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Frustration Brews in the Ethanol Industry

Lawsuits and EPA petitions are in the works.

The ethanol industry has always had to fight for its place in the retail fuels market. But 2018 is shaping up to be one of its toughest years domestically, with growing skepticism about support in Washington.

That’s the view of trade group leaders interviewed in the week after President Donald Trump visited Iowa and repeated his support for year-round sales of E15 (gasoline with 15% ethanol). “I would say the status quo right now is unacceptable for the industry,” says Emily Skor, CEO of Growth Energy. “If he’s supportive of year-round E15, let’s do it. Let’s see it.”

These three big trends affect the industry:

1. Skepticism is growing about the Trump administration’s support for E15.  In order to open markets to E15 by next summer’s driving season, the EPA needs to issue a rule this fall that waives vapor pressure restrictions on blends above E10 in certain markets. It takes months to field comments from affected industries before a final rule kicks in. 

“We do know that EPA staff are doing some homework on the issue and are analyzing various methods for granting parity for E15 and other high-level blends,” says Renewable Fuels Association executive vice president Geoff Cooper. “We really need to see an official proposal from EPA early this fall,” he adds, in order for the rule-making process to finish before next summer.

2. All see continued growth in ethanol exports reaching a new record in 2018. That’s in spite of a trade dispute already blocking sales to China. But two strong markets, Mexico and Canada, are at risk if NAFTA talks go poorly. Mexico is the top buyer of distillers’ grains, a by-product of ethanol, Cooper says. And Canada is the second-largest buyer of U.S. ethanol.

3. Ethanol demand destroyed by former EPA Administrator Scott Pruitt hasn’t been restored yet. Ethanol groups have had to sue the EPA, as well as petition the agency to reallocate lost ethanol volume in the U.S. market when Pruitt allowed some refiners to stop blending.  

Year-round E15 could help a lot. Skor says independent gas retailers have plans to sell more E15 if that’s approved. “You’re looking at a potential 1.3 billion gallons of demand over five years,” she says. “These are real numbers. There’s a lot of opportunity.”

So far, exports have been the industry’s escape valve, even after three rounds of tariff increases closed off the market to China.

Cooper expects up to 1.7 billion gallons in U.S. ethanol exports this year, above last year’s record of 1.37 billion.

“Exports have been a godsend to the industry because we are seeing softer demand domestically due to the small refinery waivers,” he says. It almost offsets a drop in domestic use, from 14.4 billion gallons last year to 14 billion gallons in 2018.

In spite of the war of words between the leaders of the U.S. and Canada, there’s no evidence yet that Canada plans to limit U.S. ethanol exports to the country, say Skor and Brian Jennings, CEO of the American Coalition for Ethanol.

Canada is a vital market for ethanol plants in the northern tier of the Corn Belt, says Jennings.

“Canada is absolutely one of our most important and most reliable customers,” says Jennings. “That means NAFTA renegotiations are critical for us.”

Cooper says that his group has told U.S. negotiators of industry concerns.

“They are well aware of our position that any negotiating on NAFTA must hold harmless ethanol and distillers’ grains,” Cooper says.

The industry is still trying to regain domestic markets lost when Scott Pruitt handed out small refinery waivers from blending ethanol at a rate that far exceeded exemptions granted under previous administrations. The amount is estimated at more than 2 billion gallons over the past two years, and it’s still affecting blending in the U.S. this year.

Two groups, Renewable Fuels Association and ACE, joined the National Corn Growers Association and National Farmers Union to challenge the legality in federal court for three of the exemptions granted under Pruitt. Growth Energy and most of the industry also have petitioned EPA to reallocate the blending volume to the rest of the oil industry not affected by the exemptions.

If that fails, “there may well be more litigation in the future,” Skor says.

Pruitt is gone. Recent comments by his replacement, Acting EPA Administrator Andrew Wheeler, raise concerns for Monte Shaw, executive director of the Iowa Renewable Fuels Association.

Wheeler has expressed doubts about whether or not the EPA has the authority to approve year-round E15 sales. Shaw is concerned that the oil industry still wants more concessions in exchange for moving to E15. One might be allowing export sales to count in trading of domestic ethanol credits, known as renewable identification numbers (RINs). That would take pressure off of oil companies to use ethanol in the U.S., shrinking the domestic market, and other countries would see it as an illegal export subsidy.

“Export RINs is the worst of a lot of bad ideas,” Shaw says.

Shaw said farmers are frustrated with lack of support for ethanol.

“I was just with a bunch of farmers at the U.S. Grains Council meeting in Denver and later talking to farmers here in Iowa, and they’re tired of it,” he says.

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