The Trump administration, rebuffing oil industry demands for broad changes to the U.S. biofuel mandate, largely maintained the status quo in setting final quotas for how much refiners must blend into gasoline and diesel.
But the Environmental Protection Agency’s decision drew only tepid applause from Iowa politicians, Midwest corn farmers and producers of soy-based biodiesel, who say the targets lowball the industry’s potential production and threaten to discourage new investment.
The final rule shows EPA “is listening to our concerns and taking them into consideration, but it also shows that we have more work to do,” Iowa Gov. Kim Reynolds said in an emailed statement. The agency is “discouraging investment and discouraging growth” by keeping biodiesel volumes flat, she added.
The EPA mandated refiners use 15 billion gallons of conventional renewable fuels -- primarily ethanol - next year, in its final rule issued Thursday. But, rejecting pleas from biodiesel producers, the agency also maintained a 2.1 billion gallon quota for that soy-based fuel in 2019.
The EPA’s decision illustrates how the administration is trying to balance the needs of two competing constituencies for President Donald Trump, and failing to garner the full support of either. Midwest farmers and Iowa Sen. Chuck Grassley say the mandate is needed to guarantee sufficient ethanol demand; oil refiners insist the program is broken and complain a full overhaul is needed.
“Unfortunately it appears that EPA did exactly what Senator Grassley demanded, bowing the knee to King Corn,” Chet Thompson, president of the American Fuel and Petrochemical Manufacturers, said in an emailed statement. “We think this action is bad for U.S. manufacturing and American consumers and encourage Congress to finally fix the RFS.”
For more than a decade, federal law has compelled refiners to use renewable fuel -- up to 36 billion gallons in 2022 -- but tasked the EPA with setting the precise annual quotas. Many lawmakers supported the Renewable Fuel Standard with the expectation that first-generation corn-based ethanol would be replaced by alternatives made from corn stalks, algae or other materials such as switchgrass.
The EPA is requiring 4.29 billion gallons of advanced biofuel in 2018, a slight uptick from the current 4.28 billion gallon quota and a 4.24 billion gallon proposal the agency outlined in July.
At least 288 million gallons of that would have to be the cellulosic biofuel from non-edible plant materials, below the current 311 million gallon quota. That’s a modest increase from the EPA’s initial 238 million gallon proposal. Production of cellulosic ethanol has lagged far behind what the measure’s supporters envisioned a decade ago.
Brooke Coleman, head of the Advanced Biofuels Business Council, said the EPA’s targets “miss a valuable opportunity to accelerate growth” in cellulosic ethanol production by keeping levels below the 2017 quota.
“Unwarranted cuts to cellulosic biofuel targets send the wrong signal to global investors in this emerging industry,” Coleman said by email.
Compliance with the program is tracked by credits known as renewable identification numbers. RINs tracking ethanol consumption declined 0.6 percent to 90 cents, while biodiesel RINs climbed 2.5 percent to $1.03 apiece, according to broker data compiled by Bloomberg.
The crack spread, a measure of profit margins from refining crude oil into fuel, declined, data compiled by Bloomberg show.
Biodiesel production also has grown, and EPA is disappointing those producers in keeping the mandate steady at 2.1 billion gallons.
Biodiesel advocates argued that number fell far short of potential production, with the industry’s leading trade group pushing for a 2.5 billion gallon target in a Nov. 16 letter to Trump. “These flat volumes will harm Americans across several job-creating sectors-be they farmers, grease collectors, crushers, biodiesel producers or truckers-as well as consumers,” the National Biodiesel Board said in an emailed statement.
Grassley said he was disappointed by the lack of an increase in biodiesel levels and the cut in the quota for cellulosic ethanol, especially when “increases are justified.”
“This final rule does little to encourage investment and growth in advanced biofuels,” Grassley said in an emailed statement. By contrast, “Congress intended for the RFS to drive growth in biofuels across all categories.”
The 15 billion gallon quota for conventional renewable fuel mirrors the current target and sets up a disappointment for oil refiners that had argued that amount would exceed a 10 percent “blend wall,” or the amount that can be easily blended into the fuel supply.
EPA Administrator Scott Pruitt previously committed to set final quotas at levels “equal to or greater than the proposed amounts.” That concession came in an October letter to farm-state senators after they agreed to stop blocking the confirmation of a top EPA official over possible changes that could undermine the biofuel mandate.
The final plan shows Pruitt sticking by that pledge -- but not making aggressive moves to go beyond it.
“Maintaining the renewable fuel standard at current levels ensures stability in the marketplace and follows through with my commitment to meet the statutory deadlines and lead the agency by upholding the rule of law,” Pruitt said Thursday.
Trump visited ethanol plants while campaigning for president and promised Iowa’s voters he would protect the mandate if they elected him. Pruitt is scheduled to meet with farmers and biofuel groups in Nevada, Iowa, on Friday, according to people familiar with the meeting, who asked not to be named because the details haven’t been made public.
“This program is trying to solve a problem that no longer exists while creating real problems for consumers,” said Frank Macchiarola, a group director with the American Petroleum Institute. Pruitt “faces the daunting task of implementing a broken program that was based on incorrect assumptions made over a decade ago.”
First Published: December 3, 2017, 7:45 a.m.
