Biofuel groups defend RFS, urge action on SREs during hearing

By Erin Voegele | October 29, 2019

The House Committee on Energy and Commerce’s Subcommittee on Environment and Climate Change held a hearing Oct. 29 on the Renewable Fuel Standard Integrity Act of 2019. Testimony primarily focused on the U.S. EPA’s mishandling of small refinery exemptions (SREs), but also addressed other aspects of the Renewable Fuel Standard and the future potential of a high octane standard.

The Renewable Fuel Standard Integrity Act of 2019, or H.R. 3006, was introduced on May 23 by Reps. Collin Peterson, D-Minn., and Dusty Johnson, R-S.D. The bill aims to increase transparency surrounding RFS SREs and ensure any waived volumes are reallocated. The legislation would require key information surrounding SREs to be publicly disclosed. It would also set a deadline for refineries to submit SRE applications and ensure the EPA reallocates waived volumes to non-exempt obligated parties.

Witnesses that testified at the hearing include Geoff Cooper, president and CEO of the Renewable Fuels Association; Gene Gebolys, president and CEO of World Energy; Kelly Nieuwenhuis, president of Siouxland Energy Cooperative; and Chet Thompson, president and CEO of the American Fuel & Petrochemical Manufacturers.

“EPA’s secretive and underhanded approach to the SRE provision in recent years has destabilized the RFS, reduced the production and use of clean renewable biofuels, increased GHG emissions and tailpipe pollution, and led to lost jobs and economic opportunity in rural America,” Cooper said in his testimony.  

Cooper also stressed the enormous value of ethanol plants to their local rural communities and detailed the harsh effects that closing a plant can have on small towns already facing other economic challenges.

“Ethanol plants serve as vital economic engines for rural communities across the country, providing good jobs, creating value-added investment opportunities for farmers and other rural Americans, and developing new markets for crops produced by local growers,” Cooper said. “We estimate that the ethanol demand loss associated with SREs has led to the layoff or furlough of more than 700 workers in the ethanol industry since the spring of 2018. In addition, more than 2,800 full-time jobs in related industries and sectors have also been affected.”

A recent supplemental proposal by EPA—meant to implement the relief package promised by President Trump in August—does little to allay concerns in farm country, Cooper said. EPA’s supplemental proposal has only led to more confusion and will not likely raise domestic conventional renewable fuels blending to the required volume of 15 billion gallons.

“The EPA incomprehensibly proposed to base its estimates of the gasoline and diesel that would be exempted in 2020 on the historical recommendations for exempted volumes it received from the Department of Energy, rather than the actual exemptions it granted,” Cooper said. “The irony of this proposal is that EPA has never followed DOE’s recommendations in deciding SRE petitions.”

Nieuwenhuis addressed the impact of SREs on ethanol producers and farmers. “Plain and simple: EPA’s abuse of small refinery exemptions under the RFS is crippling rural America,” he said in his testimony to lawmakers.

“Because of EPA’s actions to help the oil industry’s bottom line at the expense of farmers and biofuel producers, we had to make a hard decision—to idle our plant and shut off a key market for hundreds of local farmers, including myself,” added Nieuwenhuis. “The morning we announced we were idling our plant, I was tasked with delivering the bad news to our 40 employees. The team sat quietly, wondering about their future in the event we would have to permanently close our facility. This was one of the toughest things I’ve ever had to do.”

“The economic crisis created by the EPA’s abuse of SREs started 3 years ago. At first, we couldn’t put a finger on what it was, but the fundamentals in our market seemed off.  It was only after the press started reporting the rapid escalation of SREs being granted behind closed doors at the EPA that we began to understand what was happening to our business.”

During the hearing, Cooper, Gebolys, Nieuwenhuis and Thompson fielded a wide range of questions from committee members on the RFS, SREs and related issues.

Rep. Greg Walden, R-Ore., discussed the biorefinery Red Rock Biofuels is developing in his state that will convert woody biomass into jet and diesel fuel and asked the witnesses about the impact SREs are having on advanced biofuel facilities. “When EPA issues an SRE, it affects every category of the RFS,” Cooper responded. “We’ve seen lower cellulosic RIN prices, and therefore lower investment in those technologies as well."

Gebolys also commented on the impact of SREs on advanced biofuels. He said the resulting impact on biomass-based diesel has been severe. “All of the expansion in the RFS is supposed to be in the advanced biofuels sector as of 2016, [but] we have flat lined,” he said.

When asked about H.R. 3006, Cooper said the bill would stop the bleeding with regard to demand destruction, but would do nothing for gallons already lost to SREs. He noted 19 ethanol plants have now closed, and that four or five of those plants will likely never come back online.

“The small refinery exemption program has been around since the beginning of the RFS,” Cooper said, but noted it hasn’t really been an issue until recent years when the refining industry found numerous loopholes, “exploited those loopholes and had a willing partner in EPA.” We do think there is a number of ways to close those loopholes,” he said. “We think H.R. 3006 begins to close some of those biggest loopholes.

Rep. Doris Matsui, D-Calif., asked the witnesses to comment on the EPA’s May 2019 guidance related to the registration of corn kernel fiber pathways that that has essentially frozen the agency’s processing of many corn fiber ethanol pathways.

Cooper stressed that the U.S. currently has 200 corn-based ethanol plants and noted that each one is in the position to quickly adopt corn fiber-to-ethanol technologies to produce cellulosic fuel. “EPA put a freeze on those pathway petitions, so we have maybe a half of dozen facilities that are using that technology,” he said. “So, EPA’s mismanagement of the RFS goes far beyond the SREs.”

The hearing also addressed the potential for a high octane fuel standard. In his opening statement, Rep. John Shimkus, R-Ill., renewed his plea to the committee and affected stakeholder to take a serious look at the high-octane proposal that he and Rep. Bill Flores, R-Texas, recently introduced.

“We think status quo with [the RFS] is not sustainable,” Shimkus said. “Given the [U.S. Energy Information Administration] projections of the declining liquid transportation fuel demand, it is difficult to envision a post-2022 in which biofuel gallons would not actually be lower than they are today.”

“In addition, while it true the [RFS] does not disappear in 2023, the rules for allocation change quite a bit depending on who is in office and what the administrator considers appropriate for the disparate interests involved in this issue,” Shimkus continued. “If you are looking for certainty, this is not a recipe for it.”

Speaking of the current SRE situation, Shimkus said “stakeholders on all sides of this debate have been whipsawed for months by rumored and actual administration actions. Media reports and legal actions and the uncertainty will only increase after 2022 when EPA receives even broader discretion to set biofuel blending requirements.”

Flores polled the witnesses on whether they would prefer the status quo with regard to the RSF, or prefer Congress come up with a legislative solution. In response, Cooper said, “We would prefer the EPA enforce the law that Congress gave it.” That response was echoed by Gebolys and Nieuwenhuis. Only Thompson said he’d like the issue to be dealt with legislatively. Thompson also indicated his industry believes there is a lot of potential “in transitioning away from the RFS to a 95 RON standard.”

A full copy of the hearing can be viewed on the House Committee on Energy and Commerce website.