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Robert Rapier

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Good News And Bad News For The Ethanol Industry

Last week the ethanol industry cheered when the EPA proposed a rule that would allow 15% ethanol blends to be sold year-round. But by the end of the week they were complaining as the EPA granted more waivers to refiners seeking exemption from ethanol-blending requirements.

Ethanol supporters cheered last summer when Environmental Protection Agency (EPA) Administrator Scott Pruitt resigned. As Oklahoma’s Attorney General, Pruitt had sued the EPA over the Renewable Fuel Standard (RFS). As EPA Administrator, Pruitt seemed determined to weaken the RFS.

Pruitt angered the ethanol industry by liberally granting waivers to some refiners that sought relief from their ethanol blending quotas. Refiners save money with these waivers, but they also lower the value of the credits refiners must pay to comply with the mandate. That means the waivers weaken the RFS, so they were an irritant for the ethanol industry and its supporters.

Following Pruitt’s departure, Andrew Wheeler, who was Pruitt’s second-in-command, took over as EPA Administrator.

Last week the agency unveiled a proposed rule to allow year-round sales of 15% ethanol fuel blends (E15). Year-round E15 sales had been restricted because of the potential to form smog from evaporative emissions.

The ethanol industry had long sought to sell E15 year-round and cheered the news. The new rule would also establish trading restrictions to curb speculation in renewable identification numbers (RINs). Speculation in RINs — which are used to enforce the ethanol mandate — has been blamed for driving ethanol prices higher at times.

But then Wheeler irritated the ethanol industry just a few days after announcing the E15 rule change, when he granted five new RFS waivers to refiners. Ethanol supporters who cheered the E15 change complained that the waivers let refiners off the hook. Related: U.S. Didn’t Import Venezuelan Oil Last Week—For The First Time Ever

Neil Koehler, CEO of Pacific Ethanol, and chairman of the Renewable Fuels Association stated:

If on the one hand you are allowing this additional market access by removing an arbitrary barrier, and on the other hand you’re destroying demand through inappropriate granting of a mass number of small refinery exemptions that arguably will interfere with the growth of the higher blends. It’s important that both get addressed.”

It seems to me that the RFS quotas are at least as arbitrary as the 10% barrier was, so what the ethanol industry really seeks is that refiners are forced to blend at least 10% but allowed to blend more. Refiners, on the other hand, would like to be able to blend any amount they choose based on what economics dictate, even if that means zero ethanol blended.

Iowa Senator Chuck Grassley complained on Twitter that these five “ridiculous RFS waivers” would translate into “nearly a billion bushels of corn demand lost.”

Senator Grassley and other ethanol proponents are angry that EPA is allowing the waivers to reduce the overall blending requirement to below the RFS mandate. They want the RFS requirements to be raised to make up for previous losses due to the waivers.

In following Pruitt, Andrew Wheeler’s EPA seems to have succeeded in angering both the oil industry and the ethanol industry, neither of which is getting everything they want.

By Robert Rapier

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