2017 Wrap-Up: Maintaining the Status Quo

Last year was among the most active and interesting years yet for the biofuels industry, which has confronted multiple challenges over the past 12 months,
By Michael McAdams | January 01, 2018

Last year was among the most active and interesting years we’ve seen in the biofuels space. The industry has confronted multiple challenges over the past 12 months, culminating in meetings between senators supportive of the oil industry, and President Trump to discuss the future of the RFS program. In the end, we managed to preserve the status quo with the 2018 renewable volume obligations (RVOs) set at 19.29 billion gallons, essentially the same level as 2017.

This summer, the D.C. Circuit Court of Appeals determined that EPA erred in its interpretation of “adequate domestic supply” and required EPA to grant the corn ethanol industry the full congressional statutory mandate of 15 billion gallons for 2016 and beyond. The dispute between big oil and corn has intensified over the year, resulting in this month’s meeting between the president, several cabinet secretaries, and 11 Republican senators. In the meeting, the senators asked the White House to encourage senators representing corn ethanol states to come to the table to address the rising cost of conventional RINs. The cost of compliance for both small and merchant refineries continues to be the central friction point between big oil and big corn. 

On the RFS front, both the Senate and House of Representatives took steps to discuss legislative RFS reform. Though neither chamber produced a comprehensive bill this year, we expect significant progress in early 2018 to find a solution to the RVO process, and address the cost of the ethanol RINs. I believe stakeholders are increasingly coming to a consensus on the priorities for RFS reform, and we expect 2018 to be a busy year on this front.
Our real victories this year were scored on the defensive line.

First and foremost, we finally put to bed the effort to shift the RFS’s point of obligation from the refiners to the blenders. On Nov. 22, EPA published its formal denial of the petition in the Federal Register. This year-long saga—thrust into the D.C. limelight with the controversy about Trump’s advisor Carl Icahn and his ownership stake in CVR refining—created significant volatility in the RIN market this year, particularly in the conventional D-6 pool. In the end, EPA reported the following:

“In evaluating this matter, EPA’s primary consideration was whether or not a change in the point of obligation would improve the effectiveness of the program to achieve Congress’s goals.  EPA does not believe the petitioners or commenters on the matter have demonstrated that this would be the case.”

Our second victory was in beating back the proposals outlined in EPA’s Oct. 4 Notice of Data Availability pertaining to the volumes proposed by the agency in July for the 2018 RVOs.  This document asked for comment on reducing the proposed RVOs generally, and in particular, the biomass-based diesel pool.

The industry quickly unified and mobilized to beat back this proposal with help from five Midwest senators, numerous representatives, several governors, and various biofuels trade associations. Our industry’s swift and definitive response to the NODA led to U.S. EPA Administrator Scott Pruitt releasing a letter in which he pledged his support for the RFS, and pulled back on the suggestions outlined in the NODA. In the end, EPA set the 2018 RVOs in line with the original July proposals. Furthermore, although the cellulosic volume for 2018 was reduced compared to last year’s number, it was increased from the agency’s July proposal, rewarding additional cellulosic production that has come online in 2017.

This year’s focus on tax reform has left Congress with little time to work on its tax extenders. Our industry’s four primary tax credits—the biodiesel and renewable diesel, second-generation, and alternative fuels mixtures credits—are a part of the package of provisions that expired in 2016. As I write this, the entire biofuels industry is again coming together to push for the tax extenders package to be included in a year-end, must-pass budget or appropriations bill. Our differences of opinion on the blenders credit have all but evaporated as we collectively work to ensure the retroactive renewal of the biodiesel and renewable diesel tax credits. The good news is that if we are unsuccessful before year’s end, we will most likely have another opportunity in late January.
To sum up, we’ve managed to preserve the status quo in 2017 for the RFS, and hopefully, for our tax provisions, which is a significant accomplishment given the change in administration. In early 2018, we must be ready for an intensified effort to address unresolved concerns about the costs associated with RFS compliance.

Thank you for your comments and feedback over the year. I wish you and your families a happy holiday season, and look forward to hearing from you all in 2018.

Author: Michael McAdams
President, Advanced Biofuels Association