US EPA Climate Changing on RFS?

The fight ahead of us for 2018 is, at this point, well-defined. To achieve the vision that the 2007 RFS program set out to enact—a future for advanced and cellulosic fuels—we must work together to prevail this year.
By Michael McAdams | April 24, 2018

At ABFA, we’ve been keeping our eyes on the U.S. EPA during the first quarter of 2018. The EPA’s actions over the next several months will have ripple effects through the industry, in the RIN markets, and on Capitol Hill. As such, I think it appropriate to lay out the challenges ahead.

First and foremost, EPA has been party to a number of top-level political meetings at the White House, engaging with individual companies to discuss options for a politically driven compromise deal between corn ethanol and the merchant refining industry. During these meetings, Administrator Scott Pruitt publically called to cap the conventional pool D6 RIN value to address the alleged issues with the program’s compliance costs, a move that would seemingly reverse the current EPA’s own logic as spelled out in its defense for the rejection of the petitions to change the point of obligation under the RFS.

I find this especially ironic, as this was one of the few things Pruitt and I ostensibly agreed upon on last year. This rejection stated the following:

“Less obviously apparent, however, is the impact of the RFS program on the market price for the petroleum blendstocks that merchant refiners sell. In addition… all refiners and importers of gasoline and diesel fuel incur costs to comply with RFS obligations. This is true whether the refiners and importers acquire renewable identification numbers (RINs) by blending renewable fuels or purchasing separated RINs—meaning no fundamental inequity exists. Moreover, because all refiners and importers have RFS obligations in proportion to the fuels they produce or import, they all have similar costs of compliance related to the RFS program, and they all seek to recover those costs through the pricing of their product. Stated another way: Merchant refiners can indeed expend significant funds to purchase RINs needed to demonstrate compliance with the RFS program, but the cost is offset by a corresponding increase in the price of the fuel they sell. That market price reflects the cost of RINs. The same dynamic applies to both merchant and integrated refiners.”

Second, EPA is working twofold to eliminate any obligation small refiners might otherwise have under the RFS program, by granting additional waivers, and by seeking to expand the definition of “small refinery.” As these small refiners produce almost 10 percent of the gasoline and diesel sold in the U.S., both of these actions will further undercut the RFS program. We must demand that EPA make these decisions with absolute transparency, clearly justifying for whom, and on what criteria, these decisions are made.

Indeed, let’s not forget the regulatory role EPA plays. In 2018, EPA has so far silent on approving new pathways and issuing new rules, such as a regulatory framework for biointermediates. We will need to continue fighting to ensure EPA does its job in this space, enabling growth in the program.

And, finally, given this EPA’s lackluster support for the RFS so far, it would be foolish to expect the 2019 renewable volume obligations (RVOs) to recognize growth in the renewable fuels industry. As with last year, we should expect the need to fight for growth in the D4 pool RVO. Last year, the proposed 2018 RVOs included lower volumes than actual production in 2017; the same could be true in this year’s proposed RVOs. We encourage everyone to begin preparing to file strong public comments in the event a disappointing proposal is issued.

Outside the walls of EPA, we can expect to see Capitol Hill actively working to legislatively reform the RFS program this year. In particular, Sen. John Cornyn has been working to find a reasonable middle ground between parties affected by the RFS. This middle ground will hopefully provide certainty for the industry, and I encourage you to stay tuned on that effort.

The fight ahead of us for 2018 is, at this point, well-defined. To achieve the vision that the 2007 RFS program set out to enact—a future for advanced and cellulosic fuels—we must work together to prevail this year. As always, your engagement in Washington is important. And at the turning point we seemed to have reached, it is more essential than ever.

Contact: Michael McAdams
President, Advanced Biofuels Association