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Biofuel Reallocation Possible 09/17 15:42

   Senators From Oil-Producing States Set to Meet With Trump on RFS Deal

   President Donald Trump may be moving toward reallocating biofuel gallons 
lost to small-refinery exemptions, according to reports.


By Todd Neeley
DTN Staff Reporter
and
By Chris Clayton
DTN Ag Policy Editor

   OMAHA (DTN) -- Recent media reports outlining a possible agreement on the 
Renewable Fuel Standard may sound promising for the biofuels industry and 
agriculture, but Sen. Charles Grassley, R-Iowa, told agriculture journalists on 
Tuesday that he'll hold off celebrating just yet.

   Reuters and Bloomberg recently reported details of a tentative agreement 
between biofuel and agriculture interests and President Donald Trump following 
a meeting at the White House.

   Under the agreement, if true, EPA would account for biofuel gallons waived 
from the RFS through small-refinery exemptions, in addition to other 
concessions.

   However, the agreement could look much different after senators from 
oil-producing states meet at the White House, perhaps sometime this week.

   "Before I would say the president's delivered, and since EPA is writing it, 
putting it on paper, I'm going to wait and see what EPA does," Grassley said.

   "You know what I've said about EPA being a tool of big oil. I would 
speculate that the president's tired of dealing with this. He's more or less 
said so many times. Even back when we were in the White House talking about 
E15, it just seemed like he could never get to the bottom of the ethanol issue, 
or he couldn't satisfy both big oil and the farmers, and he was trying to do 
that. Maybe that's where he has some shortcomings trying to satisfy everybody."

   Grassley said the administration presented a 13-point plan on the biofuels 
issue during a recent White House meeting he attended along with other 
lawmakers.

   "We went in with a simpler plan that, if it comes out on paper the way that 
the White House seemed to agree with us, then I would say we have a win, win 
situation," Grassley said.

   "A win for maybe even small refineries legitimately getting a waiver. It's 
something that ought to make sure that any waived gallons are put back in. So 
when the government says we're going to be allowed to use 15 billion gallons 
mixed with petroleum, it's going to be 15 billion gallons. Instead of like with 
these waivers it would have ended up being 13.6 [billion gallons]. The small 
refineries have a victory. They can get as many refineries waived that they 
want to get waived."

   The agriculture and biofuels industries were enraged when the Trump 
administration approved 31 additional small-refinery exemptions on Aug. 9. At 
the time, many industry representatives began to question Trump's support for 
agriculture and biofuels.

   BIODIESEL SHUT OUT

   Among the industries waiting for RFS resolution and relief is biodiesel. To 
this point the biodiesel industry has been largely shut out of the negotiations 
but is waiting to see what the White House will eventually propose.

   "We're pleased the president has heard the outcry, primarily from the 
Midwest, both from biofuels producers and those in the ag industry, and is 
responding to that," said Kurt Kovarik, vice president of federal affairs for 
the National Biodiesel Board. 

   NBB leaders and farmer leaders on the American Soybean Association met with 
reporters Tuesday in Washington, D.C., to talk about the RFS negotiations.

   The biodiesel board wants to "return integrity to the RFS" blend volumes in 
the law and set by EPA, as well as ensure biodiesel volumes will continue to 
grow. The small-refinery exemptions granted have set the biodiesel industry 
backward.

   "We are uniquely harmed as a result of those small-refinery exemptions, and 
we need a specific remedy that makes our industry whole," Kovarik said. 

   The biodiesel industry grew from less than 100 million gallons produced in 
2005 to a peak of 2.9 billion gallons in 2016, Kovarik said. The industry now 
finds itself spending most of its efforts "fighting an entrenched oil industry" 
rather than focusing on growing more volume and increasing markets, he said.

   "We fight every day to maintain the viability of the industry through the 
policies that are in place now," Kovarik said. "If they were implemented as 
Congress intended, we would be growing volumes and fighting less." 

   TRADE SITUATION

   The trade situation has focused the American Soybean Association directors 
even more on the small-refinery exemptions for biodiesel because there are 
significantly more soybean stocks in the country as a result. ASA leaders also 
are turning more attention to state policies, looking for ways to mimic what 
Minnesota has done by raising its state mandate to 20% biodiesel blends.

   "In Iowa, I think this latest round with the SREs and the volume being very 
negligible, there's getting more traction from our local representatives and 
state senators to look at what Minnesota is doing and add on to our tax policy 
and maybe do a program similar to Minnesota," said Morey Hill, an Iowa farmer 
and director for the American Soybean Association. 

   Biodiesel volume set for 2020 is 2.43 billion gallons. If EPA grants another 
30 SREs without reallocation, the volume of biodiesel mandated under the RFS 
would be lower in 2020 than it is now. Under the waivers granted in August, the 
biodiesel industry lost 250 million gallons of volume.

   Currently, the biodiesel industry domestic capacity is about 2.6 billion 
gallons, and the industry is producing at a shade above 70% of capacity. So 
there is room to increase capacity by nearly 800 million gallons just by 
existing plants increasing production.

   Tim Keaveney, executive vice president for Hero Bx, which owns biodiesel 
plants in Alabama, Iowa, Illinois, New Hampshire and Pennsylvania, said the 
company invested heavily in biodiesel facilities as a direct result of the RFS. 
When volumes are lost, "That puts a serious threat on our investment," Keaveney 
said. 

   Biodiesel industry leaders also pushed back on the argument by petroleum 
refiners that any increase in biodiesel volumes would have to be met by imports.

   "That case simply isn't the truth," Keaveney said. "Investments are going 
forward in the United States and will go forward in the United States as long 
as there is a policy going forward and investors know what that is. We have the 
raw materials in the United States to continue to be a growing marketplace." 

   The petroleum industry and its backers on Capitol Hill have criticized 
USDA's involvement in negotiations, particularly USDA Deputy Secretary Steve 
Censky, who was the long-time CEO of the American Soybean Association before 
being nominated to his current post. Yet, former lobbyists and attorneys for 
the refining industry have found their way into EPA posts to influence the 
direction of the RFS. 

   "USDA has a role in agriculture, right? It's in the name," said Donnell 
Rehagen, CEO of the National Biodiesel Board. "It makes all the sense in the 
world that the president would rely on USDA to come to the conclusion that he 
should on policy decisions that affect agriculture and biodiesel."

   Rehagen later said the biodiesel industry has been trying to have a 
conversation with EPA for several years about small-refinery exemptions and 
implementation of the RFS, but that hasn't happened.

   REPORTED AGREEMENT

   Trump reportedly has tentatively agreed to reallocating biofuel gallons lost 
to small-refinery exemptions to the RFS over a three-year period, starting in 
2020.

   A report by Bloomberg citing anonymous sources said Trump tentatively agreed 
to the action as part of a big package for the agriculture and ethanol 
industries, following a meeting last Thursday with Grassley and fellow Iowa 
Sen. Joni Ernst, as well as Iowa Gov. Kim Reynolds.

   Reuters reported on Monday the plan would require the EPA to calculate a 
three-year rolling average of the total biofuels exempted since 2016 via 
small-refinery exemptions. The agency would then add the average to annual 
renewable volume obligations in the RFS.

   In addition, the agreement also would include increasing 2020 RFS volumes by 
about 1 billion gallons. That would include 500 million for corn-based ethanol 
and 500 million gallons for biodiesel and other advanced biofuels. In 2016, the 
U.S. Court of Appeals for the District of Columbia Circuit ruled the EPA 
illegally cut RFS volumes by 500 million gallons.

   In a letter to Trump last Thursday, a group of eight senators from 
oil-producing states said they remain opposed to reallocation.

   "Any reallocation of volumes from statutory small-refinery exemptions or 
increase in renewable volume obligations for the 2020 compliance year would 
have a costly impact on consumers, the American refining sector, and thousands 
of well-paying, blue-collar jobs in our home states," the senators wrote.

   The letter was signed by Sens. Ted Cruz, James Inhofe, Pat Toomey, James 
Risch, John Barrasso, Michael Enzi, Shelley Moore Capito and John Kennedy.

   Frank Maisano, senior principal at Bracewell LLP in Washington, which 
represents refining interests, told DTN the senators are on tap to meet with 
Trump sometime this week.

   PRESIDENT SURPRISED

   Grassley said that, based on his conversations with the administration, he 
believes Trump was surprised at rural America's reaction to the latest 31 
waivers.

   "So then he asked people close to agriculture and close to ethanol to 
respond to what he thought was a legitimate complaint, that he was hearing one 
thing from soybean people, another thing from corn people, another thing from 
ethanol, and ethanol industry has two or three different points of view, and 
with biodiesel," Grassley said.

   "So you got different people pounding the president. He said, 'I need to 
know what the industry wants. So can you get the industry together?'"

   All sides were brought to the table and within 48 hours came up with 
something that was presented to the president, Grassley said.

   Todd Neeley can be reached at todd.neeley@dtn.com 

   Follow him on Twitter @toddneeleyDTN

   Chris Clayton can be reached at Chris.Clayton@dtn.com 

   Follow him on Twitter @ChrisClaytonDTN


(AG)

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