Ethanol Expansion A 'Partial Victory' For Farmers And The Biofuel Industry

Oct 4, 2019

The Trump administration will add onto future ethanol requirements to make up for its waivers that allowed small oil refineries to mix less of the biofuel with gasoline. But the extra gallons may not ultimately make up for all the industry has lost.

While the details are yet to be finalized, the EPA said Friday it intends to account for lost demand by adding more gallons to the federal mandate starting in 2020. Although the Small Refinery Exemption (SRE) program will continue, many farm-state lawmakers like Iowa Republican Sen. Chuck Grassley, called the agreement a win for agriculture and the ethanol industry.

“What they do on waivers doesn’t make much difference as long as we get what was promised, and that’s what this deal does,” Grassley said on a conference call with reporters.

The waivers had become a flashpoint between the administration and the politically influential agriculture and biofuels industries, but the announcement seemed to smooth over the relationship for now. It earned praise from groups such as the Iowa Biodiesel Board.

“Facing a fragile farm economy and with at least one Iowa biodiesel plant having closed its doors, the president’s commitment is welcome relief, and we urge the EPA to act swiftly and earnestly in carrying out his agenda,” executive director Grant Kimberly said in a statement.

But future waivers are likely to prevent the ethanol industry from regaining its accumulated losses.

The SRE program is meant to ease the financial hardship for small refiners to comply with federal biofuel policies. In some cases, however, waivers were granted to large, profitable oil companies like Chevron and Exxon Mobil.

Farm groups and biofuels advocates have long derided the waivers as a backdoor cut to the ethanol mandate, which drives demand for corn. In recent years, EPA policy has required refiners to blend 15 billion gallons of corn-based ethanol with gasoline, but starting in 2017 the waivers have effectively reduced that number by one billion gallons or more each year.

If the EPA expands the annual mandate based on an average of past years’ losses but continues to grant new exemptions to refiners, the two numbers are likely to cancel each other out.

“The way it’s structured (ethanol producers) will never fully recover all the waived gallons from 2016 to 2018,” University of Illinois agricultural economist Scott Irwin said. “It’s a partial victory in the sense that you’re running in place starting in 2020, but what about the four billion gallons that never get recovered?”

The biofuels industry has blamed waivers for leading several ethanol plants to shut down or idle production, but Irwin said even after that demand is restored overproduction will be a problem hanging over the industry going forward.

The EPA said it will take comments on how to compensate for the waivers before issuing a final plan later this year.