Industries coddled by governments never get enough. Case in point: US biofuels, especially ethanol from grain.
After winning approval of year-round sales of gasoline containing 15 vol % ethanol in June, advocacy groups now whine about help for refiners hurt by biofuel mandates. “When operating, the 13 [ethanol] plants that recently shut down bought nearly 300 million bushels of corn and supported more than 2,400 jobs in rural communities from Iowa and Minnesota to Mississippi and Virginia,” said Renewable Fuels Association Pres. and Chief Executive Officer Geoff Cooper after lamenting market distress. “Who will tell those workers and their families that the demands of Big Oil are more important to this administration than the livelihood of rural America?”
Big Oil? Cooper’s complaint addresses the exemption for small refineries—with capacities below 75,000 b/d—from Renewable Fuel Standard requirements to blend biofuels, of which ethanol is volumetrically most important. But “Big Oil” is easier to exploit in political scraps.
Exemptions down
The Environmental Protection Agency on Aug. 9 retroactively granted 31 small-refinery exemptions (SREs) for 2018 and declined 6 applications. It estimated the number of per-gallon credits—called renewable identification numbers (RINs)—exempted from “renewable volume obligations” for gasoline and diesel at 1.43 billion. For 2017, EPA issued 35 SREs covering an estimated 1.82 billion RINs. Cooper camouflaged the declines inconvenient to his case by summing exemptions for 2016 and 2017.
Cooper called the biofuel volume covered by the latest exemptions “additional lost demand.” Yet SREs have not kept production and consumption of fuel ethanol from rising in the US. Demand is instead constrained by blending limits and low and sometimes no growth in consumption of gasoline. With production of about 1 million b/d of ethanol, the US last year exported a net 109,000 b/d of the material. When 10% of production is sold abroad, demand destruction is not indicated.
Cooper’s group and others insist SREs curb consumption of ethanol containing up to 85% ethanol—E85—for flex-fuel vehicles. But that gripe is as dodgy as the one about lost demand. E85 doesn’t sell well because it’s an inferior product. Because of ethanol’s lower energy content relative to that of gasoline, its use forces motorists to refuel more frequently. With good reason, they seem to prefer E10. But coddled industries seem to be no better at reading market signals than they are at taking satisfaction from political favors already in place.
Contrary to another Cooper mischaracterization, this one about “prosperous petroleum refiners,” small refiners have genuine problems. Many can’t afford to invest in ethanol blending and therefore must buy RINs to meet RFS obligations. Doing so squeezes or eliminates profitability when RIN prices are high. And many small refiners serve niche markets with special challenges, including consumer resistance to ethanol blends. Congress recognized these and other problems when it exempted small refiners from the RFS program through 2010 then authorized a 2-year extension. Since 2013, small refiners have had to petition EPA annually for exemptions, for which they must demonstrate “disproportionate economic hardship.”
This requirement breeds further distortion by the ethanol lobby and its political friends. To demonstrate hardship, small refiners must report commercially sensitive information to the EPA, trusting the information will stay confidential. Ethanol interests are clamoring for disclosure.
‘Sham’ process?
“There is absolutely no evidence whatsoever that small refineries are suffering ‘disproportionate economic harm’ due to the RFS, meaning the entire EPA decision-making process is a sham,” Cooper said. “Making matters worse, the process remains cloaked in secrecy and bias, and there is mounting evidence that the administration is continuing to grant full exemptions against the recommendations of the Department of Energy—and even against the advice of some EPA officials.”
Because secrets seldom survive political heat, the hardship evidence small refiners submit to the government might well come to light, aggravating damage from a program that benefits only ethanol makers and corn farmers. Even then, the beneficiaries won’t be satisfied.