By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer

 

Reports surfaced recently that President Trump had directed the U.S. Environmental Protection Agency (EPA) to reject a series of applications for biofuel waivers submitted by U.S. oil refiners, and on Monday the EPA confirmed the action. The move is the latest, and likely last, development in a major drama that has pitted traditionally red constituencies against each other, with farm states battling against big oil. For most of this presidency, the Trump administration has sided with the oil lobby and granted relief from biofuels mandates, but with an election year upon us, the president’s allegiances have shifted.

The regulation at the center of this dispute is known as the Renewable Fuel Standard, or RFS. Established by law during the last Bush presidency in 2007, the program was developed during an era of falling U.S. oil production as a strategic initiative to ensure domestic energy security. As esoteric as it may seem, the regulation underpins an ethanol industry that generated more than $46 billion in revenues in 2018 alone. Since ethanol is produced from corn, the RFS directly supports farm economies across the U.S. Midwest, with the bulk of production centered in Iowa and the surrounding states.

The RFS has few fans in the oil industry however, as the program adds compliance costs and overhead. When the regulation was passed, the oil lobby secured a waiver program in the legislation, allowing small refiners to obtain exemptions from biofuels mandates. Under the Obama administration, few waivers were issued. But once Trump came into office, the floodgates opened and over 30 waivers were granted in the first two years of the administration, including to large refiners. Biofuels mandates for other refiners weren’t increased to compensate, and ethanol prices fell steeply. By 2019, the value of the ethanol credit (known as a ‘D6 RIN’) had collapsed to just a quarter of its value from two years earlier, its lowest level since 2013.

The battle was on: Chuck Grassley (R-IA) attacked the EPA, saying the organization had “screwed us.” Lobbyists for farmers and ethanol producers unloaded criticism on administration officials. Lawsuits were filed to challenge the validity of the waivers. Ethanol producers closed facilities and went out of business. Throughout this process, the Trump administration tried to mollify corn growers and made various promises to farmers. The promises, however, turned out to be hollow and the administration failed to deliver. It seemed as if farmers and ethanol producers were on the losing side of the fight.

Then the courts stepped in. In January of this year, the U.S. Tenth Circuit in Denver sided with the ethanol industry and ruled that the Trump EPA exceeded its authority in issuing the waivers. Soon after, the government signaled it would not appeal. The oil industry, incensed, wasn’t ready to accept defeat. They noted that the court’s decision didn’t invalidate the EPA’s ability to issue waivers entirely: The court held that the EPA maintained the authority to grant waivers, but only as extensions to waivers already issued. Oil refiners quickly filed a series of retroactive waiver applications, 68 in all, to provide the necessary chain to pass legal muster.

They didn’t stop there either. The oil groups opened a second flank in the battle by petitioning the U.S. Supreme Court to review the lower court’s decision. They did this despite knowing that the strategy is highly unlikely to succeed, given that the defendant in the suit, the EPA, has not joined their brief or filed an appeal. Beyond these near-term battles, a larger conflict looms: legislated quotas under the RFS expire at the end of 2022. At that point, the program will still technically exist and the EPA will still be required to set quotas, but with no mandates specified in law. Lobbying from both sides will aim to shore up or eliminate the RFS prior to the expiration. Should Congress fail to act, expect more lawsuits.

But for now, farmers have gained the upper hand. The decision by Trump to deny the 68 retroactive biofuels waivers has put a final, permanent end to refiner’s strategy of undermining the RFS through mandate waivers. Their next hope is that the EPA sets low volume requirements for 2021, but with an election looming and support for Trump dipping across the Midwest, the president has bet that backing farmers across states like Ohio, Minnesota, and Wisconsin is good politics. He has turned his back on the oil lobby his administration originally supported, and for now, the RFS lives on.

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