RFS death by RIN waiver: a written history
History of the RFS Battle from 2015-Present:
It was 2015, when Eric Branstad, Governor Terry Branstad’s son, was head of America’s Renewable Future, a pro-ethanol group that lobbied candidates running for the nomination for president in Iowa. DJT (Donald J. Trump) wanted to win the Iowa caucuses and knew that Governor Branstad was a strong ethanol supporter. He wowed Eric so much in their meeting on ethanol that the Governor’s son eventually signed on as a Trump supporter to head his campaign in Iowa in the general election. Terry Branstad stood with his son for Trump, with the state going red in November 2016. Trump rewarded Governor Branstad with the Ambassadorship to China.
Let me digress to the campaign for the GOP nomination. Trump didn’t win the Iowa caucuses, Ted Cruz did. Trump made himself out to be a big ethanol supporter, attending the Iowa RFA annual summit, with the Branstad’s as cheerleaders. I heard him profess to support ethanol and the RFS with my own ears (but he refused to take questions). You have seen Trump look into a camera and brazenly tell a lie that was proven to be a lie by testimony of others under oath in the Mueller report. This was just like that. He rolled over Grassley/Ernst winning the political infighting over EPA execution of the RFS.
Carl Icahn is a fellow billionaire and friend of DJT who signed onto the administration as its Chief Deregulation Advisor. Carl owned a major refinery and hated the RFS obligation to blend ethanol or buy Renewable Identification Numbers (RINs.)
RINs are attached to every gallon of ethanol produced and can be bought and sold by ethanol producers and refiners to satisfy the blending obligation under the RFS. If they do not blend their allotted amount of ethanol, refiners can purchase RINs. Carl didn’t like that so advised DJT to appoint one of the most adverse ethanol opponents in the country, Scott Pruitt, to head the EPA. There was a provision in the RFS whereby small refiners could appeal a hardship in complying with the RFS and they could be granted waivers by EPA so they did not have to comply with the RFS. Pruitt granted wavier application requests, previously unfulfilled, going back into the Obama administration, so that initially 2.25 bln gallons of blending obligation to petroleum refiners disappeared. That total is up to about 4 bln gallons now.
Cruz pushed for the RIN waivers, RIN market regulation and RINs being attached to ethanol exports with the stated objective of reducing the price of RINs to refiners that were not waived to a dime/gallon. Ag Secretary Sonny Purdue thought that attaching RINs to ethanol exports was a good idea, giving you a good idea how much help he was defending the RFS. Only attaching RINs to ethanol exports has yet to have been approved. RINs traded at a cost of 50-87 cents gallon in 2017. The RIN waivers resulted in the collapse of RIN values in 2018 falling to recent lows of 8-11 cents gallon in March 2019. That was pretty close to Cruz’s target of a dime.
Carl Icahn reportedly saved $189 mln on his RIN cost obligation for his refinery. He then got the heck out of Dodge leaving his (un)official role with the administration as ethics investigators closed in. Pruitt too had earned his reward from the petroleum industry and left the EPA having done the work intended to undermine the RFS. Grassley/Ernst blamed it all on Pruitt which is incorrect. Then they voted to confirm Andrew Wheeler as head of EPA who is continuing to approve RIN waivers.
Ambassador Branstad actually defended Trump’s choice of Pruitt as EPA head to cover for Trump with ethanol supporters. Iowa Public Radio headlined, “Branstad Downplays Ethanol Views of Trump EPA Head.” That headline will hang around his neck forever. We were sold out. What the RIN waivers did was reduce demand for RINs so that the price of RINs collapsed so that refiners could easily opt to buy a RIN for 11 cents/gallon rather than blend ethanol to satisfy their RFS obligation. That caused the blend rate to fall or not grow as it should have. The ethanol market diverged from unleaded gasoline, plummeting despite higher unleaded gasoline prices, ethanol stocks hit a record high, while ethanol plants idled as margins collapsed, causing USDA to reduce the ethanol crush in subsequent supply/demand reports, increasing the corn carryover causing corn prices to come under pressure.
E-15 approval will not save it. Pruitt simply refused to approve E-15 claiming that the EPA did not have the authority. That was odd as his replacement at EPA, Andrew Wheeler, put the wheels in motion as soon as Trump told him to. The approval deadline is fast approaching June 1st for summer use of E-15. Retailers are not prepared for it this summer. There will be limited benefit. Maybe next year. Cruz was successful in getting what the RFA calls poison pills attached to it, depicted as “reforms”, so that along with E-15 approval there are more rules that will undermine RIN prices. He will keep RINs under a dime yet. If retailers have their obligation to blending ethanol waived or are able to buy cheap RINs, many could care less whether the blend rate was E-10 or E-15. They will not blend it.
What I have outlined is a pretty sad saga. Those that were there to defend the RFS/ethanol industry were obviously ineffective, even incompetent. They looked conflicted by their politics to me. They didn’t want to criticize Trump directly for the RIN waivers because they thought he would return retribution by not approving E-15. For someone who professed to love farmers and the RFS, he has instead done a whole lot toward destroying it. This is the history of how the RFS and ethanol industry is being undermined by DJT in his first term and how ineffectively pathetic the defense of this industry has been.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
Please Enter Your Facebook App ID. Required for FB Comments. Click here for FB Comments Settings page