Week Ending October 12, 2018

Trump Plan on E15 Waiver to Face Legal Challenges, Implementation Concerns

This Article Appears as Published in Foster Report No 3219
Trump Plan on E15 Waiver to Face Legal Challenges, Implementation Concerns

It is rare that the Sierra Club and the American Petroleum Institute are on the same side of an energy issue, but that is the case with the Trump administration’s plan to allow year-round sales of E15 gasoline, an ethanol blend, as part of a bargain on the Renewable Fuel Standard (RFS).

Reaction to President Donald Trump’s announcement of the plan has included speculation that it is: a reward for farmers hurt by administration trade policies with China and reduced corn sales; a gift to Sen. Charles Grassley (R-Iowa), chairman of the Senate Judiciary Committee, for the Senate confirmation of Supreme Court Justice Brett Kavanaugh; a move to aid Republican candidates in the Midwest ahead of the mid-term elections; or a ploy that will be shot down after it has the intended political effect.

Regardless of the motivation, it appears certain that the plan will face legal challenges. Environmental groups and refiners that would be hurt by the move have said the proposal is against the law, and that the Environmental Protection Agency (EPA) in 2011 stated it does not have the legal authority to allow year-round sales of E15.

At an October 9 rally in Iowa and in comments elsewhere about the plan, Trump said he signed a memo directing EPA to allow a waiver for year-round sales of E15 gasoline that is a 15% ethanol blend. E15, which API and other claim can damage vehicle engines, has a summertime sales restriction due to potential air pollution harm during high temperatures.

Like many elements of the RFS, from the Renewable Identification Number (RIN) market to the impact on vehicle engines, there is debate and different views about the pollution impact of E15 and allowing sales during the summer. Ethanol advocates and corn farmers say it is safe for most vehicles and does not harm the environment, while the oil industry says 75% of the vehicles on the road today have engines that are not compatible with E15 and environmental groups assert that year-round sales of E15 will increase ozone pollution.

Another point of contention is that a majority of retail gasoline stations are owned by small independent retailers that would require significant investments in fuel pumps or other infrastructure, while ethanol supporters point to a growing number of stations selling the fuel.

The Trump administration hopes to have the waiver approved and other elements of the plan in place for the summer 2019 driving season, but that is an ambitious schedule, several observers said. EPA would have to issue a proposal, take comments and justify the plan legally, which could take up to a year.

Expanding use of E15 has been a priority for farm interests, the Renewable Fuels Association, and some lawmakers for quite some time, while API and others have sought to sunset the RFS, or ensure that it ends, in 2022.

Trump praised farmers and said the administration is trying to increase sales of E15 to boost sales and use of corn. “It was a promise that I made during the campaign. And as you know, I keep my promises,” he said.

“Today we are unleashing the power of E15 to fuel our country all year long,” Trump said at the rally, asserting that Democrats would not support ethanol and that Midwestern voters need to support Republican candidates in the upcoming elections.

The comments are seen as a move to both bolster Republicans in tough election contests and appease corn farmers battered by tariffs on agricultural products and the trade dispute with China.

Trump also said, “we’re taking care of our refineries and our refiners, and they’ve done a fantastic job,” but the goal is to have more E15 gasoline sales.

During a media briefing on the announcement, an administration official said EPA would be taking actions to stabilize and increase the transparency of the RIN market. Refiners have seen volatile RIN prices affect their business, with at least one bankruptcy attributed to RIN compliance costs as a substantial factor.

When qualifying biofuels are produced under the RFS, each gallon is assigned a RIN credit for the year it was generated and the type of fuel. Until the biofuels are sold as fuel or blended into conventional fuels, the RINs are attached to the fuel, and they can be bought and sold like other commodities, with prices that have fluctuated based on various factors. At the end of each compliance year, fuel suppliers must multiply the biofuel percentage standard set at the beginning of the year by EPA by their total gasoline and diesel sales to calculate their renewable volume obligations, which indicate the total number of each type of RIN that the suppliers must submit to EPA.

Among some of the proposals to address the RFS in Congress are those that put a price cap on RINs or require more public reporting of RIN trading data.

The RIN market enhancement would have the administration take actions to limit RIN price manipulation or fraud by companies that were not producing biofuels or not retiring them as required by law, the administration official said.

The move did not appease refiners or the oil sector. President Trump promised to broker a deal to reform the RFS in a way that works for all stakeholders, but “this isn’t it,” said Chet Thompson, president and CEO of the American Fuel and Petrochemical Manufacturers.

“We are disappointed to see that despite good-faith efforts by refiners to find potential solutions, the administration has unilaterally embraced a one-sided approach that only serves the ethanol community, which has shown little interest in finding common ground,” Thompson said in a statement.

AFPM urged Andrew Wheeler, acting administrator at EPA, to abandon the plan and instead work on RFS reform.

The oil industry “plans to aggressively pursue all available legal remedies against this waiver,” said Mike Sommers, president and CEO of API. Sommers was among those who said EPA has previously stated that it does not have the legal authority to grant the E15 waiver.

API believes the best way to address the RFS is through a legislative fix, including a sunset provision to end the program in 2022.

“Putting a fuel into the marketplace that the vast majority of cars on the road were not designed to use is not in the best interest of consumers,” said Sommers.

The Sierra Club noted that Trump’s announcement closely followed the Senate confirmation of Kavanaugh with Grassley’s help.

The group said the Clean Air Act prevents the sale of ethanol blends above 10% in the summer months due to pollution caused by its use. “Despite claims, corn ethanol is not a safe and environmentally-friendly fuel source — it is hugely detrimental to the environment and public health,” said Andrew Linhardt of Sierra Club’s Clean Transportation For All campaign.

With the announcement, “Donald Trump is once again ignoring Americans’ health and safety,” Linhardt said.

It may be a political calculation to support the plan, but it could be more detrimental for Trump to upset union workers in refineries and the producing states of Texas and Pennsylvania, said Frank Maisano, senior principal at the Policy Resolution Group of Bracewell LLP. Trump’s margin of victory in Pennsylvania was razor-thin, while he carried many farm states that have fewer electoral votes by 20% or more, Maisano said in an interview.

The seat of Sen. Ted Cruz (R-Texas), who is in a re-election battle, is much more important for Republicans than congressional seats in the Midwest, Maisano said.

Trump has been “walking a difficult line here for some time,” on the debate about RFS reform, Maisano said. The topic and a search for a solution to appease all sides has been the subject of many high-level meetings in the White House, but the announced plan appears to be “half-baked,” he said.

Agriculture Secretary Sonny Perdue, the Renewable Fuels Association (RFA), corn growers and lawmakers from heavy farming states were among those applauding the move. “Eliminating the summertime barrier to E15 will save consumers money and reduce emissions, enhance competition, and provide a boost to the farm economy,” RFA said in a statement.

The group said it is looking forward to working with EPA on the rulemaking process, and it thanked Trump for starting the process to increase E15 sales by the summer of 2019. “This is the right signal to the marketplace at just the right time, as both farmers and renewable fuel producers desperately need new market opportunities and sources of demand,” said Geoff Cooper, president and CEO of RFA.

“Allowing an open marketplace with more fuel options for consumers encourages competition, drives down consumer fuel costs and is good for the environment. It also maintains and creates jobs in parts of the country that need them most and decreases America’s dependence on foreign oil,” Grassley said in a statement.

Trump made the announcement after being urged by a bipartisan group of 20 senators to not go forward with the plan and instead engage with Congress on legislative plans to reform the RFS. The senators said the policy would harm consumers, impact refinery jobs, and that EPA previously determined it lacked the legal authority to grant the waiver being sought by Trump. “A one-sided approach to addressing concerns related to the Renewable Fuel Standard that favors only one industry stakeholder is misguided,” they said.

The October 4 letter included a reference to a past EPA statement that ethanol blends above 10% have “significant potential” for increased emissions and risk compliance with air quality standards.

The letter was signed by 20 senators, some of whom are from Pennsylvania, Texas, and oil producing regions, but also consuming states such as Maryland, New Jersey, Maine, Georgia, Mississippi, and Utah.

Besides the oil sector, criticism of Trump’s plan came from the Wall Street Journal, in an October 10 editorial, and the National Council of Chain Restaurants, which opposed it because diverting corn to fuel supplies “unfairly drives up food prices” for chain restaurants, the group noted.

The concession to farmers will not make up for the harm corn growers are feeling from the Trump administration’s trade policies, and a better move would be to end the trade war with China to improve export opportunities for farmers, said David French, executive director of the restaurant group.

The editorial in the Wall Street Journal took a similar stance, asserting that the new policy is “clearly a sop to farmers hit hard by Mr. Trump’s tariff policy. As ever, one bad policy inevitably leads to another.”

Maisano said he is “100% certain” there will be legal challenges if EPA pursues the plan as outlined thus far, since environmental groups and the oil sector are not pleased with it and questioned the legal backing.

The effects of the RFS that Trump is trying to address is the equivalent of treating a symptom instead of a larger medical problem, according to Maisano. “You can put a Band-Aid on a broken leg, but it’s not going to fix it,” he said.

Broad RFS reform through Congress would be a better approach because 2022 is not that far away, he said.

By Tom Tiernan TTiernan@fosterreport.com


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