Trump Administration Plans to Ramp Up Total Renewable Fuel Volumes Under the RFS Program for 2020
On October 4, 2019, the U.S. Environmental Protection Agency (EPA) signaled an abrupt change to the status quo, by announcing plans to issue a final rulemaking that will increase total renewable fuel volumes under the federal Renewable Fuel Standards (RFS) program beginning in 2020 to compensate for volumes lost whenever the EPA grants waivers to “small refiners,” who successfully claim a disproportionate economic hardship under the program. This change will greatly benefit farmers growing corn to produce corn-based ethanol, a “conventional” biofuel that supplies the bulk of total renewable fuel volumes required under the RFS program. Large refiners who do not qualify for small refiner waivers will be hard hit by this change, as they and importers of certain foreign-refined transportation fuels will have to incur the added burden associated with blending more renewable fuel volumes. But the time for action is drawing near, as the EPA is faced with a November 30, 2019 deadline for finalizing the next round of renewable fuel volumes under the RFS program.
The EPA only recently proposed 2020 Renewable Volume Standards on July 5, 2019.1 Those standards are required under law to be finalized by November 30, 2019. Under the July 2019 proposed rulemaking, the EPA would require 20.04 billion gallons of total renewable fuel and 5.04 billion gallons of advanced biofuel, which implies that 15 billion gallons of conventional biofuel will be blended into the nation’s fuel supply in 2020. Corn-based ethanol as a conventional biofuel is a primary driver for corn production volumes.
However, the EPA’s granting of small refiner waivers in recent compliance years — most recently highlighted by its August 2019 granting of 31 “small refinery” waivers from compliance with RFS biofuel mandates for the 2018 compliance year — results in reductions in the total amount of renewable fuels (i.e., conventional biofuels) that must be blended into transportation fuel in a given compliance year. The volume of biofuel demand exempted as a result of the 31 waivers in August 2019 has been estimated by biofuel groups as upwards of 1.43 billion gallons. This annual loss of biofuel demand, punctuated by the recent granting of 31 waivers, has only served to increase the rhetoric of enraged major corn-growing state legislators that a core constituency of President Trump in 2016 — farmers — have been forgotten by the Administration. This proposed rulemaking change would offset some or all of the exempted renewable fuel volumes and is viewed as an attempt by the Trump Administration to mollify this important constituency. In response to the October 4th announcement, Secretary Sonny Purdue, Secretary of the U.S. Department of Agriculture, stated that the President “has once again demonstrated that he is a champion for our nation’s farmers and rural America.”
Nonetheless, this announcement also signals a corresponding adverse impact to another constituency viewed as supportive of the Trump Administration — the oil and gas industry; namely the U.S. refining sector. Any increase in total renewable fuel volumes resulting from offsetting the volumes lost by the granting of waivers beginning in 2020 will be at the expense of fuel refiners not qualifying for small refiner waivers who, along with importers of foreign-refined transportation fuels, are required to blend renewable fuels into their transportation fuel products or else acquire credits, known as renewable identification numbers (RINs), that represent the required renewable fuel volumes. The offsets from small refinery waivers that would otherwise serve to reduce this renewable fuel volume obligation will now become the burden of large refiners and importers, who will be obligated to address the increased total renewable fuel volumes proposed by the EPA.
As announced by the EPA, there will be a forthcoming supplemental notice amending the July 5, 2019 proposed rulemaking, pursuant to which the agency will propose and request public comment on increasing the required volume of conventional biofuels to be blended into fuel products beginning in 2020. Critically, the EPA’s announcement does not state how much higher the total renewable fuel volumes will go beyond the current net of 15 billion gallons (i.e., it is unclear that there will be a gallon-for-gallon offset for volumes lost under small refiner waivers or a percentage increase in the baseline volume). The EPA further states that it plans to take final action on such change “later this year.” Additionally, the EPA announced that it would continue to evaluate options for RIN market transparency and reform. This latter point refers to the manner in which refinery applicants are granted small refinery waivers without public oversight or comment, another sore point for major corn-growing states.
It is no surprise that refiners are incensed and concerned with this recent development. The American Petroleum Institute (API) and American Fuel & Petrochemical Manufacturers (AFPM) issued an announcement on October 4th that this decision by the Trump Administration “plays politics with our fuel system by increasing an already onerous biofuel mandate, placing greater strain on the U.S. manufacturers [President Trump] promised to protect and threatening higher costs for consumers.” The API and AFPM view this change as “rushed” and “arbitrary,” where the “misguided reallocation of volumes punishes” refiners subject to and complying with the RFS program. Finally, the API and AFPM state that they will mount a vigorous challenge to the new policy in the weeks to come as a revised rulemaking is proposed.
The next step is up to the EPA to propose a revised rulemaking. However, time is drawing extremely short. With a November 30, 2019 deadline to finalize the 2020 Renewable Volume and 2021 Bio-mass Diesel Volume Standards, the agency has less than sixty days to propose and finalize any rulemaking.
1 The EPA also proposed 2021 Biomass-Based Diesel Volumes of 2.43 billion gallons on July 5, 2019 but the agency does not plan to revise those volumes.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.