RFS: Impeachment Insanity Meets RINsanity

In a week when Washington was abuzz about impeachment, the Trump Administration decided to wade into the perilous waters of the Renewable Fuel Standard (RFS) on Friday, October 4, and announce an agreement on the RFS to promote biofuels.  The announcement provided an overview of the agreement without sharing many details.  Even though the RFS provides certain flexibilities for the Administration to boost the biofuel requirements, the details of how EPA plans to implement this agreement will be crucial to its ultimate durability.

First, EPA will issue a supplemental notice for its proposed 2020 RFS requirements and 2021 biomass-based diesel standard.  This notice will take public comment on unspecified “actions” that EPA will take to “ensure that more than 15 billion gallons of conventional ethanol” will be blended in America’s fuel supply beginning in 2020 and that the volume obligation for biomass-based diesel is met.  The announcement said that these actions will account for the small refinery exemptions, but EPA will also likely revise its proposed approach to the D.C. Circuit’s remand of the 2016 RFS.

Second, EPA will initiate a rulemaking to streamline labeling and remove other barriers to the sale of E15.  As a logical outgrowth from the President’s earlier decision to allow year-round sales of E15, EPA will likely allow E15 to be called and labeled as E10.  You can expect the oil industry, and perhaps some consumer advocacy groups, to emphatically oppose this action.

Third, EPA said it will continue to evaluate options for RIN market transparency and reform.  Given the state of politics today, none of these options will likely include a Renewable Identification Number (“RIN”) price cap.  Limiting who may own a RIN remains an option, but this concept does not have universal support even within the refining industry.

Finally, USDA will try to use the budget process to support infrastructure projects that will help introduce higher biofuel blends, while the Administration will continue “to work to address ethanol and biodiesel trade issues.”  These promises seem aspirational and not likely to generate any concrete actions this month.

The timing of this announcement may cause cynics to see it as a move to appease certain corn belt senators, who were publicly reproaching the President on Ukraine, while others may view it as a sign that the senators from the oil patch have either lost their leverage with the White House or merely have reached a point of fatigue on the RFS issue.

Like any politician, President Trump plays to his base and always wants to ensure it is happy. He views the farmers of the corn belt to be one of his key supporters, while he does not believe that the oil industry has his back (we can debate whether this is true). Going forward, the oil industry will need to take this reality into account when deciding how hard to press this Administration to go forward with the RFS “reset” and “set” rules, which are both looming in the near future.

And the Trump Administration, which will be concerned about the national economy entering into an election year, should closely monitor whether the oil industry’s prediction of increased gas prices will occur in 2020 or subsequent years, presuming these upcoming actions push the domestic fuels market past the E10 “blendwall” and cause the RIN bank to be drawn down.

*In full disclosure, Mr. Baptist previously worked on RFS issues for the oil and gas industry, and then again for EPA after receiving a waiver from the White House because his “deep understanding of the RFS program and the regulated industry” would “make him an ideal person to assist the Administrator and his senior leadership team to make EPA and its renewable fuel programs more efficient and effective.” His posts will not disclose any confidential or deliberative information.

The WELL

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