Ag Groups Upset over EPA RFS Proposal, Ethanol Stocks Tumble

President Donald Trump speaks at an Iowa ethanol facility. ( Official White House Photo by Shealah Craighead )

(Bloomberg) -- Ethanol futures had the biggest loss in two months after the Trump administration took steps Tuesday to implement a deal meant to ensure biofuel quotas are not undermined when oil refineries are exempted from requirements compelling them to use ethanol and biodiesel.

The proposal caused ethanol futures in Chicago to tumble as much as 4.1% as some biofuel allies slammed the plan, saying it fell short of what administration officials promised earlier this month and would not bolster quotas as much as hoped.

The Environmental Protection Agency proposed changes in the way it sets annual percentages spelling out how much renewable fuel refiners must blend into gasoline and diesel. The agency is seeking public comment on a plan to project the amount of exemptions based on the most recent three years’ practice -- and then use that to adjust its calculations.

The proposal seeks to balance the goal of the Renewable Fuel Standard statute in “maximizing the use of renewables while following the law and sound process to provide relief to small refineries that demonstrate the need,” the agency said in a news release.

Biofuel advocates said the plan was different than what they had been told by the Trump administration. The Iowa Corn Growers Association said it was “outraged” by the plan because it does not account for previously waived gallons.

“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,” Geoff Cooper, head of the Renewable Fuels Association, said in an emailed statement, calling the proposal “a step backward.” “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.”

By relying on the Department of Energy recommendations to the EPA on whether refineries merited relief, rather than the EPA decisions on the waivers, the exemptions could still undermine quotas in the future, biofuel allies said.

The EPA is not seeking to change proposed renewable fuel targets for 2020 and 2021 as part of the notice it is releasing Tuesday. The agency is instead proposing adjustments to the way it sets annual percentage requirements, which are used to calculate how many gallons of renewable fuel individual refiners and importers must blend. Refiners that don’t meet the targets independently can still satisfy them through tradeable credits known as Renewable Identification Numbers that are generated when biofuel is blended into gasoline and diesel.

The EPA also said it intends to grant some refineries only partial exemptions in the future, a change from current practice.

The EPA already pledged to offset refinery exemptions as part of a broad Trump administration effort to soothe ethanol advocates, farmers and Midwest politicians angry over the waivers. Although U.S. law authorizes waivers for small refineries seeking an economic hardship and federal courts have rapped the EPA for denying some relief, the number of exemptions has climbed under the Trump administration.

The changes are meant to make up for future refinery exemptions -- not make up for previous waivers, including a batch of 31 issued in August. The approach was slammed by biofuel and agricultural trade groups who had hoped past waivers would be offset, despite praise from industry trade groups and Midwest U.S. lawmakers.

The EPA said Tuesday the proposed adjustments “would help ensure that the industry 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.”

Oil industry allies have already signaled they will go to court to fight the new quota plan, as it could effectively force larger, non-exempted refineries to blend more biofuels to compensate for small refineries waived from the quotas.

The agency is promising to finalize the measure later this year, following a public hearing on the proposal on Oct. 30, and a 30-day public comment period.


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