The Renewable Fuel Standard (RFS) since its start has been marked by conflict between biofuels industry advocates intent on pushing more renewable fuel into the U.S. transportation market and a petroleum industry intent on protecting its market share.
That struggle appeared to reach new heights during President Donald Trump’s first year in office and most program observers are expecting more of the same in 2018. Here's a status check on the biofuels industry and regulatory policies as the year unfolds.
The biofuels industry has not been shy in pointing out that President Trump won the White House in large part because of support from rural voters across the Midwest, nor in reminding the president about his often-voiced support for the RFS as it worked to defeat a range of oil industry-led efforts or secure administration support for some of its own regulatory policies.
And, for the most part, that strategy worked well in 2017.
Among its victories, the renewable fuels industry was able to:
- Turn back an effort by merchant refiners to move the RFS compliance obligation from refiners and fuel importers to a point further down the fuel distribution chain, when EPA just before Thanksgiving finalized a preliminary decision it issued in late 2016 denying petition to shift the point of obligation. The agency said a change would “unnecessarily increase” the program’s complexity and “undermine the success” of the RFS.
- Prevail in its legal challenge to final Renewable Volume Obligations for 2014-2016 that were issued by EPA in November 2015, when the U.S. Court of Appeals for the District of Columbia Circuit ruled that the agency improperly considered “demand-side constraints” in reducing annual biofuel volume targets based on “inadequate domestic supply.” In its order, the court vacated EPA’s 2016 RVO, making it likely that the agency will have to increase the 2016 volume targets by 500 million gal.
- Secure 2018 renewable fuel targets that were largely in line with what many in the industry had expected. EPA maintained the 2018 conventional ethanol target at the 15 billion gal statutory gap, but disappointed the advanced biofuel and biomass-based diesel (BBD) industries by reducing the volumes for cellulosic biofuels and leaving the 2018 BBD target unchanged from 2017’s 2.1 million gal level.
- Win President Trump’s support to defeat an effort by EPA Administrator Scott Pruitt that could have led to further reductions in the 2018 RVO. The agency took the biofuels industry by surprise when it invited public comment on potential additional reductions to the 2018 volume targets for biomass-based diesel, advanced biofuel and total renewable fuels as well as the proposed 2019 volumes for biomass-based diesel. Under pressure from the White House, Pruitt promised a group of Midwest senators that the agency would likely issue final 2018 RVO at or above levels it proposed in July and would not “pursue regulations” that would prevent ethanol producers from retiring Renewable Identification Number (RIN) credits on exported ethanol. Further, Pruitt told the senators that he would work with the renewables industry on a key goal – securing a Reid Vapor Pressure (RVP) waiver for E15 that would allow the fuel to be sold nationwide year-round.
- Succeed wildly in its effort to persuade the administration to impose tariffs on imports from Argentina and Indonesia. The administration surprised everyone – including many domestic producers – by setting countervailing duties of above 70% on Argentine product and duties ranging between 34% and nearly 65% on Indonesian imports.
All in all, 2017 wins translated into a good year for the biofuels industry, but more battles lie ahead in 2018.
- Most immediately is what will become of an effort begun late last year by a group of refining state senators, led by Texas Republican Ted Cruz, to broker what the senator described as a "win-win" deal with corn state senators to resolve concerns a number of independent refiners have over high RIN prices. Neither corn state senators, led by Iowa Republican Chuck Grassley, nor biofuel industry groups have shown much interest in working with Cruz and his allies and the focus has since shifted to Texas Republican Sen. John Cornyn, who is working on proposed legislation that would aim to reduce RIN costs while offering some long-sought objectives to the biofuels sector, including an RVP waiver for E15 .
- The renewable fuels industry, however, still seems reluctant to come to the table and has insisted that the RFS is working and working well. Some in the merchant refining sector have played up the January bankruptcy of Philadelphia Energy Solutions as a reason why RFS reform is needed. In its filing, the refiner blamed RIN costs for its decision to seek bankruptcy protection. The biggest issue for RFS change proponents this year? Whether Congress will be able to move what is all but certain to be a controversial bill in mid-term election year.
- In addition, the push to change the point of obligation may not be over. Refiners that petitioned EPA to shift RFS compliance responsibility have challenged the agency's ruling in court and few expect a decision until well into the second half of the year, if then.
- The E15 RVP waiver issue also is likely to continue into 2018. The biofuels industry was dealt a 2017 setback, when it failed to secure sufficient support in the Senate Environment and Public Works Committee for a bill that would have allowed year-round sales. EPA has promised to take a new look at whether it can address the issue administratively, but expect whatever it decides to face a court challenge.
- Finally, from a policy standpoint, EPA is widely expected to reset the RFS statutory volumes for advanced biofuels, a move that worries some cellulosic producers, who say it could complicate efforts to secure necessary financing.
The Year's Already Off to a Volatile Start
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