Leaders of the renewable fuel industry say ethanol and biodiesel are surviving, despite policy battles with the White House. Last year was financially difficult for biofuels, and 2019 will be pivotal, depending on decisions made by the Environmental Protection Agency in the Trump administration.
Biofuels faced several new challenges in 2018. “Between the fight to get EPA to allow the sale of E15 ethanol year-round and trying to get EPA to play by the rules when granting small-refinery exemptions to the volume obligations of the Renewable Fuel Standard, 2018 was a tough year for us,” says Monte Shaw, executive director of the Iowa Renewable Fuels Association.
In his opening remarks at the 2019 Iowa Renewable Fuels Summit on Jan. 29 , Shaw said 2018 was his toughest year yet working for the biofuels industry. He urged ethanol and biodiesel advocates to keep up the pressure on EPA.
Refiner exemptions sore spot
“With forces inside EPA and the White House trying to convince President Trump to gut the RFS, there were months when I went to sleep wondering if a tweet the next day would undo the last 19 years of our work,” he said. “The petroleum industry never stopped trying to push the president into a so-called deal on the RFS. But supporters of renewable fuels never wavered. Yes, we want year-round E15, but not at the cost of gutting the RFS.”
EPA has granted exemptions to some refiners, so they don’t have to comply with the volumes set by law in the Renewable Fuel Standard. The RFS requires petroleum refiners to blend a certain amount of ethanol and biodiesel into gasoline and diesel fuel each year. RFS rules allow EPA to grant exemptions to smaller refineries in cases of financial hardship. However, in some cases EPA has granted exemptions to large refiners who are quite profitable.
Also, it’s debatable whether the financial hardship in cases where RFS waivers have been granted was due to requiring the blending of biofuel or due to financial mismanagement by the refiner.
Biofuel supporters hopeful
Despite the policy challenges, the biofuels industry fought hard and victory was won when Trump announced in October in Council Bluffs that he ordered EPA to begin a rulemaking process to allow year-round use of E15. As 2019 ramps up, Shaw says the current state of the biofuels industry is “hurting but hopeful.”
“Due to the small-refinery exemptions and the China trade dispute, ethanol producers are facing a period of prolonged breakeven or negative margins, the likes of which we haven’t seen in many years,” Shaw says. “And biodiesel producers are forced to sell their product based on Congress retroactively restoring the blenders tax credit.”
However, Iowa biofuel producers are hopeful. “We have ample feedstocks — plenty of corn and soybeans,” Shaw says. “We have efficient production capacity, and ability for ethanol and biodiesel to once again power the rural economy to prosperity.”
Several lawsuits pending
This year will likely see the outcome of pending lawsuits over EPA refinery exemptions, the highly anticipated E15 rule, the announcement of 2020 RFS blend levels and a possible RFS reset rule. However, the oil companies say as soon as the ink dries on the EPA administrator’s signature for new rules allowing year-round E15 sales, the petroleum industry will file another suit.
“Looking at the plethora of issues on our plate that should come to a head this year, I won’t be surprised if 2019 goes down in biofuel history as the most impactful year — for better or worse — since 2005,” Shaw says. “We may not like every answer we get. But I’m confident 2019 can be a great year for biofuels and biofuels policy.”
In time, the expanded use of E15 could add nearly 7 billion gallons of new ethanol demand in the U.S., using 2 billion bushels of additional corn per year. Kellie Nieuwenhuis, a northwest Iowa farmer serving on the Iowa Corn Promotion Board, sells most of his corn to ethanol plants. The 2 billion bushels of added demand wouldn’t come overnight, but with time and growth, he’s excited about the potential.
Potential for growth in exports
Nieuwenhuis went to China last fall on a U.S. Grains Council trade mission. He says Chinese gasoline retailers want to do business with the U.S. ethanol industry. China wants to use more ethanol to help improve its air quality, and is moving to an E10 ethanol mandate but doesn’t have the domestic ethanol production to meet that need.
“They told us there’s potential for 1 billion gallons in annual U.S. ethanol exports to China,” Nieuwenhuis says.
Robert White, vice president of the national Renewable Fuels Association, sees a need for an export market to return the U.S. ethanol industry to profitability. “Our industry needs relief,” he adds. “Ethanol plants are operating at a dangerously low margin, or no margin in some cases. China looks like a market opportunity. Efforts are also continuing in Mexico to move that nation to an E10 mandate, but there’s resistance from Mexico’s petroleum industry.”
Export outlook focus on China
Considering the challenges with domestic policy, U.S. ethanol and biodiesel producers are looking for more potential exports of U.S.-produced biofuel. More countries are setting renewable fuel standards. Exports of U.S.-produced ethanol hit 1.6 billion gallons in 2018 and are expected to grow to 1.8 billion gallons in 2019. Exports of U.S. ethanol could hit a record 4 billion gallons in 2022, according to Mike Dwyer, chief economist for the U.S. Grains Council.
USGC’s global strategy includes selling ethanol to China despite trade disputes between the U.S. and China that have disrupted markets for U.S. crops and other products in China. China currently imposes a 70% tariff on U.S. ethanol, Dwyer says, but China will have to find a way to import foreign ethanol if it is to fulfill its E10 mandate. China is requiring the use of a blend of 10% ethanol and 90% gasoline nationwide by 2020. USGC believes by 2022, 75% of U.S. ethanol exports will go to six countries: China, India, Japan, Brazil, Mexico and Canada.
EPA’s upcoming decisions will play big role
While 2018 provided challenges for renewable fuels, many industry advocates believe it stemmed from the policies of then-EPA administrator Scott Pruitt.
Pruitt was eventually replaced in the Trump administration by current acting EPA Administrator Andrew Wheeler. While Wheeler wasn’t present at the recent 2019 Iowa Renewable Fuels Summit, he was often mentioned in the focus on the industry’s outlook.
A large poster-sized card was on display for attendees to sign, urging EPA to complete the rules to allow year-round sale of E15 and to stop giving out small-refinery exemptions. The exemptions to Renewable Fuel Standard blending requirements are limiting biofuel use.
JUST DO IT: IRFA sent a card to EPA signed by Renewable Fuels summit attendees asking for immediate action to allow year-round sale of E15.
With low profit margins and some ethanol plants now sitting idle, and biodiesel plants running at less than capacity, the fate of Iowa’s renewable fuels industry depends on EPA action. That includes getting the E15 rules written to allow year-round use and having them in place before the summer driving season. Capturing export markets to send biofuels to China and other countries is also important.
E15 rules need to be written soon
After speaking to the IRFA Summit audience, Iowa Gov. Kim Reynolds signed the oversize card addressed to Wheeler. “When I talk to acting EPA Administrator Andrew Wheeler, he says EPA is working toward getting the E15 rules done on time, despite the recent partial government shutdown,” she said. “I’ve also emphasized to him that EPA’s criteria for issuing the small-refinery exemptions have to be reasonable, transparent, and any exemptions must be reallocated to the remaining obligated parties.”
If the new E15 rules aren’t written before the summer blending season begins, Iowa’s ethanol industry stands to lose potential profit again in 2019. Current EPA regulations require fuel retailers in many areas of the U.S. during the summer to stop selling E15 — a blend of 85% gasoline and 15% ethanol approved for all 2001 and newer vehicles. The EPA rule prohibiting summer use of E15 is an old regulation designed to shield oil companies from competition, Shaw says.
Donnell Rehagen, CEO of the National Biodiesel Board, notes: “We’ve all referred to the small-refinery exemptions being handed out like Halloween candy by EPA. Moving forward, I don’t think we’ll see the petroleum companies make fewer applications for exemptions. I’m just hopeful there will be more scrutiny by EPA to the appropriateness of the applications before any exemptions are granted.”
What happened in 2018 will have some carryover in 2019. “We’re going to have several court cases on the exemptions come due,” Shaw says, “which will impact hundreds of millions of gallons of renewable fuel for better or worse. We’re going to have an RFS reset rule. We could have an E15 year-round rule. We could open U.S. trade with China; maybe we won’t. All these things are on the plate for 2019. It could turn out to be a great year for renewable fuels or maybe not. We must continue delivering our message.”