A recent federal court decision may reduce the number of small refinery waivers the Environmental Protection Agency issues in the future. The ethanol industry is celebrating the 10th Circuit Court of Appeals decision, but the impact may not be the full course-correction renewable fuels need to recover from some difficult years.
After the Trump administration granted dozens of small refinery waivers, meaning less ethanol would be needed in the nation’s fuel supply, a coalition of renewable fuels groups sued the EPA saying the exemptions amounted to a violation of the Renewable Fuel Standard, the law that governs how much ethanol must be blended into gasoline.
The court found that for the three specific refineries named in the lawsuit, EPA overstepped its authority in granting the waivers.
“So this should limit EPA’s activity, or abuse, of this part of the Renewable Fuel Standard in the future,” said Brian Jennings, CEO of the American Coalition for Ethanol, one of the groups that brought the suit.
“We have struggled financially as an industry for some time,” Jennings said. “This case isn’t going to turn things around overnight, but it is a bit of good news that we need.”
The most recent waivers announced in 2019 generated a lot of consternation among corn farmers and ethanol producers. Then several farm state senators announced they’d reached a deal with President Donald Trump to re-allocate the waived gallons so overall demand would match what the law requires.
“When EPA grants all of these waivers, or as many as they have, and doesn’t re-allocate those gallons to the other refiners that aren’t exempt, it undermines the statutory volumes in the RFS,” Jennings said. “So if EPA takes this decision from the 10th circuit to heed, it would limit those exemptions going forward and it would ensure that we wouldn’t see as much of an erosion from the statutory volumes.”
While that might be temporarily reassuring for the industry, Iowa State University economist Dave Swenson says the bigger problem it faces comes from within.
“If I'm going to point my finger and say, you know who's to blame? I'm going to say 10 percent of the industry's problems have to do with EPA indifference to, perhaps, EPA regulations as they were originally written,” Swenson said. “And the other 90 percent is probably the industry, in and of itself, over producing.”
Swenson has written about over-production and said it began well ahead of the small refinery waiver expansion that got so much attention in 2019. He says the industry anticipated more export growth, but those markets have yet to reach a level that can absorb the excess production.
Perhaps more evidence that the waivers aren’t a major factor for the renewable fuels sector, he said, is that neither the ethanol nor the corn market has moved in response to the Friday court decision.
“In terms of investors’ attitudes towards this decision and how it's going to affect the industry, we haven't seen a market response at all,” Swenson said.
