Even though less than a quarter of U.S. ethanol plants are running at full capacity, biofuels advocates argue producers can meet this year's blending targets as another battle over the Renewable Fuel Standard heats up.
COVID-19 has collapsed both the ethanol and oil industries due to falling fuel demand the last two months; companies in both industries find themselves in tight financial situations and considering slowing or even halting production. Oil companies say they will struggle to blend the required amount of biofuels — set annually under the law that created the Renewable Fuel Standard — into the nation's fuel supply. Last year, EPA set the 2020 total blending target at 20.09 billion gallons, including 15 billion gallons of corn-based ethanol.
According to the Renewable Fuels Association, 49 out of 204 U.S. ethanol plants are running at full capacity as of May 6. Some 82 plants are running at a reduced rate and 73 are fully idled, 58 alone since March 1, and the nation is using about half its processing capacity, which would equate to 8.6 billion gallons of annual production.
From March 16 to May 4, the U.S. retail gasoline price fell by 46 cents per gallon, according to the Energy Information Administration. On April 27, the average retail gasoline price was $1.77 per gallon, the lowest price since February 2016.
As oil companies suffer financially, they are claiming the RFS is part of the problem because of certain ethanol blending requirements they say they cannot afford to meet.
Pennsylvania Governor Tom Wolf sent a letter to EPA Administrator Andrew Wheeler Monday requesting Wheeler exercise the waiver authority to reduce the RFS volume mandates.
“Currently, significant harm to the energy economy is expected to result from depressed demand for transportation fuel,” Wolf wrote. “But the 2020 RFS compliance obligations, in their current form, risk transforming the current severe economic harm to existential harm for some of the refineries in our states.”
In late April, a coalition of 24 organizations sent a letter to the Trump administration to waive the requirements this year, arguing RFS compliance is an additional burden for refiners.
“Inaccurate projections from 2005 and 2007, an inconsistent annual standard-setting and waiver process, and congressional inaction, punctuated by agency infighting, underscores the need for repeal of the program,” the letter read.
Biofuel-state senators led by Sen. Joni Ernst, R-Iowa, sent a letter of their own last week asking the administration to immediately reject the waiver request.
"We are all suffering and to make ethanol suffer even more is certainly not following congressional intent of the RFS," Ernst told Agri-Pulse.
Renewable volume obligations in the RFS are set amounts biofuel producers are supposed to make and refiners are supposed to blend. The numbers are based on the Environmental Protection Agency’s calculated projections of fuel demand for the following year. But when EPA released the 2020 RVOs in December, no one expected COVID-19 to happen and keep drivers off the road.
Renewable fuels advocates argue the volume requirements should be easy for refiners to meet because obligation projections are expressed in percentages and not by total volume.
“If gasoline and diesel consumption go down 10%, then the effective volumes that they have to use, also go down by 10%,” Scott Richman, chief economist at the Renewable Fuels Association, told Agri-Pulse.
Richman argues an abundance of renewable identification numbers, the biofuel mandate compliance credits tied to each gallon of ethanol produced, should help refiners.
“We’ve got a bloated RIN bank of about 3.5 billion RINs that the EPA estimates. If that’s fixed and you have a lower blending obligation, then those RINs go further toward meeting the annual requirement,” Richman said.
Once a gallon of ethanol is blended, the refiner may turn the RIN credit in to EPA, but some hold onto them if they blend more than required. Refiners can also sell the credits on the market to other refiners who cannot meet blending requirements.
For the ethanol industry, Richman said record ethanol stocks should help biofuel producers meet RVO requirements.
“There is plenty of ethanol compared to current usage levels,” he said. Richman also noted ethanol production levels have matched the drop in consumption and now, the slight improvement.
Ethanol production rose 11.4%, or 25.12 million gallons daily, to a four-week high, according to EIA data analyzed by RFA for the week ending May 1. However, the number is 42.3% below the same week in 2019.
These numbers correspond with rising gas consumption. Gas prices rose slightly to $1.79 a gallon on May 4, EIA data showed.
“After a near 50 percent fall in demand from mid-March levels in early April, gasoline demand increased to 6.6 million barrels per day last week,” University of Illinois assistant professor Todd Hubbs wrote in Farmdoc daily’s weekly outlook.
Hobbs said as many areas begin to open, an expectation of higher gasoline demand should be in place, but it will still be below pre-pandemic levels of nearly 9.5 million barrels per day.
Tristan Brown, energy resource economics professor at the State University of New York, called 2020 a “regulatory fluke” for the RFS. He said the ethanol sector needs to get used to the pandemic this year but said everything will change in January.
“The only reason the ethanol sector is being negatively impacted is because of the timing of the rulemaking versus the timing of the pandemic,” Brown told Agri-Pulse.
Brown expects ethanol demand to fully recover because the new forecast will account for the effects of the coronavirus, presumably in the form of lower gasoline demand.
The biodiesel industry, which is not suffering as badly, also argued their industry will meet requirements.
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“We will still meet our obligation under the RFS, it just won’t be 2.43 billion gallons. It’s going to be less because those percentage standards will apply, but it will apply to a smaller pool of diesel fuel,” Kurt Kovarik, vice president of federal affairs at the National Biodiesel Board, told Agri-Pulse.
Kovarik said there could be a loss of 250-300 million gallons of demand for biodiesel because of the lower demand for diesel fuel, which according to NBB’s estimates has dropped 20 to 30%.
“We’re a little bit more fortunate than ethanol is in the fact that our demand is not dropping off as much as gasoline,” he said.
Only two of 10 biodiesel plants that closed in February 2019 because of small refinery exemptions and the lapse of the biodiesel tax credit have come back online.
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