Gov. Pete Ricketts and the Nebraska Ethanol Board have expressed disappointment on the Environmental Protection Agency’s recent announcement of its proposed renewable volume obligations (RVOs) for 2020 under the Renewable Fuel Standard.
“While Nebraska appreciates the EPA’s timely release of renewable volume obligations, this proposal does not reflect the agency’s legal duty to enforce a robust RFS or the president’s commitment to our farmers,” Ricketts said.
Ricketts, past chairman of the Governor’s Biofuels Coalition, is urging the EPA to “reallocate waived gallons and ensure that the agency is giving our farmers and ethanol producers the predictability they need, especially during tough times for agriculture.”
Last month, President Trump visited Council Bluffs, Iowa, where he announced the year-round sale of E15 fuel.
This was big news for Nebraska’s ethanol industry. Nebraska is the nation’s second-leading producer of ethanol with more than 2 billion gallons in production capacity.
The state’s 25 ethanol plants use more than 700 million bushels of corn per year. They also produce more than 6.4 million metric tons of distillers grains, a high-protein feed ingredient used for cattle.
Along with domestic use, Nebraska ethanol and distillers grain are leading export goods to the state’s international trading partners.
According to the Nebraska Ethanol Board, Nebraska’s ethanol plants represent a $5 billion economic impact in the state.
Ricketts has met numerous times with EPA officials, highlighting the need for robust biofuel targets as an integral part of sustaining domestic demand for biofuels, especially in a challenging trade environment and a time of low commodity prices.
Nebraska Ethanol Board Administrator Roger Berry said the Nebraska Ethanol Board is “extremely disappointed in the proposed Renewable Volume Obligation numbers released by the EPA.”
“The fact that EPA did not account for any of the lost gallons due to Small Refiner Exemptions directly undermines demand for the quality fuel produced by our hard-working farmers and the 1,400 Nebraskans employed in the ethanol industry,” Berry said.
Only a marginal increase
According to the National Farmers Union, the EPA’s proposal would set required biofuel use at 20.04 billion gallons next year, a marginal increase from this year’s 19.92 billion gallons.
NFU says the difference is almost entirely attributable to an expansion of cellulosic biofuel, from 420 million gallons to 540 million gallons. The rule maintains the current 15 million gallon target for corn ethanol.
According to NFU, the RFS is intended to drive investments in American-grown biofuels and is an “important mechanism for creating market opportunities for farmers, vitalizing rural economies, establishing energy independence, cutting fuel costs for consumers, and reducing greenhouse gas emissions.”
However, NFU said the ongoing “misappropriation of RFS small refinery exemptions to multinational corporations has eliminated the demand for biofuels by 2.6 billion gallons, thus undermining the efficacy of the program.”
“This is yet another setback in a long string of setbacks for homegrown biofuels and the American family farmers who grow them,” said Roger Johnson, NFU president.
He said that the EPA and the Trump administration have “undermined the intent of RFS and destroyed demand for billions of gallons of ethanol.”
“We were hopeful that the RVOs would finally offset the enormous losses we’ve seen over the past several years due to the rampant abuse of hardship waivers,” Johnson said. “Unfortunately, this announcement indicates that EPA has no intention of righting this particular wrong in a timely manner.”
Not following the law
The National Corn Growers Association also expressed frustration with the EPA proprosal.
“If the EPA continues to grant retroactive waivers, the RVO numbers are meaningless and the EPA is not following the law,” said Lynn Chrisp, a Nebraska farmer and president of the NCGA.
Chrisp said that since early 2018, the EPA has granted 53 RFS exemptions totaling 2.61 billion ethanol-equivalent gallons of renewable fuel. There are currently 38 pending petitions for 2018.
He said that EPA also failed to uphold the D.C. Circuit Court’s 2017 ruling, requiring the agency to account for 500 million gallons it improperly waived in 2016.
“There is no reason for the EPA to not account for those gallons,” Chrisp said. “It appears the EPA continues to favor big oil and not uphold the RFS. This narrative is getting old. It is time for the EPA to follow the law to ensure the waivers do not destroy volume requirements.”
Margins remain weak
News of the EPA’s proposal comes at a time when operating margins for ethanol producers will likely remain weak for the rest of this year under the weight of abundant production, according to a new report from CoBank’s Knowledge Exchange Division.
The report said that declining corn production this year will also squeeze margins and some ethanol plants will be forced to shut down or idle their production due to high corn prices or insufficient supplies.
The CoBank report said that exports remain one area of optimism for ethanol producers, but that optimism is based on China’s plans to convert to E10 blend gasoline nationally by the end of 2020. In the meantime, the report said, domestic U.S. ethanol demand will likely be flat over the next two years.
“For margins to go up, supply will need to go down,” said Will Secor, an economist in grain and farm supply for CoBank. “This will be a painful process for some higher-cost producers as they look to reduce production or exit the industry. Consolidation and a slow grind to higher margins will be themes in the coming years as the industry works through changes to absorb excess production capacity.”
The report said that ethanol plants had expanded capacity after several years of positive margins. However, margins began sliding in the summer of 2018 and plants have struggled to remain profitable since then. With stocks expected to remain above 900 million gallons through the rest of 2019, margins are expected to stay low.
E15 brings hope
One potential growth area, the report said, is E15 now that it can be sold year-round. The report noted that some retailers will need to invest in additional infrastructure to support E15 sales and will have to weigh the costs of new pumps, tanks or other equipment against the potential profits from offering E15.
The report said that increased demand for ethanol due to E15 will be limited in the next three years as retailers make these investments and consumer acceptance builds. In the longer term, the E15 fuel market will be able to provide stronger support to ethanol plant margins.
Secor said that persistent, low margins will drive ethanol plants to diversify their revenue streams.
“The ethanol plant of today could turn into the corn bio-refinery of tomorrow,” he said. “One could expect co-product offerings to expand and investments in these co-product lines to increase. These co-product investments may include equipment to produce high-protein dried distiller grain with solubles, corn oil optimization, and new buyers for carbon dioxide.”