By Rick Manning
The Environmental Protection Agency this year set the Renewable Fuel Standard quota to 15 billion gallons conventional biofuel be blended into the nation’s fuel supply, including ethanol and biodiesel.
The way it works is refiners and importers that meet up to the quota are awarded Renewable Identification Numbers (RINS) credits from the EPA, and those that do not are forced to purchase RINS credits. The higher the standard, the more RINS there are.
Now, certain smaller refiners are simply not able to meet this obligation, mostly because the refineries are not equipped to handle processing ethanol, and to those, the EPA grants annual waivers. Between 2011 and 2018, 155 such waivers were granted and 92 were denied. And for 2019 and 2020, there are 35 petitions for waivers that are outstanding.
To meet the standard, in 2019, the U.S. only consumed 14.5 billion gallons of ethanol, and the rest of the standard was met by consuming 1.8 billion gallons of biodiesel.
Here’s the problem, particularly with 2020. Because of the Covid pandemic, ground transportation including commuters and truckers, took a tremendous hit, dramatically reducing both fuel production and consumption amid a dramatic drop in demand.
As a result from Jan. 2020 to July 2020, ethanol production is down more than 15 percent compared to the same period in 2019, to 7.8 billion gallons produced. To hit 15 billion gallons for the year, the industry will need to crank out more than 1.4 billion gallons in each of the remaining months.
Similarly, domestic consumption is way down, close to 15 percent, to 7.1 billion gallons compared to the first seven months of 2019. To hit 15 billion gallons for the year consumed, the U.S. would need to burn 1.57 billion gallons a month for the remaining months.
Even with the record Gross Domestic Product recovery in the third quarter, and more than 16 million jobs recovered since labor markets bottomed in April, and a strong fourth quarter expected, that simply is not going to happen because peak fuel usage usually occurs during the summer and in any event will not reach the same level as last year.
In fact, the only way we might meet the EPA-imposed 15 billion gallon production quota for the standard is via exports, assuming there’s enough demand overseas, which, again, because of Covid, is doubtful with exports down 9.7 percent in 2020 for the first eight months.
At its current rate, the industry will be lucky to produce 14 billion gallons for the year, even with exports.
With the economy suffering, why are we subsidizing overseas ethanol consumption by punishing domestic producers through forcing them to purchase RINS credits that are increasing in price this year?
In a year when both production and consumption are taking a major hit, the only rational course would be for the Environmental Protection Agency to grant any waivers necessary that were lawfully requested by refiners, and to lower or waive the Renewable Fuel Standard for 2020 to meet up with very low demand. Of all years, 2020 is one when the industry needs a break.
Rick Manning is the President of Americans for Limited Government.
