ERIC WOLFF reports for Politico
10/18/2019 03:40 PM EDT

Biofuel producers and farmers are pressing the Trump administration to rewrite its proposed fix to the Renewable Fuel Standard — and threatening legal action if EPA tries to finalize its supplemental blending rule.

Producers are demanding changes to the proposed rule because they insist it betrays promises President Donald Trump and EPA officials made to them before the proposal was released on Tuesday. They say the main reason they backed EPA’s Oct. 4 announcement of a boost to biofuels was because Trump and administration officials assured them the rule would require large refiners to make up for demand that has been lost to EPA’s expansion of waivers that exempt small refiners from blending requirements under the RFS.

The announcement preceded the release of the proposed rule by over a week, and biofuel backers were stunned when they read the official text.

EPA, however, contends no such promises were made.

“People are not happy,” Sen. Joni Ernst (R-Iowa), a leading defender of the RFS, said Thursday. “They feel that once an agreement is reached, they should be standing by that agreement.”

Ernst said she would be meeting with EPA Administrator Andrew Wheeler later on Thursday to make the case for the proposal to be reconsidered.

Biofuel producers believe they have a window to get EPA to make substantial changes to the rule, and are mounting a furious push to pressure White House and agency officials. EPA has yet to publish the rule in the Federal Register. Once that happens, the agency plans to accept public comments until Nov. 29 and to finalize the rule by the end of the year. Producers believe there is plenty of time to change course.

Producers and farmers say Trump pledged he would require large refiners to blend 15 billion gallons of ethanol, even after factoring in the impact of the economic hardship exemptions EPA grants to small refiners. The biofuels industry said administration officials led them to believe that the number of gallons assigned to large refiners would be a three-year rolling average of total exemptions, which would make the system self-correcting: If EPA gave out a lot of exemptions, they would be forced to reassign more gallons in future years.

But EPA’s proposal relies instead on the number of gallons DOE recommends that EPA exempt from the blending requirements, which would work out to a far lower reallocation amount. DOE recommended between 2016 and 2018 an average of 770 million gallons for exemption, while EPA actually exempted an average of 1.3 billion gallons.

That change made producers and farmers feel like they were duped.

In addition, EPA publishes the total number of gallons it waives, but DOE’s recommendations are not typically made public out of concern for the confidential business information of small refiners that apply for exemptions. Biofuel producers say they are unwilling to take EPA officials at their word that the final number will be 15 billion gallons.

“There’s no trust left with EPA whatsoever,” said Geoff Cooper, president and CEO of the Renewable Fuels Association, an ethanol producers trade association. “They are asking us to trust that they are going to follow DOE recommendations on these exemptions when all they’ve done is ignore those recommendations for several years. They’re asking us to make a leap of faith we’re not willing to make.”

Senators grilled USDA Deputy Secretary Stephen Censky over the RFS controversy at an Agriculture Committee hearing Thursday, with Sen. Tina Smith (D-Minn.) calling the rule “a bait and switch.”

Censky promised producers would get their full mandate. “I can assure you directly from conversations with the president, the president is insistent that EPA administer this to make sure that we achieve 15 billion gallons,” Censky said. He added that Agriculture Secretary Sonny Perdue spoke to Wheeler on Friday and confirmed that the agency “very much plans to administer it to make sure that we achieve that 15 billion gallon target.”

Grant Kimberley, executive director of the Iowa Biodiesel Board, a biodiesel trade association in the state, said Trump’s promise that reallocation would be based on actual gallons waived was made during a September meeting with biofuel advocates at the White House. And just last week, at a public event after EPA’s announcement, Trump raised biofuel producers’ hopes when he said EPA would be requiring 16 billion gallons of blending, a volume that exceeds what is allowed under statutory schedules.

“We made decisions based on that September meeting,” Kimberley said.

Small refiner exemptions granted in the last three years have reduced demand for biodiesel by 550 million gallons, Kimberley said, and biodiesel producers and soy farmers have also been particularly hard-hit by Chinese tariffs on soybeans.

On Oct. 3, the day before EPA’s announcement of the rule, the White House, EPA and USDA officials held a briefing call with more than a dozen farm groups and biofuel producers. Administration officials indicated they would not add more than a billion gallons to the 2020 mandate, as a concession to the oil industry. An EPA official promised, however, that the reallocation formula would be based on exempted gallons, according to four biofuel industry participants who were on the call.

Administration officials indicated the extra gallons were taken off the table as a concession to the oil industry. An EPA official promised, however, that the reallocation formula would be based on exempted gallons, according to four biofuel industry participants who were on the call.

Monte Shaw, CEO of Iowa Renewable Fuels Association, an Iowa ethanol producers group not affiliated with the national RFS, said a three-year rolling average of small refiner exemptions “was what we were briefed on the deal — it was specifically asked and specifically reiterated.”

“And that is the only reason you got positive statements from ag and biofuels on Oct. 4,” he added.

Shaw said his group’s board held an emergency meeting the night of the announcement and almost didn’t support the deal. It wound up backing it because of the promise that there would be reallocation of gallons lost to exemptions.

The White House referred POLITICO’s questions about the call to EPA, and the agency rejected producers’ description that a promise was made.

“That is not accurate,” spokesperson Michael Abboud said in a statement. “EPA has consistently stated that it will seek comment on how to and at what levels it projects small refinery relief in the 2020 compliance year. These ranges are informed by the last three compliance years and the statutory discretion provided to EPA by Congress.”

The oil industry has long opposed the concept of reallocation, and trade groups have promised to fight a final rule in court.

“There are no volumes ‘lost’ to [small refiner exemptions] — nothing to reallocate — and government data shows U.S. ethanol consumption nears all-time highs,” said a spokesperson for American Fuel and Petrochemical Manufacturers, a refiners trade group. “Ethanol producers, refiners, consumers and farmers would be much better served if biofuel interests abandon the ‘[small-refiner-exemptions]-demand-destruction’ red herring and focus instead on seeking resolutions to trade policies that have caused their exports to drop.”

Shaw said biofuel producers will “use every method” to get Trump to fulfill his promise. “I don’t care if they have to do another supplemental rule. This isn’t going to be done by [the statutory deadline of ] Nov. 30,” he said. “Take the time to do it right.”

Anthony Adragna contributed to this report.POLITICO

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