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EPA issued a rare “Notice of Data Availability” on Tuesday seeking public comments on potential reductions in renewable fuel volume mandates proposed in a draft rule released earlier this year.
Prior to Tuesday’s notice, it was expected that EPA’s proposed Renewable Fuels Standard (RFS) issued in July would result in a higher renewable fuel volume mandates when finalized and very much in line with prior Obama Administration RFS volumes.
The proposed 2018 rule called for a volume mandate of 19.24 billion gallons of renewable fuel, including 4.24 billion gallons of advanced biofuels and a 2019 biodiesel volume mandate of 2.1 billion gallons.
We believe the notice issued Tuesday is a sign that EPA intends to lower the RFS volume mandates when the final RFS is issued around November 30, 2017. In the meantime, EPA will collect and evaluate public comments on its notice before making a final decision.
If lower volumes are finalized, it would lower RINS prices and provide a boost to independent refiners who are paying hundreds of millions of dollars in compliance costs due to high RINS prices. It would also be a headwind for ethanol producers and blenders who are benefitting from higher profits from rising RINS prices.
Indeed, RINS prices moved significantly lower on the notice itself. A final decision is not expected until late November.
In issuing the notice, EPA expressed concern about higher prices for biodiesel as a result of the expiration of the $1 per gallon biodiesel tax credit last year as well as the recent proposed Commerce Department decision to impose tariffs on imported biodiesel from Argentina and Indonesia.
We expect the Commerce Department to finalize the tariffs late this year. However, we also think the biodiesel tax credit will get reinstated during the upcoming tax reform legislation.
While we are confident in our call that EPA will lower the RFS mandates, it is worth noting that it is still early and not a sure thing. Renewable fuel industry groups and their supporters were understandably upset by the EPA notice and expressed concerns today in a White House meeting. Senator Chuck Grassley (R-Iowa) tweeted his disappointment about EPA’s action, and after speaking by phone to President Trump, tweeted again that Trump had provided reassurances of his support for ethanol.
We expect a continued full court press by biofuel advocates playing the Iowa politics card over the next few weeks to beat back any RFS reductions. Still, the White House believes it has done a major favor for the renewable fuel industry with the import tariffs.
