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Ethanol update: Renewable fuel industry awaits EPA decisions

ST. LOUIS — The U.S. Court of Appeals for the Tenth Circuit's ruling early this year that struck down three Small Refinery Exemptions improperly issued by the Environmental Protection Agency hasn’t deterred companies from filing more requests.

Geoff Cooper, Renewable Fuels Association president and CEO, said there are currently 52 “gap year” exemption requests for 2011 to 2018 and another 28 requests for 2019 and 2020 that have yet to be ruled on by the EPA.

Under the U.S. Renewable Fuel Standard, oil refineries are required to blend billions of gallons of biofuels such as ethanol into their fuel or buy credits from those that do. The EPA can waive those obligations if they prove compliance would cause them financial distress.

EPA Administrator Andrew Wheeler said earlier this month the SRE petitions that were received from companies for previous years have been forwarded to the Department of Energy for review — the first step in the process.

“We’ve not gotten recommendations back from Department of Energy yet. Some of these petitions go back to 2012 and the (Renewable Identification Numbers) from that year are no longer active and have expired, so there’re questions about whether or not they can show economic harm and what the remedy would be. We’re waiting to see what the Department of Energy has to say about those small refinery exemptions,” Wheeler said.

Cooper addressed this and other challenges the renewable fuel industry is facing during a recent podcast.

What are you hearing from the EPA regarding the pending SRE requests?

One of the big unresolved issues is what the EPA is going to do with these small refinery exemptions. It has been six months since the 10th Circuit Court struck down three of those exemptions that EPA illegally granted and set a precedent that should significantly limit or constrain EPA’s ability to give these exemptions to refiners moving forward.

So, rather than taking that decision and adopting it nationally and just moving ahead, EPA is kind of twiddling its thumbs and still hasn’t told anybody what it intends to do with these exemption requests and with this court decision. All they’ve said is the refiners may appeal this to the Supreme Court and so sort of need to wait until the Supreme Court decides whether they want to hear this case or not.

The chances of the Supreme Court showing any interest in reviewing this case are slim to zero, yet that’s the excuse that EPA is using. So, we have 52 new gap year exemption requests where refiners are looking for exemptions for past years going all the way back to 2011 and the scheme there is to get these exemptions as a way of circumventing the 10th Circuit Court decision so they can remain eligible to get more waivers moving forward.

So, we’re looking at another 80 SRE exemption petitions that are sitting at EPA or soon to be at EPA that haven’t been decided. That’s one big unresolved issue that is creating enormous uncertainty in the marketplace.

The ethanol industry also awaits EPA to announce the Renewable Volume Obligations under the RFS for 2021. The ruling for 2020 was made on July 5, 2019, and appears to be put on indefinite hold by EPA for next year.

Uncertainty reins around the RFS program and if there’s one thing we’ve learned over the years, no one in the marketplace likes uncertainty. That’s true whether we’re talking about ethanol and biodiesel producers or whether we’re talking about the obligated parties, the refiners that are obligated to blend renewable fuels.

We are just in a cloud of confusion around the RFS right now because EPA is not making decisions and just seems to want to kick the can down the road on just about all of these important decisions.

We’re waiting for EPA to make several very important decisions about the RFS, four or five major issues that need some resolutions here very soon. And we’re growing more and more worried that EPA is just trying to drop back and punt on these decisions and wait until after the election. They want to delay any decisions that are going to be controversial or decisive.

We know the industry is being intimidated and pushed around by the oil refiners and so it seems like their solution right now is just to throw up their hands and do nothing. That’s just not an acceptable solution.

EPA has laws that it needs to follow and it has statutory deadlines that it needs to meet, so it is time to move forward on these unresolved RFS issues and give the industry some answers.

All of this is happening a time when the ethanol industry tries to recover from major production reductions from lower demand at the onset of the pandemic and stay-at-home requests. How is the ethanol industry doing at this point?

At the low point in April, more than half of the industry’s capacity was idled. We had more than 100 facilities that had either completely shutdown or had significantly reduced output rate. So, at the apex of this thing it was a bloodbath for the industry. We saw deeply negative margins.

We had one-half the industry’s capacity offline. We lost billions of dollars in sales revenues. In the weeks since then, we have seen incremental recovery and a rebound of sorts, but the industry still has a long way to go. We are still operating 15% below levels of a year ago and it appears that things have kind of plateaued and we’re not expecting to get back to that sort of pre-COVID market dynamic any time soon.

We still have a number of facilities that are idled. We still have a number of facilities that are running at less than full capacity. The margin structure has improved but it’s still not great when viewed in historical terms. So, it remains a very challenging market environment.

We came into this year expecting to produce something around 16 billon gallons. We know that number is going to be closer to 13.5 billion gallons. So, when you think about the lost revenue associated with that big drop in production and, at the same time, we have lower ethanol prices, the financial hit to the industry is enormous.

We originally estimated something around a possible $10 billion loss to the industry. As we take a fresh look at some those numbers, we think that was a pretty good estimate. It looks like we’re on track if things play out the way we think they will, to see an $8 billion to $10 billion loss for the industry this year.

Now we’re looking at the possibility of another round of stay-at-home orders in the late summer and fall. What happens to some of these estimates and predictions if we do have states like Texas, California and Florida going through another round of stay-at-home orders? It just adds more uncertainty and more cloudiness to the recovery. It’s another reason our industry continues to seek some assistance and help from Congress as they begin to think about a fourth stimulus package.

We remain confident that biofuels and ethanol specifically will not be left behind this time as we had been in the previous stimulus packages but we’ve got to stay vigilant and continue to make our case to Congress.

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