for the sole purpose of benefiting the oil industry that continues to thwart the development of biofuels at every turn,” Dinneen continued. “The Agency missed the opportunity to address the flawed and opaque small refinery waiver process. It failed to address the court-ordered remand of 500 million gallons in forfeited demand from the 2016 RVO. And it once again missed an opportunity to address the disparate treatment of E10 and E15 with regard to volatility regulation. EPA needs to stop tilting to the whims of the oil industry in implementing the nation’s renewable fuel program, and work to create demand for ethanol, lowering prices at the pump for consumers and creating economic opportunities for farmers across the country,” stated Dinneen.

The agency proposed a total renewable fuel volume of 19.88 billion gallons (BG), of which 4.88 BG is advanced biofuel, including 381 million gallons of cellulosic biofuel. That leaves, on paper, a 15 BG requirement for conventional renewable fuels like corn ethanol.

New Energy America

“Don’t be fooled by Scott Pruitt’s proposed RVO numbers that appear to meet the statutory minimums for conventional ethanol: Pruitt’s failure to reallocate the RINs waived under Pruitt’s dubious small refinery waiver process results in a dramatic cut to renewable fuels that will destroy rural jobs, hurt the renewable fuels industry, increase our dependence on dirty imported oil, and further harm family farmers,” said Mike Carr, Executive Director of New Energy America. “Scott Pruitt is gutting the RFS, and today’s RVO announcement doesn’t change that fact. Using the waiver process to reduce volumes is a clear breach of Donald Trump’s promise to heartland voters on renewable fuels, and Pruitt deserves the bipartisan outrage he’s receiving for breaking the President’s promise.“

The Biotechnology Innovation Organization

“We welcome EPA’s decision to raise the advanced and cellulosic biofuel volumes in its proposal,” said Brent Erickson, Executive Vice President of BIO’s Industrial & Environmental Section, “which will help propel the industry forward in 2019. However, the advanced biofuels industry is still suffering the effects of the Agency’s decision to arbitrarily limit growth for low carbon biofuels in 2018, by setting a backward looking RFS requirement. The 2019 volumes should be higher, to correct from last year and also spur growth for the coming year.

“EPA’s decision to forgo reallocation of gallons displaced from small refinery waivers at the behest of the petroleum industry is disappointing. In order to ensure a favorable and supportive investment climate for advanced and cellulosic biofuel producers, EPA must reallocate the gallons from the small refinery waivers already issued and into the future.

“Finally, the Agency must do more to approve new advanced and cellulosic biofuel technologies and production facilities, such as those that use corn kernel fiber as a feedstock, to adequately account for the potential of new technologies as it sets the final 2019 volumes. A strong policy and regulatory environment is critical to supporting the type of innovation that will help strengthen the biobased economy, create good paying jobs and help revitalize rural economies across the country.”

POET

“Proposed biofuel volumes are meaningless when the EPA continues to hand out waivers to the largest and most profitable companies in the world,” said Kyle Gilley, Senior Vice President of External Affairs and Communications. “The more-than 1.6 billion gallons that have already been waived this year equal a 4 percent drop in the corn grind nationally, devastating for farmers who have faced more than four years of declining farm income and poor crop prices. Administrator Pruitt and the Trump Administration must stand up for farmers, immediately reallocate those lost gallons and cease bailouts to the oil industry.”

Advanced Biofuels Business Council

“On its face, the EPA proposal is promising,” said Brooke Coleman, ABBC Executive Director. ” It reverses last year’s roll back of cellulosic biofuels, and it opens growth opportunities for advanced producers who are establishing new revenue streams for rural America. But until there is some check on the EPA’s abuse of waivers, regulatory uncertainty will continue to threaten investments in advanced biofuels.

“The EPA must demonstrate that targets will not be undercut by refinery handouts. At the same time, Administrator Pruitt must take concrete action on the president’s pledge to open new markets for advanced biofuels by lifting seasonal regulations on E15. The RFS supports hundreds of thousands of manufacturing jobs, creates new market opportunities for America’s farmers and innovators, and has attracted billions of dollars of investment in first-of-a-kind technologies in the advanced and cellulosic biofuels industry. These fuels are poised to drive the next manufacturing wave across America, but promises won’t get us there. We need action.”          

Americans for Energy Security and Innovation

“The targets announced today could promote modest growth in U.S. biofuel production, but not if they are subject to another endless string of EPA waivers,” said AESI Co-Chairs Jim Talent and Rick Santorum. “Rural workers and farmers cannot afford another year of demand destruction. The White House must ensure that EPA Administrator Scott Pruitt follows the president’s directives by protecting the integrity of conventional biofuel targets, unleashing E15, and accelerating investments in advanced biofuels, like cellulosic ethanol made from corn cobs and stalks.”

Iowa Biodiesel Board

“The EPA’s proposed increase in biodiesel volumes of the RFS is definitely a step in the right direction” said Grant Kimberley, executive director of the Iowa Biodiesel Board, “and sends an encouraging signal to our state’s biodiesel producers and supporting industries. While we appreciate the long-awaited return to growth, we agree with the National Biodiesel Board and others who point out that EPA has granted dozens of small refinery ‘hardship exemptions,’ which has seriously undermined the RFS. Unfortunately these exemptions make this growth less impactful than it otherwise would be. According to NBB, the exemptions have effectively reduced current obligations for biodiesel by 100 million gallons in 2016 and 275 million gallons in 2017.

“Caught in the crosshairs of trade disputes and other market dynamics, farming income is at its lowest level in more than a decade as the oil industry has experienced record profits. However, combined with the halting of exemptions for the oil industry, this new proposed biodiesel growth would be meaningful to our industry and the agriculture economy it supports. Increased diversification of our nation’s energy supply is also positive for American jobs and domestic energy security as well as the farm economy. We urge President Trump to ensure his EPA administrator follows through on the president’s pledge to support biofuels and protect the RFS.”

Iowa Renewable Fuels Association

“This is a status quo proposal for ethanol and the status quo is bad,” stated Iowa Renewable Fuels Association (IRFA) Executive Director Monte Shaw. “The ethanol number isn’t worth the paper it’s written on so long as Scott Pruitt is granting small refinery exemptions left and right – even beyond what the Department of Energy recommends. With Pruitt in charge of the EPA, the ethanol number in reality is more like 13.5 billion gallons, which is well below what President Trump promised and what it takes to grow demand. Rural America is already suffering from low commodity prices and tariff wars, and today’s proposal is a missed opportunity to provide good news for consumers and farmers.”

“It was good to see the EPA recognize that advanced biofuels are growing and can be a bigger part of the RFS,” stated Shaw. “However, there’s not much in real forward progress from where we thought we were last year. The suspect small refinery exemptions also destroy advanced biofuels demand, most often satisfied with biodiesel. So this year’s proposed increase barely offsets the biodiesel demand destruction from last year’s exemptions. Finally, despite proven technologies, the approval of new cellulosic pathways under the RFS is keeping production in check. We have several cellulosic projects at Iowa plants ready to go, but they need the green light from EPA.

“It was refreshing to see the biodiesel level bumped up. Congress created this RFS category and intended to see it grow. It has been slow-walked or stalled for the past several years. With biodiesel as the advanced biofuel of choice, its real demand is impacted more by the total advanced number, but the biodiesel-specific level serves as a useful floor and should boost investor and producer confidence to keep growing the young industry.

“We urge President Trump to direct the EPA to rein in out-of-control small refinery exemptions, to order the reallocation of previous exemptions, to address the 500 million gallons owed to conventional biofuels from the illegal 2016 RFS reduction, and to expedite new advanced biofuel pathway approvals. Rural America needs the RFS to work as intended, and it will if the EPA stops undermining the RFS at every turn.”

The National Council of Chain Restaurants

“Once again the EPA has caved to pressure from corn and ethanol interests,” NCCR Executive Director David French said. “Using food-based crops for fuel has been shown time and again to be bad for the environment and bad for consumers in the form of higher food prices.”

“The EPA has the authority to modify the annual volume mandate based on market conditions and other considerations, but the agency has repeatedly failed to use this authority,” French said. “Instead, it’s proposing to mandate the maximum amount of corn-based ethanol allowed under the law, simply because the corn and ethanol industries’ patrons in Congress demand it. It’s long past time for Congress to look beyond the narrow, parochial interests of the few to do what’s best for American consumers – repeal or significantly overhaul the RFS mandate.”

American Biogas Council