Letter from Washington – Taxes, blends, RINs, Jobs and “The Year of the Tree”

It’s springtime in Washington DC, the cherry blossoms have given way to the first of the seasonal humidity passing east from the Chesapeake and it will inflict its brand of the doldrums on the capital city by summer time, when the nation at last loses its ability to shut out the din of political disagreement by focusing on the plot lines of Avengers: Endgame.

In time we’ll all be forced to pay attention to the capital’s doings; consider this for now a Digested summary of the news you can use, as short as we can make it so that we return you to the business of building the bioeconomy that will, increasingly in the now and surely in the by-and-by, fund all this national political dyspepsia.

E15

As regular as the opening of baseball season is the annual battle over higher ethanol blends — in this case, specifically E15. The producers and the famers swear that the fuel will run fine, the forces of petroleum promise the end of Western civilization as we know it; the auto manufacturers are just as dismal at the petrolitarians, but more specific. Western civilization may survive, they concede, but generally speaking a number of auto warranties won’t. More or less.

It’s a debate that mystifies Brazilians, Paraguayans and Argentines, since they’ve been running blends as high as 25 percent ethanol through cars made by the same manufacturers, and Petrobras and YPF, to name two, are still with us.

The issue turns around summer blends, which are different because it is the peak consumption and driving season and there are specific rules for formulation that, frankly, never contemplated E15 ethanol blends. So they needed to be updated to allow that same waivers that pertain to E10 ethanol — it’s really as simple as that. From the same buildings where lawmakers took 89 years to make up their minds about the merits of slavery – just to make a point about the pace of decision making.

Here’s the latest from DC. The Trump Administration — the EPA in this case — has proposed rules that would allow for year-round E15 blending. But, as the Iowa Renewable Fuels Association admirably summed it up, EPA added “unrelated proposals to dramatically alter how RFS compliance credits, known as RINS, would be regulated.”

IRFA Executive Director Monte Shaw commented “Loudly and clearly, I want to thank President Trump for directing the EPA to begin this process and to EPA leadership for including in this proposal many of the best pathways and justifications for allowing year-round E15 sales,” Shaw said.

IRFA said that the rule’s four proposals radically alter RIN regulations and would undermine the incentive to blend renewable fuels, “thereby breaking Trump’s promise to protect the RFS.” Shaw described one proposal that would put a time limit on how long retailers could hold RINs, essentially putting “a gun to the head of Iowa’s retailers” and forcing them to dispose of their RINs in a “fire sale.”

IRFA’s comments on the proposed EPA action “concluded by highlighting the damage small-refinery exemptions (SREs) inflict on the value of RINs and the effectiveness of the RFS. Shaw emphasized that with RINs sales recorded below 10 cents during large parts of the last seven months, “economic harm” exemptions from the RFS are clearly not justified.”

A lawsuit to watch

Meanwhile, the Advanced Biofuels Association filed a motion for a preliminary injunction to prevent U.S. Environmental Protection Agency Administrator Andrew Wheeler from granting any additional small refinery exemptions to release obligated parties from compliance with the Renewable Fuel Standard until the resolution of its pending lawsuit against EPA.

The background? “For the first time since the inception of the RFS, we are seeing reductions in U.S. renewable fuel blending, “and EPA’s actions are to blame,” says ABFA.

ABFA’s lawsuit against EPA challenges its methodology for granting these exemptions, arguing the Agency more than doubled the number of exempted refineries by illegally changing its petition review process behind closed doors. ABFA filed the motion with the U.S. Court of Appeals for the D.C. Circuit, where its current lawsuit is pending with briefing on the merits scheduled to conclude on June 12, 2019.

“Since EPA began granting these additional exemptions behind closed doors, we have seen devastating market impacts and dropping prices for Renewable Identification Numbers,” said Michael McAdams, president of ABFA. “We need to stop the bleeding and prevent EPA from granting any more of these exemptions until the D.C. Circuit Court has the opportunity to rule on the legality of the process being undertaken by the Agency.”

“Administrator Wheeler has indicated his intention to move forward on decisions for as many as 39 additional exemptions this year,” McAdams continued. “ABFA cannot stand by while EPA unilaterally and illegally undermines the integrity of the RFS program.”

“These new exemptions provide a financial windfall to refineries at the expense of biofuel producers and distributers. EPA is punishing the parties who have worked to increase the amount of renewable fuel blended into the United States transportation fuel supply as Congress intended by enacting the RFS first in 2005 and expanding it in 2007.”

The Tax Credit Debate

Friends of the biodiesel tax credit, now 16 months elapsed, are now highlighting not only the impact on states and companies, but the jobs. As Kurt Kovarik, Vice President of Federal Affairs with the National Biodiesel Board, stated, “With the on-again, off-again nature of the credit, biodiesel companies are forced to build the credit’s value into contracts – and hope that Congress extends the policy at the end of the year. Many companies have essentially priced their products at a loss for more than a year.”

NBB says that biodiesel provides more than 80,000 jobs across the United States and pays $3.8 billion in workers’ wages and benefits. As Jim Galvin, CEO of Lakeview Energy, put it, “We urge Congress to ensure that good-paying, blue collar jobs do not disappear and provide the biodiesel sector the certainty it needs for survival by immediately extending the biodiesel tax credit for 2018 and 2019.”

Over in the world of R&D: The TAC says it’s “The Year of the Tree”

Tax and energy policy aside, Washington is also home to the R&D agenda that powers the industry’s increasing competitiveness and the transformative applications that have also risen in nutrition, materials and health through industrial biotechnology. A massive $79 million R&D opportunity was released this week by DOE, for example.

Behind much of this lies the little-known Biomass Board, a coordinating group for biofuels policymakers and R&D chieftains, and behind that lies the even less well known Technical Advisory Committee. Also known as The TAC. It’s manned by industry volunteers, and its most recent quarterly meeting conclusions are well worth considering in light of the debates in DC these days.

They write:

Today is a period of great transition for forests, a truly unique point in history for innovative opportunities supporting sustainable management of a national resource. Important changes are needed to reduce the risk of catastrophic fires and to respond to damage from insect infestations, hurricanes, floods and other natural disasters. New thinking is evolving for using the forests responsibly as a tool for reducing carbon emissions, for improving water quality and wildlife habitats, and for new uses of forest biomass for bioenergy and bioproducts. Transforming forest management will be a massive undertaking, involving many players: governments at all levels and in their multiple organizations; many different advocacy groups and collaboratives; universities and colleges; corporations from different sectors; and, concerned private citizens. It will be both centralized and de-centralized, with no one-size solution fitting all of the problems, because of America’s continental variations of geography, weather, culture, flora and fauna. In the end, this all is about rebuilding trust among all the different interests that necessary changes in forest management can and will be done responsibly for the multiple environmental services of forests: carbon mitigation; soil and water conservation; wildlife protection; recreation; new hope for embattled rural communities; and, new renewable energy advances. It is an opportunity for needed change that may never come again. This is why we deem 2019, The Year of the Tree.

We reiterate the Committee’s November 2018 recommendations calling for the U.S. Environmental Protection Agency to implement as soon as practicable the common sense reform of regulations governing the Renewable Fuel Standard to facilitate the utilization of a broad range of feedstocks, including woody biomass, while balancing environmental protections.

More on the committee’s recommendations, here. A committee worth following every step of the way.

And with that, back to baseball, the PGA Championship, the Indian Premier League, the debate over who really won the Kentucky Derby, or, ahem, transforming the world economy, your pick.

So, you’re briefly briefed and now up to date on the discussions of Springtime in Washington. They are decidedly less entertaining than the heroics of golf or the “did he or didn’t he” storm over Maximum Security at the Kentucky Derby.

These policy decisions, however, will travel a long way down the road with us. The boys and girls of 2100 will look back more on the development of renewable fuels as they measure the success of their civilization than they will the cliffhangers at the PGA, just ask Walter Hagen.

The Haig, as he was known, used to remind us to “stop and smell the flowers along the way”, and he would have cherished the lingering scent of the cherry blossoms and the related blossoms of spring that are now giving way to leaves and heat and humidity in the capital. There’s something fragrant in the steam, and it might be just the aromas of the molecules of the bioeconomy, after all. More there are to come.