Five oil state governors ask the EPA to waive 2020 RFS RVOs

By Erin Voegele | April 16, 2020

The governors of Texas, Oklahoma, Wyoming, Utah and Louisiana have sent letters to U.S. EPA Administrator Andrew Wheeler asking the agency to waive 2020 Renewable Fuel Standard blending requirements due to market impacts caused by COVID-19.

One letter, dated April 15, was signed by the Texas Gov. Greg Abbott, Utah Gov. Gary Herbert, Oklahoma Gov. Kevin Stitt and Wyoming Gov. Mark Gordon. The four governors are seeking a waiver of RFS RVOs due to severe economic hardship.

“The macroeconomic impacts of COVID-19 have resulted in suppressed international demand for refined products, like motor fuels and diesel,” the four governors wrote, citing a forecast from the International Energy Agency predicting the first quarterly contraction of oil demand in more than 10 years. “As the world economy responds to measures adopted to contain COVID-19, demand for refined products for air transportation, global delivery of goods, and petrochemicals decline—and any rebound of necessity will occur only after containment restores predictable economic growth. In the interim, the U.S. refining sector will face real and substantial difficulty.” The governors claim that continuing to implement the current RVO would “’severely’ harm the sector.”

Louisiana Gov. Bel Edwards sent a similar letter to Wheeler on April 7. “Currently, significant harm to the energy economy is expected to result from depressed demand for transportation fuel,” Edwards wrote. “But the 2020 RFS compliance obligations, in their current form, risk transforming the current severe economic harm to existential harm for some of the refineries in our states.”

The EPA is evaluating the waiver requests. “The agency is watching the situation closely, and will make the appropriate determination at the appropriate time,” said an agency spokesperson.

Members of the biofuel industry are speaking out against the waiver petitions. Some have noted RFS renewable volume obligations (RVOs) are percentage based, not flat blend requirements. As a result, falling fuel demand means obligated parties are already required to blend fewer gallons to meet their annual RVOs. Biofuel groups are also stressing that COVID-19 is causing severe economic harm to the ethanol industry. Data released by the U.S. Energy Information Administration shows nearly half of U.S. ethanol production capacity was offline the week ending April 10, while ethanol stocks set a new record high.

The Renewable Fuels Association said the governors are wrong to target the RFS and rural jobs. “Apparently toilet paper isn’t the only thing in short supply in oil states these days—clearly, these governors are experiencing an acute shortage of facts and reality too,” said Geoff Cooper, president and CEO of the RFA. “It’s clear they know absolutely nothing about how the Renewable Fuel Standard actually works. They outrageously claim that a waiver is needed because of ‘depressed demand for transportation fuel.’ But because EPA translates the RFS into a percentage each year, the renewable fuel blending requirements already adjust in tandem with changes in gasoline and diesel consumption. So, if COVID-19 causes 2020 gasoline and diesel demand to drop 15 percent, for example, the renewable fuel blending requirements drops by the exact same amount.

“In any event, the EPA has no authority to grant relief when the RFS itself is not the cause of the ‘severe economic harm,’ a fact that has been reconfirmed by EPA multiple times in the past when it denied similar nonsensical waiver requests,” he continued. “The governors themselves acknowledge the problems facing refiners today are driven by COVID-19 and cratering oil prices, not the RFS. These same factors are impacting the ethanol industry as well, and to an even greater extent: Nearly half of the nation's ethanol production capacity has been idled as a result of falling gasoline demand. A general waiver at this point would only serve to close more ethanol plants and kill more jobs across rural America.

“The governors also apparently have forgotten about the record supply of low-cost banked compliance credits (RINs) available to refiners,” Cooper said. “Today, refiners can purchase two or three RIN credits—each representing a gallon of renewable fuel—for the same price as one physical gallon of ethanol. COVID-19 is exactly the sort of market disruption that EPA had in mind when it developed the RIN credit trading market mechanism.

“The bottom line is, this letter comes nowhere close to satisfying the well-defined statutory criteria and requirements established for requesting a waiver,” he added. “It can’t even be called a petition. EPA should reject it out of hand and return to focusing on efforts that will actually help Americans get through this challenging period. These governors may still be practicing social distancing, but they should not be distancing themselves from the facts as well.” 

The American Coalition for Ethanol called the governors’ requests illegitimate and stressed the drop in fuel demand is already waiving blending volumes. Rather than approving an RFA waiver, ACE is calling on the EPA to adjust the RVO upward.

“Not only should EPA dismiss the oil-state governors’ RFS waiver request, the Agency should act swiftly to increase blending obligations in 2020 because the economic fallout from COVID-19 is destroying demand for ethanol below statutory levels,” said Brian Jennings, CEO of ACE. “ACE’s recent letter to EPA highlights the disingenuousness of the governors’ RFS waiver request. Unless and until EPA increases the percentage of renewable fuel volume obligated parties must use in 2020, it is already handing oil refiners a nationwide waiver illegally. Apparently, even this is not enough of an assault on farmers, ethanol producers and rural America.

“EPA has no other choice than to reject this most recent ploy to further waive the RFS based on precedent from previous waiver appeals in 2008 and 2012 which require EPA to determine that the RFS itself must be proven to be the cause of severe economic harm to justify a waiver, not outside factors such as coronavirus or a drought,” he said. “The RFS is clearly not the cause of the economic catastrophe brought on by coronavirus and the Saudi-Russian oil price war, and the oil industry should direct its blame elsewhere.

“We remind the Administration that oil refiners are not the only ones suffering from the economic fallout of the current situation,” Jennings continued. “Ethanol producers, and the farmers supplying them corn, are suffering a proportional economic disaster. EPA should in fact do the opposite of the governors’ request and issue an interim rule to increase the RVO for 2020 to the percentage necessary to ensure that the full 20.09 billion gallons required by law are used.”

Growth Energy has also spoken out against the waiver requests. “This is an offensive attempt by refiners to steal markets from struggling biofuel producers and farmers,” said Emily Skor, CEO of Growth Energy. “Any move to unravel the RFS now would dim any hopes of economic recovery in rural America, where so many in the U.S. biofuel industry have been impacted by furloughs and plant closures, and millions of farmers are struggling to stay afloat.

“We've seen the courts reject this kind of abuse before. Even oil companies admit that biofuel credits don’t impose a real cost on refiners. We see this as a non-starter and call on this administration to focus on restoring – not destroying – rural jobs."