EPA’s SRE deal falls short of industry expectations

By Erin Voegele | October 15, 2019

The U.S. EPA issued a supplemental notice of proposed rulemaking Oct. 15 seeking comments on how it should project the volume of small refinery exemptions (SREs) in annual Renewable Fuel Standard rulemakings to set annual renewable volume obligations (RVOs). The rulemaking, which fell far short of biofuel industry expectations, also demonstrated EPA’s failure to follow U.S. Department of Energy recommendations regarding the approval of past SREs.

The release of the supplemental rulemaking follows press briefing held by EPA on Oct. 4 announcing a deal related to the biofuel relief package promised by President Trump earlier this year in an effort to quell outrage from the ag and biofuel industries following the EPA’s Aug. 9 approval of 31 SREs. Those SREs alone exempted 13.2 billion gallons of gasoline and diesel from having to meet 2018 RFS RVOs, accounting for 1.43 billion renewable identification numbers (RINs), or approximately 7.5 percent of the 2018 blending requirements finalized by the agency nearly two years ago.

The rulemaking released Oct. 15 supplements the EPA’s pending proposed rule to set 2020 RVOs and the 2021 RVO for biomass-based diesel. That rulemaking was originally issued in July. A public comment period closed Aug. 30. The new supplemental notice of proposed rulemaking does not change the proposed RVOs for 2020 and 2021. It does, however, seek comment on adjustments to the way that annual RVOs are calculated. Specifically, the EPA said it is seeking comment on projecting the volume of gasoline and diesel that will be exempt in 2020 due to SREs based on a three-year average of the relief recommended by the DOE, including where DOE had recommended partial exemptions. The agency said it intends to grant partial SREs in appropriate circumstances when adjudicating 2020 exemption petitions, an approach to SREs the agency has not taken in recent years.

According to the EPA, it is proposing to use this value to adjust the way it calculates RVOs. “The proposed adjustments would help ensure that the agency blends the final volumes of renewable fuel into the nation’s fuel supply and that, in practice, the required volumes are not effectively reduced by future hardship exemptions for small refineries,” the agency said in a notice posted to its website. “Consistent with the statute, the supplemental notice seeks to balance the goals of the RFS of maximizing the use of renewables while following the law and sound process to provide relief to small refineries that demonstrate the need.”

Within the supplemental rule, the EPA notes that from 2016-2018, the relief recommended by the DOE would have resulted in a reduction to the RVO of approximately 770 RINs per year. “The amended definitions proposed in this rule would effectively increase the percentage standards that apply to non-exempt obligated parties to offset future [SREs] and help ensure that the required volumes are met,” the EPA said in the supplemental rulemaking.

Data released by the EPA as part of the rulemaking seems to indicate that if the EPA would have followed DOE’s recommendations in past years—including its recommendations to grant partial exemptions—the volumes waived through SREs approved over the past three years would have been much lower than actually realized. The data shows the EPA followed DOE recommendations for compliance year 2015, providing a total exemption of 290 million RINs. There was, however, a significant mismatch between DOE recommendations and EPA approvals for compliance years 2016-2018.

For compliance year 2016, the EPA said the DOE recommended SREs equating to 440 million RINs. In actuality, the EPA approved SREs accounting for approximately 790 million RINs. Similarly, the DOE’s compliance year 2017 recommendation reached 1.02 billion RINs, far lower than the estimated 1.82 billion RINs finalized by the EPA. For compliance year 2018, for which several SRE applications are still pending, the DOE has to date recommended the EPA approve SREs accounting for 840 RIN million RINs, far lower than the 1.43 billion RINs worth of SREs already approved by the agency.

The EPA has announced plans to hold a hearing on Oct. 30 in Ypsilanti, Michigan, regarding the supplemental notice of proposed rulemaking, followed by a 30-day public comment period. The agency said it will finalize this action later this year. A full copy of the supplemental notice of proposed rulemaking can be downloaded from the EPA website

Representatives of the biofuels industry have slammed the supplemental rulemaking, stressing that its falls short of the relief package previously promised by Trump.

The Renewable Fuels Association called the proposal a step backward. “If the Oct. 4 announcement from EPA was a big step forward, today’s supplemental proposal is a step backward,” said Geoff Cooper, president and CEO of the RFA. “It falls short of delivering on President Trump’s pledge to restore integrity to the Renewable Fuel Standard and leaves farmers, ethanol producers, and consumers with more questions than answers. It is baffling to us that the proposal sets the three-year average of exempted volume using the very same DOE recommendations that EPA blatantly ignored over and over. We are concerned that the volume of actual exemptions granted in 2020 could very well exceed the amount of projected exemptions from DOE, putting us right back into the quagmire where the 15-billion-gallon requirement is eroded and undermined. Simply put, this proposal is not what was promised by the administration just over a week ago and fails to answer President Trump’s personal call for a stronger conventional biofuel requirement of more than 15 billion. It is our hope that President Trump will personally intervene again to get the RFS back on track and ensure his EPA honors the commitments that were made.”

Cooper pointed out that the RFS has specifically required 15 billion gallons of conventional renewable fuel each year since 2015. However, the massive increase in small refinery waivers means the actual volume enforced by EPA has fallen short of the requirement each year. After the exemptions, the conventional biofuel requirement for 2018, for example, was only 13.89 billion gallons. In their communications since the Oct. 4 announcement, both President Trump and EPA Administration Andrew Wheeler have stressed their intention to ensure at least 15 billion gallons are actually blended domestically. It is unclear whether this proposal will actually ensure that volume is met.

Cooper said RFA will take every opportunity to ensure President Trump’s original deal is honored and will remain active and vocal during the public comment process. 

The Advanced Biofuels Association criticized the proposal and questioned the legality of the action. “Today, the Administration took back two thirds of what it promised just a week ago, and the irony is rich,” said Michael McAdams, president of the ABFA.  “In this rule, EPA has based SRE reallocation on DOE recommendations when the Agency ignored those recommendations in its August 9 decision to grant 31 exemptions for compliance year 2018. Furthermore, EPA has proposed to reallocate only 580-770 million gallons when 1.4 billion were ultimately displaced by those SREs. We doubt the legality of this action, and the Administration’s good faith in proposing this ‘deal.’

“ABFA will argue its case later this month before the D.C. Appellate Court challenging the SREs granted over the last several compliance years,” McAdams continued. “We look forward to the Court’s judgment on the Administration’s efforts to undercut the congressional intent of the RFS program.”            

Growth Energy called the supplemental proposal a betrayal of Trump’s promise. “It is unconscionable that EPA’s proposal betrays President Trump’s promise to rural America,” said Emily Skor, CEO of Growth Energy. “A week ago, Administrator Wheeler personally took to the airwaves and promised Iowa farmers that he would accurately account for lost gallons moving forward based on the ‘last three years of the waivers.’ Administration officials repeatedly said that 15 billion gallons will mean 15 billion gallons and this proposal fails to ensure that farm families and biofuel producers have the certainty they need to reinvest and rebuild after three years of massive demand destruction at the hands of EPA.   
    
“After completely ignoring Department of Energy (DOE) advice to reduce exemptions, EPA now proposes to use DOE’s deflated numbers to turn a real fix into little more than a Band-Aid,” Skor said. “To effectively address demand destruction moving forward, EPA’s fix must incorporate a projection of actual exempted gallons, not simply apply an out-of-date DOE recommendation. 

“The proposal released today will do nothing to bring back the ethanol plants that have shut down or help the burden that many of our corn farmers currently face,” she continued. “Every day that passes without the true solution President Trump promised means more and more pain for America’s farmers and rural workers.” 

Growth Energy also called on the EPA to hold a regulatory hearing on the proposal in Iowa, so more Midwest families racing to complete this year's harvest will have an opportunity to share their views.  

“The farm families hit hardest by EPA exemptions deserve a seat at the table, and that can't happen if the EPA refuses to hold a hearing in a central location, closer to millions of voices who cannot afford to leave the farm for days at a time," added Skor.  

The American Coalition for Ethanol stressed the supplemental rulemaking will not ensure 15 billion gallons of ethanol are blended each year.  “Two weeks ago, ACE resisted the temptation to sing the praises of the White House ‘deal’ because it was short on details and dependent on a new EPA rulemaking,” said Brian Jennings, CEO of ACE. “Today, EPA revealed how it intends to set the 2020 RVO. Simply put, the proposal fails to live up to the hype. The White House’s Oct. 4 announcement acknowledged small refinery exemptions (SREs) would continue in the future but promised EPA would ensure that 15 billion gallons of ethanol be blended in 2020. Further, in an Oct. 3 phone call, Trump Administration officials told us the approach they would take to ensure at least 15 billion gallons for 2020 would be to prospectively account for the three-year rolling average of actual SRE volume from 2016-2018. In other words, EPA would apply the three-year rolling average of SREs for the 2016-2018 compliance years, approximately 1.34 billion gallons, and prospectively reallocate the volume to the 2020 RVO.

“Instead, EPA is proposing to ‘consider the exempt volumes of gasoline (and diesel) in previous years had EPA followed the Department of Energy (DoE) recommendations without deviation’ in determining the 2020 RVO,” Jennings continued. “If this is confusing, I would suggest that’s EPA’s goal. The agency hopes farmers and biofuel producers will overlook the fact EPA is not planning to ensure 15 billion gallons for the 2020 RVO. Instead of using the approach suggested in the Oct. 3 phone call, EPA is planning to begin issuing ‘partial’ SREs for 2020, something DoE has recommended in the past only to be rejected by EPA. Next, EPA is going to ignore the fact it granted 85 full SREs for the 2016-2018 compliance years, representing 4 billion gallons it never intends to reallocate, and instead assume it had followed DoE’s advice to issue partial SREs during that time frame. Then, it is going to calculate the average of those imaginary partial SREs and apply that volume, approximately 770 million gallons, to the 2020 RVO.

“The ongoing insanity over EPA’s mismanagement of the RFS would be bizarrely humorous if not for the sobering fact that it, along with the trade war and weather-related disasters, has taken a terrible economic toll on the livelihoods of corn growers and biofuel producers across rural America,” he said.

“We urge farmers, biofuel producers, elected leaders and other industry stakeholders to participate in the comment period following this proposal to get EPA to finally follow the rule of law with the RFS,” Jennings continued.

The National Biodiesel Board said it is skeptical the supplemental rule will ensure that 2020 and future biomass-based diesel volume obligations are fully met. “The notice that EPA issued today is significantly different from the agreement that biofuel industry champions negotiated with President Trump just two weeks ago, which was to estimate future exempted RFS volumes based on the average of actual volumes exempted over the past three years,” said Kurt Kovarik, vice president of federal affairs at NBB. “EPA is proposing a brand-new method for making the estimate—one that was never previously proposed or discussed and significantly undercounts past exemptions.

"Once again, EPA is sending a signal to the biofuel industry that the volumes it sets in annual rules can't be trusted,” Kovarik continued. “The proposed estimates lack transparency and undercut the President's commitment to ensure that biomass-based diesel volumes are fully met. The biodiesel industry will work diligently with all appropriate federal agencies to ensure that the final rule scrupulously fulfills President Trump's promise to soybean farmers and biodiesel producers."