The U.S. Environmental Protection Agency unveiled a final rule Friday that gives President Donald Trump what he hopes will be a political boost in the Midwestern corn belt, where many of his supporters live: permission for gasoline retailers to start selling higher blends of ethanol fuel to drivers over the summer months, effective immediately.
The agricultural and biofuels industries had been demanding the loosening up of EPA’s fuel volatility regulations when Trump last fall, during a rally in Council Bluffs, Ia., promised that he would direct regulators to make it happen. The announcement drew cheers from the two industries, but not from merchant refiners and other parties on the hook for complying with the Renewable Fuel Standard, which requires blenders to use certain biofuels, like ethanol or biodiesel, in transportation fuels — or buy enough credits, known as RINs, to cover their obligations.
Industries on the refining and importing side of the market have complained that RIN trading does not have sufficient controls in place to prevent intentional market manipulation, and as the prices of a RIN credits go up, their margins go down. So Trump ordered RIN market reforms to go into a bundle with the E15 expansion and the result was supposed to have something for everyone. But not everyone is pleased.
“The President promised that the move to allow greater summertime ethanol use would be coupled with serious market reforms for the RINs compliance program,” said Scott Segal, a spokesman for the Fueling American Jobs Coalition, which represents the merchant refinery industry. “Frankly, refiners didn’t think this was a balanced deal at the outset but they were willing to work with EPA to get the details right. If EPA ends up putting out a rule without real and effective market reforms, it will clearly violate the spirit of the President’s deal and refinery workers in Pennsylvania will bear the brunt of it.”
Segal on Friday faulted EPA for taking some teeth out of the final rule and falling back on disclosure requirements to help it monitor the market for manipulation. The agency left out parts of the proposed rule that would have put time limits on RIN holdings and restrictions on what kinds of parties can buy them.
“This transparency alone is not enough,” Segal said. “If the RINs train is capable of running you over, seeing it run you over is cold comfort. Particularly if you are tied to the tracks by the RINs program.”
But EPA officials are not convinced there is any significant RIN market manipulation. “We’re not doctors but we’re applying the theory of ‘first, do no harm.,'” Bill Wehrum, EPA Assistant Administrator of the Office of Air and Radiation, said in a call with reporters Friday. “We take very seriously the claims of market manipulation but so far we have not found clear evidence that there is any significant market manipulation.” He said the final rule gives the agency “better tools for following what happens in the market and gives us ways to reduce the chances that the market is manipulated.”
“We are doing this because it is a very important presidential priority,” Wehrum said. “[Trump] personally is convinced that the measures that we’re rolling out today are going to help all the way around. We’re very pleased and proud to be able to implement this for the president.”
Trump has been under pressure to do something beneficial for the heartland, in no small part because of the trade war he touched off with China, which has resulted in tumbling grain prices and a full-blown crisis for some growers.
“Following President Trump’s directive, today’s action expands the market for biofuels and improves the [Renewable Fuel Standard, or RFS] program by increasing transparency and reducing price manipulation,” EPA Administrator Andrew Wheeler said Friday through a press release. “As President Trump promised, EPA is approving the year-round sale of E-15 in time for summer driving season, giving drivers more choices at the pump.”
The reaction from much of the biofuels industry has been warm, at least so far. “The ethanol industry thanks President Trump for personally championing this critical regulatory reform that will enhance competition, bolster the rural economy, and provide greater consumer access to cleaner, more affordable fuel options,” said Geoff Cooper, president and CEO of the Renewable Fuels Association (RFA) through a release.
“Year-round E15 opens up a vital new market, where innovators in advanced and cellulosic biofuels will have space to grow alongside American farmers,” Brooke Coleman, executive director of the Advanced Biofuels Business Councils, said. Jeff Broin, CEO of one of the nation’s largest biofuels producers, Sioux Falls, N.C.-based POET, called the new rule a “huge win for farmers, clean fuels and consumer choice.”
The National Biodiesel Board welcomed the E-15 rule and applauded efforts to increase RIN transparency. But it sees a glaring need that Friday’s action does not address: better oversight of small refinery exemptions, which NBB and most of the biofuels industry see as a force that undermines the RFS. “Efforts to expand the renewable fuel market will be ineffective as long as EPA continues to undercut demand through small refinery exemptions,” said NBB Vice President of Federal Affairs Kurt Kovarik.
When a small refiner obtains a hardship waiver, it is relieved of the financial burden of having to buy RINs, which have seen wild fluctuations in price. Obligated parties like merchant refiners see the regulatory relief as consistent with the RFS law and as a necessary way to right a wrong. The past year has seen EPA issue an unprecedented number of the waivers, drawing sharp criticism from biofuels producers and feedstock growers.
But Wehrum told reporters in Friday’s call that the agency intentionally did not include anything about small refinery exemptions in the final rule. In response to a reporter’s question about why EPA did not address them, Wehrum said, “SREs are not a part of this rule and is a separate issue altogether.”