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University Analysis: EPA’s Refiner Waivers Could Cost Ethanol Industry $20 Billion in Losses

September 7, 2018


A recent analysis by economists at the University of Missouris Food and Agriculture Policy Research Institute (FAPRI) shows that the U.S. ethanol industry could lose 4.6 billion gallons of domestic demand and nearly $20 billion in sales revenue over the next six years if the Environmental Protection Agency (EPA) continues its current practice of exempting dozens of small refiners from their blending obligations under the Renewable Fuel Standard (RFS). The Renewable Fuels Association (RFA) said the analysis demonstrates the need for EPA to prospectively reallocate small refiner exemptions to larger refiners to ensure statutory RFS volumes are maintained. FAPRI recently published an update to its March 2018 U.S. Baseline Outlook for Agricultural and Biofuel Markets. The update adopts a new assumption that future implementation of the Renewable Fuel Standard follows recent practices, including small refinery waivers. The result of integrating this new assumption into the outlook underscores the impact of the small refiner exemptions on the ethanol industry. Comparing the March 2018 outlook to the updated outlook reveals the following effects of the small refiner waivers through 2023:

  • The de facto RFS requirement for conventional biofuel like corn ethanol falls from the statutory level of 15 billion gallons annually to just 13.7 billion gallons.
  • U.S. ethanol consumption drops by an average of 761 million gallons per year between 2018 and 2023, or a total of 4.6 billion gallons over the six-year period. That is equivalent to 1.64 billion bushels of corn demand, or nearly 300 million bushels per year.
  • The average ethanol inclusion rate in gasoline falls under 10.0% in 2019 and steadily slides to 9.5% by 2023. By comparison, the March 2018 outlook projected the national average blend rate above 10.0% every year, rising steadily to 10.4% by 2023.
  • Consumption of ethanol in flex fuels (like E85) and mid-level blends (like E15) falls 17% between 2018 and 2023.
  • Wholesale ethanol prices plunge by an average of 19 cents per gallon, or 11%, between 2018 and 2023. Ethanol prices are hit especially hard in the longer term, with the updated outlook lowering 2023 ethanol prices by 27 cents per gallon, or 15%, compared to the March 2018 outlook.
  • The combination of reduced U.S. ethanol production and lower ethanol prices reduces the industrys gross ethanol sales revenues by an average of $3.3 billion per year, or $19.7 billion over the 2018-2023 period. Thats 12% below the March 2018 projection.
  • Conventional ethanol RIN prices plummet, averaging just 10 cents between 2018 and 2023. Thats 85% lower than the 64-cent average in the March 2018 outlook.
  An annual summary of the comparison between the March 2018 outlook and the new update is available here. The FAPRI analysis clearly shows that demand destruction from small refiner exemptions is real and has substantial economic consequences, said RFA Chief Economist Scott Richman. If EPA continues to retroactively grant these exemptions, it will cause further harm to the ethanol industry through lower prices, reduced production, and additional demand erosion. The solution to this problem is straightforward: EPA should project exempted volumes when it sets the annual RVOs, which effectively reallocates them to other obligated parties and keeps the RFS whole.