Latest Developments in U.S. Ethanol Policy

Published on: 09:11AM Jan 15, 2020

As a result of lower ethanol prices and reduced demand due to continued disputes over federal ethanol policy issues over the past year, nearly 20 ethanol facilities, mostly in the Midwest, have either been closed down or experienced reduced production levels in the last several months.

The last six months or so have been a roller coaster ride for advocates of the U.S. biofuels industry, since the Environmental Protection Agency finalized its rule allowing year-round sales of a new biofuel blend for automobiles, allowing sales of mixtures up to 15 percent ethanol content (E-15) on a year-round basis at the end of May.  This rule fulfilled the commitment made by President Trump in a speech made in Iowa the previous October.

EPA’s E-15 rule was challenged in court within two weeks of its release by the American Fuels and Petrochemicals Association, which asserted that the agency’s waiver of the Clean Air Act to allow E-15 was not legal.  A second, similar lawsuit was filed in early August by groups representing oil, maritime and motorcycle interests.  Both cases were filed in the U.S. Court of Appeals in Washington, DC, which is the typical venue for hearing cases that challenge federal programs and policies.

In August, press reports indicated that EPA had granted 2018 RFS waivers to an additional 31 small-scale refiners, without doing anything to require the rest of the refiners to make up for that  foregone production.  It is estimated that all of the SRE waivers granted during the three years of Trump administration alone has resulted in a loss of as much as 4 billion gallons of biofuels that was not blended into gasoline.

This decision resulted in a fierce public pushback against EPA’s apparent continued tilt toward the petroleum/refining industry.  For example, in late September, a coalition of farm, commodity, and biofuels organization filed a lawsuit in the DC Circuit seeking a legislative review of the Agency’s failure to consider requests to reallocate waived biofuel production requirements to larger refiners to stay in compliance with the overall annual RFS requirements.

In October, EPA issued a proposed rule aimed at fulfilling a commitment made to the renewable fuels industry in a White House meeting in August to compensate for lost gallons due to SRE waivers going forward, although no action was contemplated to address this issue retroactively.  The biofuels industry objected to a key component of this proposed rule, which was to base the calculations of how much production to recoup under the RFS on a three-year average of the recommendations of the US Department of Energy (DOE) on how many of the waivers should be granted, rather than on the waived production that actually resulted from EPA’s final decisions on those requests.  Documents obtained from Freedom of Information Act (FOIA) filings show that during the Trump administration, the EPA has largely ignored DOE’s recommendations in this area, as well as advice from the Office of Management and Budget (OMB).  

Despite continued objections from the biofuels industry, EPA retained that provision in the final rule that it issued in late December.  Advocates of the biofuel sector in both the agricultural community and in Congress have expressed disappointment in this decision, but most seem to be directing their ire toward EPA and its Administrator Andrew Wheeler for their intransigence on this matter rather than the President for whom Administrator Wheeler works.  On January 14th, Senator Chuck Grassley (R, IA) acknowledged that this EPA decision would likely be an issue in key farm states during the 2020 general election campaign.

In a related issue, as part of the regulations that EPA issued in June to allow year-round sale of E-15, they also included a provision that indicated that they proposed to treat filling stations with blender pumps as “fuel manufacturers” if those pumps delivered any blends other than E-15 or E-85.  In August, a coalition of energy companies and trade associations, farm groups, and air quality advocates filed a petition with the DC Circuit asking for a court review of this action.

In particular, the petitioners in that case are concerned that the roughly 3,500 U.S. filling stations currently using blender pumps to deliver ethanol blends to consumers could be harmed if this provision were to be enforced.  This proposed action by the federal government is somewhat ironic, since many of these blender pumps were purchased and installed with the assistance of grants and/or loans received from federal and/or state government agencies.  Those grants or loans were provided in the hopes of encouraging the availability of higher ethanol blends to consumers, so this proposed policy would clearly undercut that objective.