Ethanol: A Rollercoaster Year in Review
There’s no question 2019 was a trying year for crop farmers. From flooding, late planting, an even later harvest, to trade, 2019 had its fill of stress and frustration. Perhaps the most interesting aspect for corn growers in 2019, was the ups and downs of the American ethanol industry.
At the end of 2018, it seemed as though 2019 was going to be brighter for the American ethanol industry. Japan announced a new biofuel policy to allow the imports of U.S. corn-based ethanol, with the potential to be a 95.5-million-gallon market for U.S. ethanol producers.
Environmental Protection Agency (EPA) Administrator Scott Pruitt had resigned, with many Midwest agricultural groups responding that the era of his “waging war on the ethanol industry has ended.” Additionally, Trump announced a proposal to allow drivers access to year-round E15, a fuel containing 15 percent ethanol.
2019 was a different story.
On March 14th, the Environmental Protection Agency announced the approval of five additional small refinery exemptions (SRE’s) to the 2017 Renewable Fuel Standard (RFS) with agricultural groups announcing this as a total loss of demand to 2.6 billion gallons for the 2016-2017 years, with the the total number of applications filed to 37. The agency then received two more hardship waivers for 2018, now totaling approvals for 39. Since taking office, the Trump administration has granted 85 refineries a pass from buying 4 billion gallons of renewable fuel, with agricultural groups believing this has killed demand for 1.4 billion bushels of U.S. corn.
The RFS, by law, requires oil refiners to blend corn-based ethanol into the fuel supply. However, the EPA can exempt small refineries in cases where compliance presents “an economic hardship” for the refiners, saving them tens or even hundreds of millions of dollars a year.
Then came a big win for corn farmers. On June 11th, President Trump lifted the curb on year-round E15. Under the Reid Vapor Pressure (RVP) regulations, fuel retailers were not allowed to sell E15 from June 1 to September 15. In that same action, the EPA released new rules to improve transparency in small refinery exemptions.
On July 5, the EPA announced the Renewable Volume Obligations (RVO) (the number of gallons biofuel refiners will blend in the nation’s fuel supply). For corn ethanol, the RVO would remain at the 15 billion gallons for 2020, not accounting for lost volumes due to the heavy usage of SRE’s over the past couple of years.
In response to the continued waivers and lost gallons, Plymouth Energy, an ethanol plant in Merrill, Iowa, suspended production on July 24th. Plymouth Energy wouldn’t be the last ethanol plant to close or idle in the Midwest.
Back in 2017, Mexico changed its law to allow the sales of an E10 blend. Mexico’s fuel retailers now want to buy U.S. ethanol. In July, a group of nine Mexican fuel retailers spent four days touring ethanol sales outlets in Iowa to learn how the fuel is marketed in the U.S.’s top ethanol producing state. Stephen Wittig, a consultant for the U.S. Grains Council in Mexico, said that the size of the Mexican ethanol market could possibly equal the amount of ethanol consumed in each of the states of Texas, California, or Florida (approximately 428. 6 million bushels of corn). The Mexican fuel retailers told Successful Farming that they are anxious to get on the ethanol bandwagon and start selling the renewable fuel.
On August 9, the EPA announced it had granted 31 SRE’s for the 2018 compliance year. The oil refiners were let off the hook from a requirement to blend 1.43 billion gallons of ethanol and biodiesel in their fuel. The exemptions are driving 15 ethanol plants to close nationwide, while others are slowing production. The largest ethanol maker, POET, closed an Indiana plant in late August and has reduced production at half of its 28 refineries in seven states, reducing corn processing by 100 million bushels.
In response, Iowa’s Republican Senator Chuck Grassley said the Trump administration’s EPA has “screwed” the U.S. ethanol industry and farmers by granting the 31 waivers. The powerful senator told Iowa Public Television that low biofuel credit prices negated refiners’ complaints that they are suffering financial hardship and deserve waivers from complying with laws to encourage more biofuel use.
Nearly a week later, President Trump promised an ethanol-related ‘giant packaged’ to please farmers stating, “The farmers are going to be so happy when they see what we are doing for ethanol, not even including the E15 year-round, which is already done,” Trump said on Twitter. “It will be a giant package, get ready!”
On September 24th, Siouxland Energy Cooperative in Sioux Center, Iowa announced it was stopping production as well. According to the Iowa Renewable Fuels Association (IRFA), by September 24 total of 18 plants around the country had been idled.
In response to President Trump’s statement on promising farmers and ethanol-related ‘giant package’, on October 4, he announced the plan to use a three-year rolling average of actual waived gallons, beginning with the 2020 biofuel standard, to account for the lost gallons due to the SREs. The plan came after weeks of meetings between White House officials and oil and biofuel industry representatives It did not include the oil refining sector’s top wish: a cap on the price of biofuel blending credits.
However, the EPA announced a detailed version of its plan basing the biofuels volumes required for blending on U.S. Energy Department (DOE) estimates-rather than actual exemptions. “Only 11 days after President Trump’s landmark announcement, the EPA proposal reneges on the corn principal of the deal,” said Iowa Renewable Fuels Executive Director Monte Shaw. “Instead of standing by President Trump’s transparent and accountable deal, EPA is proposing to use heretofore secret DOE recommendations that EPA doesn’t have to follow.”
Following the EPA’s plan announcement, leaders of farm and biofuel groups in Iowa, the No. 1 state for corn and ethanol, said they would try to overturn the EPA’s proposal that does not live up to their expectations, falling short of the promises outlined by President Trump.
On October 23rd, biofuel groups filed a petition challenging the Trump Administration’s process for granting the 31 oil refineries waivers for 2018.
POET made another announcement in mid-November stating it will pause production at its Emmetsburg, Iowa cellulosic ethanol plant (ethanol made from corn cobs and husks) and will instead use the facility for research into more efficient and lower-cost production, due to the EPA’s handling of SREs. Since November of 2018, some 13 ethanol plants have shut down or idled production.
Then, on December 6, the EPA delivered its proposal for 2020 blending requirements to President Trump after working to address the corn industry concerns over the requirements and SREs. According to an EPA official, the plan is similar to the one unveiled in October that sparked heavy criticism from the corn lobby, arguing it does not account enough for the lost gallons due to the SREs.
Recently, U.S. Senator Chuck Grassley said he has been assured by the White House that 2020 biofuel blending requirements will be finalized in accordance with the September agreement. Grassley said that he had been assured about the biofuel mandates in a recent conversation with Office of Management and Budget Acting Director Russel Vought as well as recent conversations on the issue with Trump’s economic adviser, Larry Kudlow.
“I also called OMB acting director Vought on Friday and he assured me that he would work to make sure the rule is finalized according to the agreement that was made on Sept. 12,” Grassley said. In the September agreement, the EPA agreed to adjust the amount of ethanol that some refineries must blend in 2020 upward based on a three-year average of volumes waived under the SRE program.
What will 2020 bring for the ethanol industry and corn farmers?