The Environmental Protection Agency on June 26 released its proposed renewable volume obligations for 2019 under the Renewable Fuel Standard (RFS). The proposal also includes a proposed 2020 volume mandate for biomass-based diesel. The proposal would increase advanced biofuels volume requirements for 2019 and biodiesel requirements for 2020 while holding the so-called "ethanol" volume requirement steady.
These increases are positive for NATSO members. However, the proposal also indicates that EPA will continue to liberally waive obligations for small refineries, which in essence means that the actual volume increases are less than the numbers indicate (as the waivers function as mandate cuts). These waivers undercut the purpose of the RFS and inject uncertainty and volatility into markets that can hinder NATSO members' operations.
EPA will now take public comments on the proposed numbers -- indicated on the graph below -- until August 17. NATSO will be filing comments.
This is how the RFS was intended to function: Incentivize increased biofuels blending by enabling fuel retailers who blend more biofuels into their fuel supply to lower retail prices and grow market share.
Although the proposed increases in refiners' biofuels volume obligations is a positive development in this respect, it should be taken with a grain of salt. NATSO's RFS advocacy has focused on encouraging EPA to both increase advanced biofuels obligations as well as refrain from retroactively waiving dozens of small refineries' biofuels obligations under the RFS. When these waivers are issued retroactively, as they have been in recent months, they function as de facto mandate cuts, dramatically lowering RIN prices and in turn, demand for advanced biofuels.
EPA's proposal for 2019 failed to address the waiver issue. On top of this, it directed the public not to offer any comments on how small refinery waivers should be treated as part of this particular rulemaking, saying such comments would be treated as "beyond the scope" of the rule and thus ignored.
The market has justifiably interpreted this statement and other similar indications as signs that EPA will continue to liberally issue small refinery waivers. For this reason, RIN markets for the most part remained steady after the announcement -- with the biofuels volume increases being essentially "neutralized" by the signs pointing to additional waivers and thus "cuts" in the increased numbers EPA was proposing. All else being equal, the increased volumes should push RIN prices higher; the fact that the EPA appears to be continuing its push to keep RIN prices low has functioned as a stubborn ceiling on RIN prices, which in turn lower demand for biofuels.
Until there can be enough political opposition on Capitol Hill to force EPA's hand and limit future issuances of small refinery waivers, they are likely to continue. Opposition from Capitol Hill has been limited generally to lawmakers who represent agriculture interests (such as farmers who grow biofuels feedstock or producers that convert those feedstocks into fuel). This dulls the opposition's impact. It is a symptom of the fact many in the biofuels community have grounded their pro-RFS advocacy more from the perspective of "helping farmers" and "assisting agriculture economies" rather than "helping consumers through lower fuel prices." The latter narrative, which NATSO and the fuels marketing community in general has been pushing, would broaden the RFS's base of support on Capitol Hill.
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