Biofuel debate awaits Biden on way to court

It's the oil industry vs. farmers in the debate over ethanol and other biofuels

The EPA, under  Administrator Michael Regan, has been moving to reverse Trump administration actions. (Joshua Roberts/Getty Images)
The EPA, under Administrator Michael Regan, has been moving to reverse Trump administration actions. (Joshua Roberts/Getty Images)
Posted January 27, 2021 at 6:00am

Biofuel backers celebrated a landmark legal victory around this time last year only to be unnerved by the Supreme Court’s announcement earlier this month that it will review the decision.

At issue is a ruling by the 10th U.S. Circuit Court of Appeals that severely restricts which refiners are eligible for exemptions from the federal mandate known as the Renewable Fuel Standard.

Sen. Charles E. Grassley, R-Iowa, expressed shock the justices agreed to hear the case given their typical focus on areas where the lower courts are in conflict.

“It worries me that they are taking it up because the 10th circuit was such a defining moment in the whole fight between the (biofuels) industry and farmers on the one hand and EPA on the other hand,” Grassley, a staunch ethanol supporter, told reporters.

[Biden’s elusive goal: A divided nation united]

Agreeing to hear the appeal could indicate the court sees flaws in that 10th circuit ruling.

When a final decision comes this summer, it will set the table for broader negotiations over the future of federal biofuel policy. And it could influence how President Joe Biden approaches the issue.

An early indicator of the administration’s leanings should come during the confirmation process for Biden’s pick to head the EPA, Michael Regan.

Fighting for gallons

The RFS requires billions of bio-based gallons to be blended annually into the nation’s fuel supply. Ethanol and biodiesel plants view it as a critically important support system and complained bitterly about the Trump administration’s generous granting of small refiner exemptions to the mandate. Ethanol producers say those exemptions destroyed demand for their product.

Renewable Fuels Association President and CEO Geoff Cooper described his industry as the ball in a game of ping pong.

“The last several years have really been incredibly uncertain and unstable in terms of the Renewable Fuel Standard because of these exemptions,” Cooper said. “We’ve all been harmed by the granting of these waivers and it needs to stop.”

Oil and gas interests, meanwhile, argue that ethanol has simply struggled from a combination of overcapacity and the pandemic, which crushed overall transportation fuel demand.

Refiners receiving exemptions say they were included in the law for good reason -- to help alleviate compliance costs that threaten the viability of their operations.

“We are already seeing a number of refineries either shuttering or shifting to renewable biodiesel,” said Frank Maisano, spokesman for the Fueling American Jobs Coalition, a group of unions, small retailers and independent refiners.

The 10th circuit ruling would limit exemptions to those refiners who have continually received them over the years. If the Supreme Court affirms that interpretation, it would restrict eligibility to just a few operations.

“That should be the death knell for the abuse of the small refinery exemption program that we’ve seen over the past several years,” Cooper said. “But that doesn’t mean we should expect the refiners to stop looking for loopholes and other ways of avoiding compliance with the RFS.”

A reversal of the 10th circuit decision, meanwhile, could pave the way for additional exemptions and put an even brighter spotlight on the administration’s role.

On the campaign trail last year, Biden denounced the Trump administration’s liberal exemption-granting ways and described the RFS as a bond with the nation’s farmers.

That encouraged RFS supporters, who have pitched a big biofuels boost as one way the Biden administration can quickly reduce greenhouse gas emissions. Ethanol and ethanol-gasoline blends burn cleaner than pure gasoline, and a 2019 study released by the U.S. Department of Agriculture found that corn-based ethanol’s greenhouse gas emissions profile was 39 percent to 43 percent lower than gasoline.

A national low carbon fuel standard similar to California’s could benefit ethanol, depending on how emissions that result from its production are scored. Ethanol critics highlight the shift in land usage and environmental impacts that result from growing all that corn.

Refiners, meanwhile, point to the fragile economy and the need to protect good union jobs at refineries in key states such as Pennsylvania. They say they’d like to get beyond trench warfare over the RFS and the exemptions, but it’s unclear where the two sides might find common ground.

Inheriting 'a mess'

In his final hours running the EPA under President Donald Trump, Andrew Wheeler issued several additional small refinery exemptions, but the D.C. Circuit Court of Appeals put those on hold. The incoming administration also will be responsible for issuing the required volumes for this year, which are overdue, and for handling proposed rules in areas such as ethanol warning labels on gas pumps.

“Michael Regan is inheriting quite a mess from Administrator Wheeler on the RFS,” Cooper said. “It’s going to take some work to clean that mess up.”

The oil industry would like to see an overhaul of the entire system.

“The RFS is a fundamentally flawed and outdated program that continues to challenge the refining industry, the will of the marketplace and the American consumer's best interests,” Ron Chittim, American Petroleum Institute vice president of downstream policy, said in a statement. “We look forward to working with Congress and the incoming administration to modernize our nation's outdated biofuel policies.”

Maisano noted that when the RFS was established, big advancements were expected in biofuels from feedstocks other than corn, but those have not materialized as envisioned.

One factor that could drive change is that Congress scheduled specific year-by-year volumes for the RFS, but that schedule only runs through 2022.

Maisano predicted the end of the scheduled volumes will require a policy “reset” that will feature intense lobbying from all sides. He characterized the upcoming Supreme Court case as the opening act.

“The small refiner exemption question and the battle back and forth has been very heated, but it’s really like the undercard of the heavyweight championship fight, which is the battle over the reset,” Maisano said.