Midwest Lawmakers Want Help From the EPA on Ethanol

Republicans from corn-producing states complain that too many oil refineries are getting waivers from renewable-fuel standards.

AP Photo/Charlie Riedel
Aug. 1, 2018, 8 p.m.

Midwest Republicans say the Trump administration is favoring the oil industry over agriculture communities—even as the ongoing trade war wreaks havoc on the rural economy.

And those lawmakers are now pleading for a lifeline from the Environmental Protection Agency.

Senate Republicans urged newly-minted EPA Administrator Andrew Wheeler Wednesday to crack down on unprecedented levels of waivers from the renewable-fuel standard, which requires oil refineries to blend billions of gallons of corn-based ethanol a year.

“You’ve taken care of the small refineries. But what about the small farmers?” Republican Sen. Mike Rounds of South Dakota asked Wheeler at a hearing. “What about the folks that are producing on a year-to-year basis and have to get by at a time when we have trade issues in front of us?”

The Trump administration is now pushing a $12 billion bailout package for the agriculture industry to counter retaliatory tariffs from China and other trade partners.

But that bid for stricter RFS implementation faces an uphill climb. The ethanol statute, made law in 2005 and firmed up two years later, is arguably contradictory, and recent court decisions have sided with refineries over EPA denials of the waivers.

Refineries often complain that compliance with the RFS program is costly and logistically challenging. The program requires refineries and oil importers to blend ethanol into gasoline or, if they can’t or choose not to, purchase compliance credits. Meanwhile, those refineries that produce 75,000 barrels of crude a day or less qualify for a waiver, known as a small-refinery exemption.

More than half of all U.S. refineries qualify, but the companies also have to demonstrate severe financial hardship tied to compliance.

Still, the Trump administration has run with the waivers at levels so far unseen. Former EPA Administrator Scott Pruitt, an oil-industry ally who resigned early last month under duress, signed off on 29 waivers for 2017. The agency, which typically considers waivers retroactively, approved 20 for the year before.

That’s a sharp uptick from years past. From 2011 to 2015, the EPA signed off on an average of three per year, according to the Renewable Fuels Association, a leading ethanol-advocacy group.

“It absolutely coincided with a new administration and a new administrator at EPA. So I think that’s more than coincidence, absolutely,” Geoff Cooper, incoming RFA president, told reporters Wednesday following the Wheeler hearing. “[Pruitt] was certainly under heavy pressure from the refiners to do something … so yeah, I think it’s no secret that that’s what was going on there.”

The EPA is proposing to compel the oil industry to blend 15 billion gallons of traditional ethanol in 2019—the same threshold as this year. At the time the law passed more than a decade ago, lawmakers argued it would help wean the U.S. off foreign crude oil.

Pruitt, a former attorney general in oil-producing Oklahoma, drew the ire of Democrats, environmentalists, and watchdogs for a rap sheet of alleged ethical misconduct, marked by a slew of ongoing federal investigations. But Pruitt’s stewardship of the ethanol program led to fierce, regular criticism from corn-state Republicans.

Those lawmakers now appear to be digging in for another battle in the long-running ethanol conflict.

“I don’t want to happen next year what happened last year, that we get promised 15 billion from grain and then it ends up, because of the illegal use of waivers, 13.5 billion—10 percent less than what we should have. It’s really hurt the farmers,” Sen. Chuck Grassley, the de facto leader of the ethanol caucus, told National Journal. “It’s time ethanol gets recognized as a legitimate source of energy.”

Grassley is set to meet Wheeler privately Thursday, alongside his junior colleague from corn-behemoth Iowa, Sen. Joni Ernst.

Ethanol advocates are pushing Wheeler to reallocate waived volumes to companies that still need to comply. They’re also urging a regulatory change that would allow gasoline that contains more than 10 percent ethanol to be sold year-round.

Currently, environmental concerns restrict that sale in the summer, and a debate continues over whether EPA has the authority to unilaterally make the change. Rounds says that adjustment, which is at the heart of a long-running negotiation over a reform package both the oil and ethanol industries support, could make up for the ethanol blending lost to the waivers.

“We think they can do that administratively. And if they can, that takes care of, and it will more than exceed, the 15 billion-gallon RFS that the administration was committed to,” Rounds told National Journal. “If not, then they’re going to have to let the other refiners know that you’re going to have to pick up the slack on this.”

But the Wednesday comments from Wheeler, a former staffer on the Senate environment committee, likely placated few in the ethanol camp.

“Part of the original intent of Congress was also to grant the waivers, and there was not a provision for reallocating that,” Wheeler said in testimony. “As one of the former congressional staffers that helped write that section of the law, I wish we had spent a little bit more time on some of the details of it now that I’m helping to implement it.”

Recent judicial decisions are also strengthening the oil-industry position. The 10th Circuit Court of Appeals rejected an Obama-era denial of a waiver for Sinclair Wyoming Refining Co. in 2017. And just last month, a 4th Circuit Court of Appeals judge rendered a similar judgment.

That could spell trouble for ethanol advocates, according to independent analysts.

“EPA has some direction from the courts that would indicate that they should be offering these things,” Neelesh Nerurkar, an ethanol expert at the energy consultancy Clearview Energy Partners, told National Journal. “It seems like it would be difficult for [Wheeler] to just stop issuing small-refinery exemptions.”

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