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March 1, 2018
The past few weeks have been a flurry of activity regarding the Renewable Fuel Standard (RFS) with now-bankrupt Philadelphia Energy Solutions (PES), the East Coast's largest refiner, claiming that compliance costs associated with the RFS are to blame for their financial woes. The President’s campaign trail promises, to both the oil and biofuels industries, have put him in an awkward spot on the RFS since taking office and have led to a number of high-level meetings on the subject.
In short, refiners must either blend biofuels or purchase Renewable Identification Numbers (RINs) a tradable compliance mechanism of the RFS. As RIN prices have increased, a growing number of smaller refineries, which had not invested in biofuels infrastructure, have been crying poor, despite little evidence that they are harmed by the RFS.
Today, we look at the timeline of activities and meetings at the White House over the past several months, and compare the various reform proposals from both Congress and the White House that are still largely rumors. While there is no ‘deal’ at this time, action from both the administration and Congress is still in the mix. Whether or not all the talk results in any kind of action remains to be seen.
Timeline:
Oct 26: Senator Cruz (R-TX) announced he would put a hold on the confirmation of Bill Northey, the Iowa Secretary of Agriculture, for a position as Undersecretary at the U.S. Department of Agriculture. Cruz’s actions sets of a series of meetings between lawmakers and the President on the RFS throughout the fall but resulted in no action on either side.
Jan 22: PES, the East Coast’s largest refinery, files for bankruptcy and blames the RFS for its financial woes, despite evidence to the contrary.
Feb 1: During an interview, EPA administrator Pruitt points to PES’s bankruptcy as evidence for a need to reform the RFS, setting off a maelstrom of lobbying from the biofuels and oil industry to Congress and the White House. Trump vows to meet with both sides of the issue to find a workable solution.
Feb 27: A meeting at the White House between President Trump, Senators Grassley (R-IA), Ernst (R-IA), Cruz (R-TX), and Toomey (R-PA), Secretary of Agriculture Perdue and EPA Administrator Pruitt results in no action, but several proposals are on the table. According to Reuters, the proposal put forward by the administration included a cap on RIN prices, as well as allowing RINs to be assigned to gallons of exported biofuels. After the meeting, Senator Ernst commented they must weigh the economics of any proposal, “to randomly agree on anything at this point is premature because we don’t know what would be helpful for the industry, what would be harmful to the industry.” Additionally, the meeting also resulted in Senator Cruz lifting the hold on the Northey nomination, who was promptly confirmed by an overwhelming vote.
Mar 1: The President met with representatives from oil refineries and biofuels interests Thursday. According to Politico, Valero Energy Corp., Delta Air Lines’ Monroe Energy and PBF Energy Inc, as well as a PES Union representative were present. Biofuels companies in attendance were POET (SD), Green Plains Renewable Energy (NE), Renewable Energy Group (IA), The Andersons Inc. (OH), Absolute Energy (IA and MN) and Western Iowa Energy (IA), as well as an Iowa-based filling station chain that sells higher ethanol blends. Senators Grassley, Ernst, Cruz, and Toomey were also in attendance.
Proposals:
The Cruz Cap: Senator Cruz (R-TX) has long suggested a 10-cent cap on the price of RINs. According to the Senator, a cap would control compliance costs with the biofuels program. In reviewing the proposed cap, agricultural economist Scott Irwin of the University of Illinois stated that the impact of such a cap would “shut down the entire U.S. biodiesel industry,” as well as putting downward pressure on the blending of ethanol. The 10-cent cap is largely a non-starter with the biofuels industry and its supporters in Congress.
The Cornyn and Udall bill: Rumors have been swirling for a few weeks that Senators Cornyn (R-TX) and Udall (D-NM) are working on a bipartisan RFS reform bill. Potential items for inclusion in the bill include:
The administrative fix: At Tuesday’s meeting, the administration signaled its interest in allowing EPA to issue RIN waivers to independent refiners, such as PES. Doing so would allow a not-insignificant portion of refiners to comply with the RFS at a significantly lower cost. Additional rumored proposals include:
Reactions:
All the talk of reform has biofuels interests anxious. Coming off of accusations of not being a strong enough champion of biofuels, Secretary Perdue commented to corn, soy, wheat and sorghum farmers at the annual Commodity Classic this week, that “I will not, I have not and will not support any policies in this country that diminish the demand, undermine the RFS and are harmful to our agricultural producers. I will not.”
However, many are worried that he and many in the administration lack a fundamental understanding of how the program works, and the relationship between the RIN market and blending levels. As one biofuels industry watcher put it – you cannot separate the RIN market and the RFS.
For now, it appears that Senators Grassley and Ernst are steadfast in the support of the RFS "as-is." After Tuesday’s meeting, Ernst commented to reporters, “There is no independent, respected study we have seen that indicates that RINs are the problem for these refineries.”
Leaders of all the major farm and commodity groups, including Corn, Soybean, Wheat and Sorghum growers, as well as the Farm Bureau and the Farmers Union also wrote to the President this week, asking that he not entertain any proposals that will undercut the RFS, noting its importance to rural economies and farmers.
It is expected that EPA will also weigh in on the issue relatively soon, but it is unclear what options they have available to them to significantly change the program. Previous EPA-led efforts to significantly change the RFS under the Trump administration have largely been thwarted by the White House after outcries from the biofuels industry. Additionally, any action that may favor one refiner over another would face harsh opposition from the oil industry as a whole.
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