Waivers that refiners obtained from EPA eliminated demand for 1.12 billion gallons of ethanol last year, undermining requirements of the Renewable Fuel Standard, says Agriculture Secretary Sonny Perdue.
“Our conclusion is that’s direct demand destruction,” Perdue told the Senate Agriculture Committee on Tuesday, testifying one year to the day that he was confirmed by the Senate.
USDA’s estimate squares with an analysis by the Renewable Fuels Association, which says that the waivers lowered ethanol usage by 1.11 billion gallons last year, and 523 million gallons in 2016.
Appearing to distance himself from EPA Administrator Scott Pruitt, Perdue suggested that issuing the waivers contravened an order from President Trump to make sure ethanol usage doesn't fall below the minimum requirement set by the 2007 energy law. The law allows such waivers in the case that usage requirements create a hardship for small refiners.
“The president last fall directed the administrator to leave that at 15 billion gallons,” Perdue said.
Perdue told the senators that he has “exhorted” Pruitt to grant a waiver from the Reid Vapor Pressure standard that would allow E15 to be sold year-round but Perdue said Trump would likely make the decision himself.
Trump told reporters on April 11 that his administration would probably allow the use of E15, a blend of gasoline and 15 percent ethanol, year-round. But Perdue said he didn’t know when the decision would be made. “I felt like the president was prepared to move. Probably some other voices have spoken in his ear since that time,” Perdue said.
Earlier Tuesday morning, Perdue urged members of the National Association of Farm Broadcasting to question Pruitt about the waivers when he appeared before them.
Perdue did not refer to the company by name, but he noted that a major refiner, Andeavor, received a waiver even though it earned $1.5 billion last year. “That stretches my definition of hardship,” he told the broadcasters.
Under questioning from Sen. Amy Klobuchar, D-Minn., at the Agriculture Committee hearing, Perdue said the increase in market prices for biofuel credits, Renewable Identification Numbers, was due in part to larger refiners’ market practices.
“The refiners who can blend, we think they’re using a non-transparent market to hurt their smaller competitors … by hoarding RINs and driving up RIN prices,” Perdue said. "That’s as much of a factor as the blend wall,” he said, referring to the market limit on how much ethanol can be used in the domestic market.
Meeting with the broadcasters, Pruitt defended his RFS policy and said that the EPA is working on a vapor pressure decision.
“This is not a matter of being dilatory. it’s a matter of being smart and thoughtful about the basis of the decision. … What you don’t want is to make the decision and to have an avalanche of litigation that then creates uncertainty about the deployment of the very thing we’re talking about.”
Pruitt said RIN hoarding “inflates the market to some degree.”
Refining industry lobbyist Scott Segal said the waivers have been issued regularly since the energy law was enacted. The waivers are "designed to provide relief to any small refinery that faced "disproportionate economic hardship' under the RFS program, and there is nothing in the statute or the legislative history or anywhere else to suggest that the exemption was only designed to keep small refineries from closing. "
During the Senate hearing, Perdue also addressed other issues:
Immigration: USDA is working with the departments of Labor, Homeland Security and State on ways to make the H-2A visa program easier for farmers to use. USDA could become the “portal” for the application process, Perdue said. He didn’t provide any other details.
During Perdue’s tours of farm states, labor is the issue that is raised more often than any other except for trade, he said. Regulations rank third, he said. “Right now it (H-2A) just doesn’t work for farmers,” Perdue said.
Trade: Perdue stressed that Trump understands the importance of trade to farm income. “I do believe the president understands the contribution of the ag economy, and I think he understands the legitimate anxiety out there about that,” Perdue said.
Trump urged Perdue to tell farmers “that I’m not going to let them be casualties in a trade dispute,” Perdue said.
Perdue assured Sen. John Thune, R-S.D., that he would be cautious about using his authority under Sections 32 and 5 to compensate farmers harmed by the trade disputes with China. "We don’t want to set a precedent with an expectation we can’t live up to," he said.
Perdue expressed pessimism that the dairy dispute with Canada would be resolved during negotiations over the North American Free Trade Agreement.
USDA staffing: Some Democrats on the committee said that USDA field offices were understaffed because of vacancies. Perdue said that farmers have not expressed concern about that but the department is currently evaluating its staffing needs.
“We will hire the number of people that it takes to serve your constituents in a way that I believe they want to be served,” Perdue told Michigan's Debbie Stabenow, the ranking Democrat on the committee. He stopped short of committing to hiring all the employees funded by the fiscal 2018 omnibus bill.
Broadband: Perdue said USDA is moving quickly to implement a $600 million pilot program to fund rural broadband expansion through a mix of loans and grants. Perdue told the committee he wants to spend the $600 million “in a way that pleases you all so you’ll give us more.”
He said he believed that a combination of grants and loans was the best way to fund broadband expansion. USDA assistance has been limited to loans.
Spencer Chase contributed to this story.
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